Stephen Foley: Professor Zuckerberg's figures add up to economic collapse


US Outlook: Mark Zuckerberg has been trying out his likely pitch to investors for the stock market flotation of Facebook, and it has all the hallmarks of a bubble-era pitch.

At corporate HQ this week, unveiling his company's partnership with Skype, the social network founder declared that the number of people using Facebook was no longer a metric they cared about very much. They care so little, he said, that they couldn't be bothered to announce they had passed the milestone 750 million users.

So if not user numbers, what? Surely not profits, or revenues, or number of advertisers? No, of course not those things.

The metric Mr Zuckerberg spends his time watching is "number of things being shared". Whether it is posting a video or sharing a link or liking your local banana milkshake vendor so much you just have to tell all your friends about it, the number of things shared on Facebook has doubled in the past year, he said, and he expects it to double again next year, and again the year after.

He even has a slide presentation showing exponential growth, and a professorial speech about how growth that fast has to be "log normalised" to be shown on a graph.

This prompted the New York start-up investor Chris Dixon, who is better at maths than I (and Mr Zuckerberg, it would seem), to point out that on this day in 2031 you will be sharing 1,048,576 times as many things as you did yesterday, according to Zuckerberg's Law. While that obviously implies the complete economic collapse of the West, as no one will have any time to do any actual work, it does mean Facebook will be a very valuable company.

Mr Zuckerberg has built a huge, fast-growing and sustainably profitable business, and it will command a hefty valuation at its initial public offering, when that finally comes. It is, however, in nobody's interests for its shares to be priced impossibly high, no matter that it might want to keep up with the Zyngas and the LinkedIns, which already have a tech bubble priced in.

Let's retire the log normalisation graph before things get out of hand.

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