Facebook: Fad or Fixture?

I just read a post on Digg about the possibility of a facebook IPO. While some commenters discussed the benefits of remaining independent, and the ”inevitible” uber-valuation the company could hope to achieve, most seemed to come out against the idea of going public. However, more interesting was one comment in particular, by matdevdug, who said:

”People need to stop thinking of these social networking sites like they do more permanent fixtures in the American life and start to think of them as popular television shows. They have a small core audience, the trendsetters, then more people join in, then it reaches a moment of critical mass where everybody is on it and it doesn”t feel cool and hip and young anymore and then people leave for a new social networking site that is more fun and interesting.”

To me this seemed one of the most interesting analogies I”ve ever heard for social networks.

A popular TV show can indeed generate a cult like following. It can whip up into a huge community of devoted viewers numbering in the tens of millions, if not hundreds worldwide, but invariably the popularity starts to wain after time and revenues will trail off. TV companies know the expected life cycle of a show, they can easily factor in the value of foreign syndication and DVD sales, and work out a total lifetime revenue model, regardless of how popular the show may get at its peak.

But in the world of social networks, calculating this total value of the “fan base” is much harder. Investors are tempted into seeing these people as “users” in the same way as they may look at “installed base” for a piece of hardware or an operating system… but are they really committed to the service, or are they transients looking for fun while it lasts? Judging from what we”ve seen so far, one might be inclined to say that the analogy of fans of a TV show is actually quite an accurate one. If that is the case, its not a good sign for the prospects of a Facebook IPO. Would anyone buy into an IPO for Lost or Desperate Housewives? I think not!