Geoff's blog

The Facebook paradox

Geoff Mulgan - 24.02.2012

Over the last few years I've often asked friends why it is that the users of Facebook and Google don't band together to demand a share of the capital value of the companies.

After all, it's in the nature of network-based firms that the users are the source of most of the capital value.  And thanks to the social network they use, they have the means to organise themselves to claim a share of that value.

If even a fraction of Facebook's 800m users threatened to leave en masse if they didn't get a member share, Mr Zuckerberg and his investors would at the very least have to rethink.

This may seem like an unusual idea - but that's only because our categories haven't yet adjusted to the importance of firms whose value is created by their users. 

This makes them very different from traditional infrastructures (like electricity) and rather more like an amplified version of communication infrastructures (like telegraphy or mobiles) whose value depends on the number of other users. The latter were often publicly owned, or quasi-publicly owned in recognition both of the nature of the value they created, and of the tendency all dominant network technologies have of veering towards monopoly. 

The Facebook IPO should prompt a similar debate. What's a reasonable division of rewards between the early investors, the creators and the users? Clearly all have benefited from a type of windfall - users who have a useful new service free of charge, and investors and creators who have become immensely rich. But it's not obvious that the share of financial rewards is either fair or sensible, and it could in time look very anachronistic.    

The enthusiasts of network technologies have always emphasised their role in distributing power. But when it comes to ownership the new firms have done the opposite. Mark Zuckerberg's letter to investors says that Facebook doesn't build services to make money; but makes money to build better services". But that view is not compatible with traditional shareholder capitalism. Nor is shareholder ownership compatible with strategic choices that put the user's interests, as opposed to advertisers interests, first.

There are many other ownership models available, from consumer cooperatives, to hybrids with shares owned by different categories of investor (e.g. with users owning 50%) and the multiple variants of mutuals. Many of these  have shown that they can cope with very large scale.

The web world has been imaginative on very many fronts. But so far, with the partial exception of the open source movement, it's been very unimaginative when it comes to the forms of capitalism, tending to one-size-fits all corporate models. Perhaps now is the time to show a bit of innovation.