My wife and I have, hanging on our living room wall, a framed, limited edition serigraph of Thomas McKnight's Narcissus (pictured above). McKnight, in his unique, colorful, and whimsical way, depicts his version of Narcissus in the process of falling in love with himself. As legend has it, of course, Narcissus became so enamored of his own reflection in the water that he went after it and drowned. With Narcissus so close at hand, I have been thinking about Facebook--not just the stock, which we'll get to in a moment, but really the cultural phenomenon--and how it appeals to two aspects of the human psyche, the narcissistic impulse and the voyeuristic impulse. We love to have people pay attention to us, so we tell our Facebook friends the various minutia of our lives, from how we brushed our teeth that morning to the cutest phrase our child has just uttered. And we love to peer in on the lives of others, fascinated to know (if not particularly enthralled by) the details of their comings and goings ("Joe just checked in at Hooters!"). We get to be both performer and spy at the same time. This is the genius of Facebook, that the company has tapped into these two undeniable and immutable parts of human nature. This nexus of narcissism and voyeurism is a marriage made in heaven--or at least made in Menlo Park, California, where Mr. Zuckerberg stood to ring the NASDAQ's opening bell Friday to herald FB's first day of trading.
Another part of human nature is our attempt to understand something new by comparing it to something more familiar, and here the investment commentators and prognosticators have been falling all over themselves and gushing forth analogies. Is Facebook like Amazon? I have made the point here before that Amazon is a technology company only in the sense that FedEx is an airplane company. Both Amazon and FedEx made innovative use of existing technologies to redefine their respective businesses, the former in retail and the latter in delivery services. I don't know about you (although I might, thanks to Mr. Zuckerberg), but I don't go to Amazon's Website unless I am shopping or intent on purchasing something, such as all past seasons of Mad Men. The same could be said of Google, although you are reading this as part of their services. What about more traditional advertising media? My wife and I contribute to CBS's blockbuster ratings with our loyal viewing of Hawaii Five-0, NCIS, and CSI, but with those shows going into summer reruns, my lovely bride and I will more likely be spending our evening hours sipping beers on our Buzz-Free patio. Broadcast television, of course, is not interactive, although my parents used to get me to be quiet and sit still by telling me that the people on television could actually see me (I caught on to that by the time I was six, and it is too late to call Child Services). The problem with comparing Facebook to anything else is that the comparisons at hand, at least when it comes to where our eyeballs are focused, are all purpose-driven. No purpose, no eyeballs. I think that the proper analogy for Facebook is with (are you ready, drum roll).....the telephone!
Think back to the early days of widespread telephone usage, and imagine Grandma picking up the receiver to dial (yes, youngsters, people actually had to dial the numbers on a rotary device) her friend's number, maybe to discuss FDR's latest Fireside Chat. Now, what if, once Grandma had placed the call, she had to listen to an audio advertisement before connecting with her friend? It might be a voice telling her that a new Cadillac would be her smoothest ride, or that Tide detergent would get her clothes the cleanest, or that "Winston tastes good, like a cigarette should." Had the business model developed that way, the trust-busters would have gone after Ma Bell much sooner, as AT&T would have been printing money faster than you could say, "Facebook Timeline." Now we are getting to a more meaningful comparison. The telephone, leavened here with a little imaginary advertising, was the essential interactive technology of the last century. You may say that phone conversations are also purpose-driven (apologies to Rick Warren), but they are so in a different way. We don't have to be in the mood to shop, search, or watch a crime show to engage Facebook. All we have to do is what comes as second (or maybe first) nature, which is to connect with other human beings. Facebook is just the evolution of this connectivity, from smoke signals to letter-writing to phone calls to friending. YouTube is not "broadcasting yourself." Facebook is.
As for the investment side of this, we go back to one of our fundamental rules, namely that a great company does not necessarily make for a great stock. In this case, we are not even sure we have a great company on our hands, but we do have--and this is not hyperbole--the greatest idea in the history of the modern world. Yes, it is that big. Nine hundred million active users disclosing their like and dislikes--an advertiser's orgy. Don Draper, what would you have done with this? As for value, any asset's worth is determined by its ability to generate a profit. Mr. Zuckerberg's company--now our company if we are shareholders--will not only have to prove itself by generating massive revenue, it will also have to bring that revenue to the bottom line. Execution is key, and that is the challenge of all great ideas. We'll look at that notion more in the next post.
As Mr. Zuckerberg was ringing the opening bell Friday, CNBC's Jim Cramer asked whether most people would be proud of him or jealous of him. I am proud of him, and I am proud of what an individual with a powerful idea and investment capital can accomplish in this country. This is a textbook case of wealth creation, the stuff of dreams and jobs and prosperity and economic and cultural progress. Another commentator complained that Facebook would not create jobs the way a company like General Motors once did. Nonsense. Give that man a rotary phone and some vinyl records. And then tell him to shut the hell up.
Life is short. Get busy.
Jim
Disclosure/Disclaimer: My family members and/or I own shares of FB and CBS. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.
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