Tumblr is for posers. From pictures of cute girls in cutoff shorts and bohemian-themed bedrooms, to pictures of teacups and bookshelves, to pictures of people living life, all being posted or “re-blogged,” by people not actually living life. Freud would say the amount of time humans spend online is a tragedy. Investors, however, call it money.
And a lot of money. This week, Facebook is expected to file for an initial public offering, meaning it will give permission to sell shares of the company on the stock market with the Securities and Exchange Commission. It’s expected to raise $10 billion the first day, valuing the company at $100 billion. Google, in comparison, raised $1.6 billion when it went for sale in 2004 and is currently valued at $188 billion.
Whether those prices turn into actual value is uncertain. The technical dollar value is a multiplication of the number of shares on the market and the price of the shares. The dollar value that shares trade at though, is determined by investor favor; the price rises with investor willingness to pay more.
Investors pay for growth and the stock price rises because of some company attribute that investors deem profitable.
That attribute for Internet companies is the user. The Internet, despite all it has to offer, is little more than a way to get users’ eyes on advertisements. Facebook is among the largest single sources of eyes with a company-reported 800 million users. Tumblr has just over 13 million users.
In the U.S., all non-work related Internet use comes to an astonishing 2.3 billion hours per month. All those users spending hours in front of a screen are simply untapped profit.
Companies have yet to figure out how to capitalize on this audience. On one end, companies can sell access to data through ownership schemes, as Facebook did when a privately owned Russian Internet company paid $200 million early on for 2 percent ownership. More commonly, however, companies make money from advertising, through direct ads of products, to the more controversial linking of products and social networks. In 2011 Facebook brought in just over $4 billion, an indication that its value of $100 billion has yet to be reached.
But that value will be reached, or so investors are hoping. And a lot of money is being invested to make sure it happens. Tumblr, a private company, has almost $1 billion behind it. Twitter, also a private company, has $10 billion.
Reiterated, when Facebook goes public it will have $100 billion. Google, the mac-daddy of them all, has a $188 billion valuation. All of this money goes into creating more money by companies finding ways to attract more eyes and more time online.
And humans seem to like being online. Freud notes that humans tend to find enough satisfaction in fantasies to assuage the necessity to work to make these fantasies a reality.
So long as looking at pictures of full bookshelves and cute girls in cutoff shorts is easier than reading and bonding, then Internet investors are likely to make a killing. A tragedy, indeed.
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