Tuesday, October 02, 2007

'The Prize' and Facebook

The Prize, by Daniel Yergin is a great read. Before I explain further, the book is not about software at all. In a paragraph, I'll get to the software business parallels and ruminate about them. The book is about history, oil, economics, geopolitics. I’d highly recommend it for anyone interested in these topics. The author won a Pulitzer Prize, and is highly respected among many economists, including the esteemed longtime Chairman of the Federal Reserve, Alan Greenspan. Agree with Greenspan or not on some issues, Yergin has respectable admirers related to his work.

Here's the point of the blog post. In history, it’s amazing how fast situations can change. You don't have to look too far back as 2000 A.D. to witness that. I believe the internet economy is on much more solid ground now, not drawing any parallels there whatsoever. However, that is an example, clearly, how fast irrational exuberance can take hold and draw a whole economy into that way of thinking, let alone a smaller group of individuals.

Here is a summary of an excerpt in The Prize: Around 1865 when oil speculation was bubbling because of its discovery and the markets swelling around it (primarily lamp oil at that time), one farm in PA sold for $1.3 million because of the opportunity to mine oil. That’s a lot of money back then. That’s a lot of money in 2007. Less than a year later, the same plot of land sold for $2.0 million. …less than fifteen years later, after a recession and some fires, that same plot of land was sold…………………… for under $5. Five dollars.

Things can change quickly. Granted, less quickly if one is diversified. Also granted, the oil market has not stopped since.

But this post is related to the life of you as an individual -- your life, not the life of an industry. The lesson I read into that: if you get the opportunity, like Mark Cuban, take the money and run.

With this blog as evidence, I love writing software. I love the software business, open source, etc -- every facet of this 'life'. It inspires me daily. I do it because I love to do it, and to a degree I can understand an emotional attachment to a piece of software built and grown.

Purely from an economic perspective on the individuals involved, Facebook in my opinion should be at least, in part, sold. With all due respect to the Facebook titans, I sure hope that Mark Zuckerberg and the Facebook officers have someone giving them perspective in what must be very difficult decisions. But why not sell half for $5 billion and write a new piece of software on your own island? There are plenty of ways to change the world. $5 billion in your pocket is a good start, especially when you are in your 20's. There is just as much glory in sharing the successes with a value added partner or partners. In my mind, Facebook is taking a substantial risk by not selling a large minority percentage at the recently reported valuations.


Nicholas J. Tapas, MD said...

"Nine-tenths of wisdom is being wise in time." -Theodore Roosevelt

Anonymous said...

I wonder if by courting such a high valuation on paper, they're now preventing anyone from investing significantly in them.

I also wonder if that wasn't part of MS's plan...

Mark Holton said...

@anon: That's a great point I hadn't thought of. Could be.

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