[dalbasal]

I agree with one caveat, I don't think it's the amount of money. I think it's valuations, and methods of funding/valuing companies.

Zuck still owns 30% of fb, after (I assume) cashing out some shares. Early execs/investors would probably own 75% or more of the company if you exclude shares sold/cashed out (as opposed to dilution).

This is because that FB never had to raise serious^ money. Put another way, it does not cost money to make a FB. This makes sense, FB is a "regular" website/app and those are cheap to make.

You could say the best site wins, the most competent team. You could say it's a lottery. Either way, one site gets to be the social media site. That's valuable. Money is not required to get there.

Compare this to TSLA, on the other extreme. Musk sold all the shares immediately. Then he borrowed as much as he could. This is because it takes money to build a TSLA. You need factories, parts, a supply chain... expensive.

This means capital is being allocated very inefficienttly. FB could be the same fb (to users) @ a tiny fraction (maybe as low as 1%) of its market value. Twitter too. The money that is going into FB (and into shareholder pockets) does not enable FB to exist, help it do more things or benefit consumers/the economy.

If FB's valuations was much lower than it is, FB could have done the exact same things that it did. If Tesla's valuation was much lower, they would have had less capital to invest and they'd be making fewer cars. A dollar that goes into FB makes FB shareholders richer, with no effect on anything else. A dollar invested into Tesla makes cars.

Classical economics isn't supposed to work like this. The market is supposed to allocate capital where it is needed, at least in broad strokes.

I think that we're dealing with 3 distinct things.

(1)the monopoly-like nature of the digital communications economy is having hugely distortive effects. (2) Centralisation of capital into giant pools means money is flowing into giant "investment vehicles." Big investors = big funds = big companies. (3) we're in the middle of a capital bubble. Returns on doing business (selling stuff to people for money) are not as big as returns on investing (selling stuff to investors for shares and other, non-money money). 1 unit of "capital" is worth more today than yesterday. Ie inflation. This is squeezing out the "real" economic activity.

^scaled to market cap.

[jasode]

>This is because that FB never had to raise serious^ money. Put another way, it does not cost money to make a FB.

Even considering your footnote about market cap, it was actually very expensive to run Facebook.

Facebook started in 2004 and didn't turn a profit until 2009. For more than 5 years, they were burning investors' cash on infrastructure. They quickly burned through the 2005 $12.5 million investment from Accel.

Probably the #1 stress on infrastructure costs was photos. In 2005, Facebook added a feature for people to upload unlimited photos. They soon had more photos than Flickr. As we've seen from other flavor-of-the-month photo bucket websites that crashed & burned by getting overloaded traffic from reddit users, hosting billions of images is not cheap.

[dalbasal]

Did all of that go into running FB? No cash outs for early employees/investors?

In any case, that is still a small portion of their eventual market cap (2%). Also, they had it. It was cheap money. Why not spend it. If they didn't have it, they may have had to create a revenue stream or control costs a little. Running for years before considering revenue or cost control is a luxury.

When you're cashed up, you get spendy.

But, point taken. It's all matter of degrees. It did cost something to make FB. It just wasn't much compared to most companies its size.

[shanghaiaway]

Zuck has a large stake because he got his seed funding from his parents and could negotiate their series A round from a position of strength.

[dalbasal]

Musk started with $100m of his own money and a 1-in-a-billion reputation. He had leverage of that kind too, I would say far more than zuck.

The real leverage was not needing money after that A round.

[kamaal]

Musk didn't start with $100 million. He started his second round of start ups with the money made from the first ones. And he didn't have $100 million for the first round of start ups he founded.

In fact Musk has pretty much suffered through all the regular pain founders suffer through.

I remember watching somewhere on Youtube, during his first start up, they would code on a computer by the night and host the application for their users during the day on the same computer.

[vinceguidry]

The social media industry is still nascent, it takes a lot more time than Facebook and Myspace have had to grow an entire market segment. Eventually we'll see a plurality of options and the ability to move between them with relative ease. But it's already easy to ignore Facebook, I didn't think that would happen for at least another decade.

In fact, the only reason I'm still on it is because it maintains a network of former friends and contacts that no other service has been able to offer. Make no mistake, Facebook is struggling for relevance in an age where the next generation has already moved on to Snapchat and friends.

I don't think any of them are going to emerge dominant, but if Facebook is smart, it'll use it's remaining heft to build a true platform instead of trying to keep going as an aggregator.

[dalbasal]

Relevance can mean different things. Maybe FB is not "relevant" in a specific cultural sense, the avante guard users don't care about it anymore. Maybe that says something about the future. But...

It is the only relevant social network if you want to sell concert tickets, soap or win an election. For hundreds of millions of people FB is the internet, because of "free data" plans in 3rd world countries. It is the only relevant social network in terms of revenue, market cap, M&A and a lot of other things that are unrelated to cultural relevance.

[vinceguidry]

Sure. For now.