Many years ago, when I was an intern for Sony Electronics’ law department, I remember getting an email from then-CEO Howard Stringer(‘s secretary, most likely). In said email, he tried to spin cutting 16000 jobs in a positive light. Closing plants in the US were necessary evils and action now would lead to less layoffs in the future. Sony tried to get in front of the situation.
The email was troubling, and I wanted nothing more than to run away from the situation. At the same time, experienced lawyers were being given early retirement documents, with the hope that enough would accept the deals. The two lawyers who I worked under in 2008-09 accepted the deals, along with many of their coworkers.
I remember reading those emails and recognizing how shitty the leadership was at the time. Stringer was never upfront about the challenges.It would be impossible to grow under his leadership.
Looking back, I tried to remember what the best Sony release has been since 2008. It’s been about three and a half years since I started that internship, and I cannot remember a product that had positive reviews. Neither can the internet, actually. Sony misfired with the Playstation 3 for the most part and let its Reader flounder and ultimately fail once e-readers were taking off. Amazon wants to say thanks, Stringer. The Sony Reader was once Amazon Kindle’s biggest competitors.
The problem was, Stringer couldn’t lead this company to where it needed to go. He was a soldier and fought for this country in Vietnam, and should get respect for that. He also was great for CBS before coming to Sony. He just wasn’t meant to be a CEO and had no business leading the company. I don’t know why it took so many failures and such stagnation to realize that, but Stringer finally stepped down. The company filled Stringer’s vacancy with Kazuo Hirai and cut 100 more jobs. Sony was once an electronics giant. Stringer led it down an alley and beat it with a baseball bat. And he got paid millions to do it.
What does this have to do with Mr. Zuckerberg and Facebook’s IPO? The same way that it had to do with Google being forced to hire Eric Schmidt to be CEO before its IPO. It’s all about leadership.
Schmidt brought experience and levelheadedness to Google, something investors looked for in a company that was, at the time, new and receiving a pretty high P/E ratio. Google had a ton of potential, but early investor Sequoia Capital recognized that it would not be well-received under the leadership of founders Sergey Brin and Larry Page. No offense to them, but they didn’t bring the clout that Schmidt did.
And talks have always surfaced about whether or not Zuckerberg would receive the same fate. The Facebook founder (or co-founder) has been seen as slightly rash and abrasive, especially in the wake of the movie ‘biography’ The Social Network. The problem is, the man has not changed significantly since spite led him to launch thefacebook.com. Sure, sure he’s engaged now and has an adorable dog. And, yes, his enormous social media network got President Obama to do a Facebook townhall at his headquarters—he even dressed up—but he still is growing as a leader. And a $100 billion valuation does not take that risk into account.
Zuckerberg still wore jeans when meeting with the president, and still does cutesy things like manipulating accounting methods to reach exactly $1 billion in profits (cue Justin Timberlake scene). All these things make for a cute story and lots of nice little press releases, but they don’t exactly show someone whose goal is the bottom line.
A lot of press is going to be given to Facebook’s numbers—the stagnating user growth, the tons of employees who will now be decentivized (as opposed to the extreme incentives shares gave them), the dependency on certain companies for profits (Zynga) and the lack of much proprietary in how Facebook credits work. Revenues have increased, but a large portion of that is dependent on Facebook credits rather than advertisement, and credit deals with Zynga and others are set to expire in 2015. Plus there’s the lack of involvement in China, which is seen as both a potential growth opportunity (and reasoning behind a 1000 P/E) and a sign of a company that’s over-saturated in the markets available to it.
Then there’s the ideological perspective of asking that “everyone who invests in Facebook understands what this mission means to us.” It’s cute, but not exactly what you want to put on your S1 filing for your IPO. It’s obviously a landmark day in Zuckerberg’s life, and it’s probably safe to say that “we don’t build services to make money; we make money to build better services” was meant with the media and average person to read, rather than large investors.
But all that being said, trying to defend Facebook as a bullish play this early in Zuckerberg’s maturation process as a leader is somewhat overzealous. Zuckerberg is the perfect man for Facebook the private company, but every move he makes and everything he says will be more scrutinized in the public forum. He will have his growing pains as a leader and will have to get some time in before he can mimic Steve Jobs—who, let me remind you, caused enough problems to get fired. In a time when, somewhat ironically, nothing is personal due to social media, Zuckerberg will have to manage himself accordingly. That’s not going to be easy.
Zuckerberg has taken Facebook to the next level and is definitely deserving of all of the money he is set to earn (and get taxed on), but it’s hard to see Facebook actually raising in price in these early stages. After the initial hype surrounding the IPO (and the ‘owning Facebook’ bump), expect Facebook to pull a LinkedIn. It’s hard to legitimize a 1000 P/E, even if you do run the world.