Last week Facebook announced its plans for IPO and it certainly made me stop and think, would I invest my money in a company that has a socialist manifesto epitomized by “the Hacker Way”. Sure lots of people will make a lot of money, particularly Mr Sugar Mountain, but is a company with 85% of its revenue based on ads worth a multiple of 20? Surely the world has grown up in the last decade and we won’t repeat the dot.com excesses?
The smart money right now is on Facebook being a hugely successful business. But I see a number of things in Facebook that worry me. Although it’s a huge network, it’s a very simple, single model business. There’s lots of plans - they could move into search, or games, or transactions. But it’s all speculation about how to spend the IPO money. They are in fact a very small company – some 3000 employees, and, as I said, it’s a hackers paradise. They have the basics of a platform idea where they host apps, but this is mickey mouse compared to Amazon. Similarly their technology is simplistic compared to Google. And their security engineering is plain immature. And that’s where I think they are in general – incredibly immature. They may boast their youth is a strength, but my experience tells me they don’t have a business platform to grow their complexity to expand their business model in multiple directions. The social media space is nothing if not faddish; sentiment could turn on a dime (sixpence) and the hackers wouldn’t know where to turn. Nearly a billion users doesn't represent maturity, it represents business opportunity that Facebook has not yet leveraged.
I don’t want to bash Facebook per se. Rather I want to demonstrate the importance of the maturity model. If I am advising a huge company I ask myself what represents maturity in this business model. A bank may have relatively small workforce, but have tremendous complexity in risk, compliance and so on. Their workforce is highly skilled and largely comprised of information workers who manage significant architectural complexity. Equally Amazon has become a hugely complex business but with a very simple portfolio of external, customer facing services. They have used architecture to expose business services for the end consumer and platform partners and have cleverly leveraged and extended their core business model off an architectural base.
So while Facebook looks around for ways to spend its IPO money, I will be looking to see how they leverage off their current maturity level. You can’t buy maturity, you have to build it yourself. You can buy more mature companies, but then you have to have the maturity to integrate them successfully. I note Facebook has acquired 10 companies to date, but they have all been “talent acquisitions”. In fact Zuckerberg is quoted as saying “"We have not once bought a company for the company. We buy companies to get excellent people..” When I hear the CEO saying “we bought Xxxxx for their SOA platform and expertise, I will maybe consider them a buy. Until then I will just watch.