At the World Economic Forum in Davos, Switzerland, the world's great and good get together to talk — about the world's problems, about the next up-and-coming country, and about the imminent demise of the United States as a global and economic power. There's generally a lot of talking and not a whole lot of listening.
But over the years, I've noticed that there are a couple of people in whose presence the global elite goes mute: Bill Gates, Bono, Angelina Jolie. . . and anyone connected to Facebook. A few years ago, I was at a lunch where 230 mouths fell silent as Mark Zuckerberg, who had shed flip-flops as a concession to the Alpine cold, stood up and said a few words about how cool the gathering was. At last January's event, participants hung upon every public utterance of Facebook COO Sheryl Sandberg as if they were revelations from Mount Sinai. I also attended dinners where people oohed and aahed over the (not-ready-for-American-Idol) musical stylings of Randi Zuckerberg, Mark's sister.
One large initial public offering can't reverse a country's economic fortunes (although the windfall of tax revenues California is slated to receive will help one very large state.) But in an era in which talk of American decline hovers in the thin air of Davos, in the polluted air of China, and in the gray skies that hover over the U.S., the Facebook IPO stands as an only-in-America success story. And it shows that the U.S. economy, even in its allegedly diminished state, still has the ability to create new businesses, new business models, and new economic ecosystems that can quickly gain global scale.
Here's a company that was started eight years ago in a college dorm room with a very small amount of capital. It grew by tapping into an existing infrastructure that had been laid down in the previous decade. It gained immense scale by going viral in the world's largest domestic market. China and India may have larger populations. But with its 300-million comparatively wealthy, connected, and free citizens, the U.S. remains the best place in the world to launch a social networking company. (See also: Google and LinkedIn) The raw material it used was almost entirely people, many of them carbon-neutral, Prius-driving engineers. Regulators poked their heads into Facebook's office, but didn't stand in its way. And once it began to saturate the U.S., Facebook quickly went global, in large part because people around the world felt assured that the company would safeguard its privacy to some degree and not misuse their information. Could you imagine hundreds of millions of people in Asia and sub-Saharan Africa signing up with a social networking company based in Saudi Arabia? Or Russia? Or China?
Time and again throughout its history, the U.S. has shown an ability to create new networks, and new economic ecosystems that create a lot of value during their construction — but that create even more value for those that can plug into it. In the 19th century, the telegraph created a national market for information and led to the establishment of businesses such as the Associated Press and the Chicago Board of Trade. The railroad created a national market for goods, and lead to the creation of businesses such as Montgomery Ward and national consumer product brands. The interstate highway system knitted together a country that had forsaken rails for wheels. The internet performed a similar function in the 1990s.
It's tempting to compare this IPO to many of the 1990s-era offerings that ultimately crashed and burned — Global Crossing, Webvan, etc. But the value of the internet didn't lie in the jobs and stock market valuations created in the 1990s. The value has come from the fact that all sorts of other entrepreneurs, companies, and individuals have used it as a way to improve their businesses, and create new ones in the 2000s and 2010s— including Facebook.
Like the network on which it was built, and the other networks that preceded it, Facebook is a system that encourages other people to do business in new ways. Which means its value goes far beyond the momentary value the stock market places on it on any given day — whether it is $150 billion, or $50 billion, or $20 billion. When analysts focus on the advertising dollars Facebook reaps, they're looking at the wrong metric. Rather, it's more interesting to look at how many companies are building brands inside Facebook without advertising. It's useful to look at the valuation of other companies that have built businesses in the system that Facebook has created, like Zynga. And it's impossible — but still vital — to try to guesstimate the utility that millions of consumers gain from being able to share information, connect, and market themselves and their products for free.
Daniel Gross is economics editor at Yahoo! Finance
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org