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Economic Analysis

Facebook Saved the Computer Industry

Many articles are questioning the value of FB and the fact that many people would suddenly become millionaires and some billionaires. I will try to explain here the real value of this company for the economy, not the value speculators or investors are looking for.

It is estimated that social networking accounts for about 22% of the time spent online. Facebook, Twitter, StockTwits, and other social networking sites have contributed to a substantial increase in the number of computer users worldwide and to prospects for higher growth of the PC industry. People who would never use a computer in their spare time and maybe not even at work were compelled to buy one, or even a smart phone, for social networking purposes. The impact was broad: Revenue from PC and mobile devices sales helped the retail sector, the PC makers, the chip manufactures, university researchers and students, etc. This impact was needed at a point in time when signs of saturation in the PC and smart phone industry were on the horizon, it was like a blood infusion. In my opinion, Facebook was part of the needed solution for the popularization of PC and smart phone that the industry was looking for a long time.

So what is the real value of Facebook when its real impact on the economy over the last 5-7 years is taken into account?  I cannot estimate it but it should be very high given that this company has been the main drive behind a trend that has had a high impact on the computer industry growth and as a result on economic growth.

Some argued that Facebook is selling its users and its founders are becoming millionaires. I sense some envy behind such statements. I have come to the conclusion that this world has a future as long as new millionaires are created constantly. Thus, I prefer to look at the extreme fortunes Facebook founders and employees made with the IPO from another angle; they are getting their cut of the profits from a significant impact of Facebook on the computer industry growth and on the economy. Those that think that FB was priced high because it is not producing anything have tunnel vision. Actually, FB acted as defense for the PC industry, chip makers and associated industries from numerous sectors of the economy. FB is actually part of a vertical integration, if one wants to look at it from that angle. Because a computer industry without a popularized computer will soon come to a dead end. FB offered a way out and got rewarded for that.

Disclosure: no relevant positions.