From the quants' point of view (those that labour on Wall Street and The City), LinkedIn is yet another social media problem child. All of the social media companies, private and public, face the production issue. They don't supply any; they're ephemeral toys. They all provide an outlet for the ADHD addled (and some data indicates that fully fledged adults are the major users, not kiddies). They may even be a cause of mental degradation; how many Gen Ω's can do long division? Just as Word (and other GUI word processors; name one?) is known to redirect effort from substantive content to the pixie dust of formating, social media, as a business, is a net sink.
Just as housing is not an investment, from a macro-production point of view, neither are the social media companies producers of valuable (in the sense of being assigned a value) output. Just as Mattel makes Barbie, and sells rather a few, sales of Barbies is a zero-sum game, again, from the macro view. Sell more Barbies, means sell fewer Beany Babies (are they still around?). Some consumer goods, food for example, have intrinsic economic value. Most, alas, do not. Moreover, for those "advanced" economies which eschew production of physical goods (USofA, I'm talking to you), in favour of "services", the problem gets stickier. Is an economy which ceases to produce food in favour of social networks sustainable? From the point of view of the micro-economist, the question isn't even relevant; the value of a social network company is a function of the moolah that can be extracted from users who use the network. The micro-economist is devoid of policy. The macro-economist, on the other hand, is concerned with the long-term prospects of an entire economy; policy is what matters. The micro-economist, particularly those employed by corporations, is also concerned with policy, but only in a near-term sense. His job is to argue for policy which socializes cost while privatizing profit; all wrapped up in "... twenty seven eight-by-ten colour glossy photographs with circles and arrows and a paragraph on the back of each one explaining what each one was to be used as evidence...".
Why, might one think, do the Right Wingnuts continually bray about "debasing the currency" whenever Keynesian efforts are proposed; particularly now in the continuing aftermath of their wonderful Great Recession? Economies which are based on physical production are consumer-facing (by and large), while the service economies (most of the West, these days) are corporate-facing. That is to say: the high wage employment in services (where BA and more is required) provide those services not to the Barbie buyers, but to companies for internal uses. The financial services sector, progenitor of The Great Recession, is but the most egregious example. The value of services is notoriously difficult to quantify, since there's no there, there (as Gertrude Stein observed about Oakland). The valuation of services is super-glued to the value of the currency in which the services are conducted. It should come as little surprise that the financialization of US corporations has been in process for years. GE makes as good a poster child as any.
In 2007 GE Capital's profit made up 55% of the company's total.
But IT generally is in the same boat, so to speak; do I hear "Iceberg ahead"? Little of what IT does is directly sold to human consumers; we have no Barbie. We're chained to corporations.
With the exception, you saw this coming, right? Social media computing. How has this happened? And is the course of events a benign or nefarious precursor to the future? Social computing is the result of the same impulse as garage bands (and garage companies) of the past: a cheap way to fill time. The difference being that becoming a social media "developer" can be done for under $1,000. As the saying goes, water finds its own level, and lazy people take the path of least resistance. Why learn the hard bits of computer science, when you can use brute force, crudely applied, to make a toy which might make you a gazillionaire? Why learn how to extend your skills to be a utility infielder, when you can take a shot at being Tiger Woods (the previous model)?
Like everything else in technology, the cost of starting a startup has decreased dramatically. Now it's so low that it has disappeared into the noise. The main cost of starting a Web-based startup is food and rent. Which means it doesn't cost much more to start a company than to be a total slacker.(Note the date!!!)
-- Paul Graham/2005
There's a lot of talented, smart folks betting on 13 Red. Only a vanishing fraction will win the bet. From a wagering point of view, which figures an expected value as the multiplicative product of ultimate value and probability of gaining that value, it might make sense. It is well known that Powerball and The Big Game (now called Mega Millions) are sold far more heavily as the expected value of a ticket approaches the ticket price. This is actually, from a quant's point of view, an intelligent wager. So long as the moolah one spends on those tickets isn't diverted from necessary expenses. Aye, matey, thar's the rub. It's much the same as flying in commercial aircraft: the probability of falling out of the sky is small, but the results, should the plane plummet, are life-changing.
The more pernicious, and less obvious, side effect of garage band computing is that it diminishes the quality of developers. Face it: if you're interest is in spewing out code, since that's the nature of what you can do with your $1,000 laptop (and have beer pong parties instead of going to some class on linear algebra), rather than building solid data foundations, you'll spew out code. Thus, the Gen Ω crew are throwbacks to their granddaddies, just using a laptop rather than a glass house. But they're both primitives. The Goths of the 21st century.
Which brings us to valuing what the garage band developers do. The very notion that Zuckerberg, or even Jobs, is somehow a modern Edison is poppycock. I just made up that assertion. Let's see if there's a record of anyone making it, shall we ...
Here, all three on one list, with Edison the clear leader. Zuck has no business being on the list, and Jobs isn't close to being half an Edison. For those who don't follow the link, these numbers are the results of a survey of about 1K Gen Ω's.
Well, at least I didn't find any reputable observer asserting the either was more significant than Edison. Or not. The reports don't say how many Gen Ω's voted Jobs or Zuck first! Think about that for a second.
And, here is a really scary one:
... who invented the Internet? He gave about 20 possible candidates but suggested that, depending on the next 100 years, it's possible that people will believe the answer is Mark Zuckerberg.
I reiterate: the P/E of Mattel is 19.72; Facebook is 577.78. QED.
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