Mark Zuckerberg, according to the Bloomberg Billionaires Index, is down from being the third richest person in the world to number six. He is $17.4bn poorer than he was at the beginning of the year. The reason of course is the decline in the Facebook share price, on Friday down to the lowest since April last year, valuing the company at “only” $401bn.
There are particular reasons for the downgrade. There has been a wave of adverse publicity about its behaviour, including a New York Times story about how it responded to evidence of Russia using its platform to try to interfere in the 2016 presidential election. This comes on top of a more general disquiet that has been running since the Cambridge Analytica scandal earlier this year, and the downgrading of the company’s growth prospects revealed at the end of July. The share prices fell by one quarter in 24 hours.
Facebook has had particular problems, but it has nearly a third of the world’s population on its books. That is an astounding achievement by any standard, for no one has to go on Facebook. People choose to do so, and in making their choice are complimenting Mark Zuckerberg for that achievement. So let’s acknowledge that.
Whatever has happened to Facebook, however interesting in itself, is part of a wider story. This is the reassessment of the value of high-tech America. You may remember that Apple became the first company ever to be worth a trillion dollars when it shot though that barrier in August. It isn’t any more. On Friday it was valued at $918bn. The second trillion-dollar company was Amazon. Its value is now down to $779bn.
There has been a similar decline in the other giants: shares in Alphabet, the parent company of Google, reached $1,285 at the end of July; now they trade at $1,069, making it worth $741bn. Even Microsoft, doyen of the entire sector, is down a bit from its peak in October, though it is still worth $831bn.
Indeed the fact that Microsoft has merely declined along with the market in general, whereas the other high-tech giants have fallen further, rather underlines the point that it is seen as a more robust business than its newer and arguably more fashionable competitors.
Has this reassessment run its course or are we still in its early stages? Of course no one can know, but we do have some experience of what happens to dominant (maybe over-dominant) companies. That gives us clues to look for.
First, there is the question of how they respond to social and regulatory pressure. Any company that has a monopoly or near-monopoly of some economic sector will face such pressure, including the possibility of being broken up.
Their ability to contain such pressure depends on a number of things. One general point is that the more they are seen as good citizens the more slack society will cut them.
This does not just mean clever PR, or giving money to good causes, for people have become sensitive to “virtue signalling”. It means paying and treating their staff well. It means not screwing down suppliers, or buying out competitors under the threat that if they don’t sell, they will be put out of business.
More specifically, dominant companies have to learn not just how to accept regulation but also how to help shape it. Regulators, be that politicians, lawyers or public officials, are inevitably inexperienced. After all, there never has been a Facebook before so how can anyone know how to regulate it? In the short run the objectives of the regulator and the regulated appear to be different, so there will be tension. But in the long run they are pretty much the same.
Since Facebook or Google know more about their business than anyone else, that gives them an immediate advantage in any negotiation. But if they abuse that advantage they will encounter more aggressive attacks later on, and they will become net losers.
You can see this in tax. By exploiting (quite legally) global tax loopholes, they risk specific taxes on their output. On a long view they may end up paying more tax as a result.
This leads to a further point. The high-tech giants are used to negotiating in America, but unlike for example the big oil companies, they are not used to dealing with the rest of the world. They struggle in China – indeed China makes it impossible for some of them to operate at all – and in Europe. People in Europe (and indeed in China) want to use their stuff and the local politicians are aware of that. But both sides can and will make mistakes. Both have much to learn.
My guess is that the revaluing of the high-tech enterprises has some way to run, but it will settle down within the next year or so. While people want to keep signing up to Facebook, Zuckerberg’s fortune will be secure. But he may be down quite a few billion more as the company moves from big bang status to more of a steady state in the years ahead.
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