What is the Value of an Idea?
My wife Nancy and I have been discussing and debating Facebook’s proposed acquisition of What’sApp. Facebook has agreed to acquire What’sApp, an instant messaging service for $16 billion of mostly stock. Facebook and What’sApp remind me of the wildly popular TV show of the late 90’s, “Seinfeld”, often described “as a show about nothing”. If one takes the sale price of What’sApp, and divides it by the number of employees, we get about $320 million per employee. It seems unfair that developing something of little redeeming value should be so richly rewarded.
Nancy contends that Facebook and the like help people communicate, which is a worthwhile service. Keeping in contact with high school classmates, friends, and family is certainly of value. The debate seems to be to what degree.
To me, it seems that the primary benefit of social media is for marketing. Facebook has substantial advertising income, but growth appears to have slowed. A survey of teens by the financial firm Piper Jaffray found that over approximately one year, the percentage of teens preferring Facebook versus other services dropped from 42% to 23%. In trying to get back to a growth mode, Facebook has sought to make acquisitions. According to what I have read, What’sApp is growing quite actively, especially in developing countries where its $1 per year cost is attractive. It supposedly has about 450 million users and has about 50 employees.
Yiren Lu, a computer science graduate student at Columbia, wrote an article for the Sunday, March 16thNew York Times Magazine, where he seemed to better frame the issue than me. He said that what used to be most valued from Silicon Valley was physical products – faster processing chips, improved networking equipment, more robust printers at less cost, and the like. These days, what is most valued from Silicon Valley is ideas. “The sense that it is no longer necessary to have a particularly deep domain knowledge before founding your own start-up is real. There are more platforms, more websites, more pat solutions to serious problems- here’s an app that can fix drug addition! promote fiscal responsibility! advance childhood literacy!”
I would not have a problem rewarding companies that did develop apps that could fix drug addition and the like. But What’sApp, which facilitates sharing concert videos or group chats doesn’t seem to be in that category.
There was a book written by Robert L. Emerson about the fast food industry that seems to apply, entitled, “The endless shakeout”. Social media are ever butting each other, elbowing each other aside to find undiscovered niches that people learn that they can’t do without; at least not for six months or a year.
The Facebook founders received an unseemly amount for their idea at the initial public offering. What’s wrong with them sharing some of the wealth?
I guess I don’t like the idea of not paying your dues. Young people are encouraged to set out for the equivalent of the gold fields of California to strike it rich, rather than doing something that might take longer to develop, and be of greater societal value. I guess this is nothing new.
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