Would you invest in Facebook?

I'm not buying a piece of Facebook right now for several good reasons: 1) I'm not a wealthy Goldman Sachs client, so I don't have access to the offering; and 2) even if I did, ethics rules here prohibit me or any Computerworld editor from doing so.

But if I could, would I?

Some industry-watchers are likening the investor stampede to get a piece of Facebook to the tech bubble of the late '90s. And yes, the clamor to jump aboard this social-networking bandwagon does seem more than a bit overheated, if a Wall Street Journal account is correct:

The interest [by would-be purchasers], amounting to several billion dollars in an equity offering likely to be no more than $1.5 billion, is a sign of investor fascination with the closely held social-networking company despite a dearth of available information about its operations and financial condition. Goldman has provided some potential investors with little more than a snapshot of Facebook's online traffic, advertisements and other basic measurements, with no disclosure of the Palo Alto, Calif., company's bottom line, people familiar with the matter said.

But there's a key difference from a dozen years ago. Many of the companies being flooded with venture capital in the late '90s didn't have a business model, let alone actual revenue.

Facebook, on the other hand, is clearly a leader in a space that most experts see growing, at least in the short term. And according to that Journal article, Facebook had an estimated three quarters of a billion dollars in revenue in '09 and might have pulled in $2 billion in 2010.

Two billion dollars. Let's put that in context. The New York Times Co. had $2.4 billion in revenue in 2009, and that includes more than a dozen newspapers and even more Web sites (it owns About.com and several other non-newspaper-related sites). Facebook is just one site.

Facebook has two great advantages: its critical mass and its relatively closed ecosystem. The more information and connections you store in Facebook, the higher the cost of switching providers since you'd need to re-create it all elsewhere. More importantly, because so many other people are active users on Facebook, anyone interested in a Facebook-like experience pretty much has to sign up there -- despite would-be competitors like open-source Diaspora. If Facebook is going to stumble, I don't think it will be from other outfits offering roughly the same experience.

No, I think the greatest risk for Facebook is that people will tire of it. And when something new & shiny comes along -- and you know it will -- they'll shift their limited time and attention to that. Whether that lifecycle will take 15 months or 15 years is difficult to predict; but I do think it's fair to say that technology lifespans in general are shrinking.

So would I invest in Facebook now if I could? Probably, even though this offering will likely be overpriced coming at the height of Facebook's hype bubble. There appears to be real money and growth potential at the foundation of all that attention. But there's also considerable risk that the company is at or near its peak. I'm not sure I'd expect Facebook to be a long-term hold in my portfolio.

Sharon Machlis is online managing editor at Computerworld and a former business editor for a daily newspaper in Framingham, Mass. Her e-mail address is smachlis@computerworld.com. You can follow her on Twitter @sharon000, on Facebook or by subscribing to her RSS feeds:
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