If you believe Mark Zuckerberg’s sanctimonious letter to prospective investors, Facebook apparently is all about altruism — not turning profits. According to Zuck, “We don’t build services to make money; we make money to build better services.”
You can read the whole letter from Facebook’s S-1 filing with the Securities and Exchange Commission here. But frankly, I wouldn’t bother. It doesn’t say a whole lot of anything.
What the Zuckerberg letter does do, however, is raise some serious questions. There are a number of very difficult contradictions that arise which should make Facebook users seriously doubt the company’s altruism and should make investors think twice.
Here are five hard questions Mr. Zuckerberg has to answer after his recent letter:
If it’s not about money … why go public at all?
Zuckerberg’s letter begins, “Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.”
So I’ll start with the $5 billion question everyone should wonder: If it’s not about getting filthy rich or turning Facebook into a corporate monstrosity, then why go public at all?
If you truly believe in free and open communication, then why not go the route of Wikipedia or Mozilla Firefox or WordPress or countless other digital creations that are open source and not-for-profit? Or why not stay a private company, turning a small profit but answering only to yourself?
Take Craigslist. It’s a true social company — Craig Newmark barely monetizes the classified and message board giant. It’s all about connecting people and it remains wildly popular. Profitable? Not so much. But social legacy? Mission accomplished.
Zuck writes, “These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.” But maximizing profits for shareholders is inherently the business of a publicly traded stock. That’s why investors demand quarterly reports, and Wall Street sometimes punishes rapidly growing companies for not growing fast enough. Take Ford (NYSE:F), which recently posted year-over-year profit growth of $463 million — then saw Ford stock slammed with an 8% decline immediately afterward.
Facebook is voluntarily entering the greedy world of Wall Street and pretending like money doesn’t matter. That’s an impossible line to walk.
If it’s about making money only to plow it back into the company … don’t you have enough cash already?
Facebook financials show $3.5 billion in cash on hand for the social media giant. It will turn roughly $1 billion in profits this year. It is going to raise $5 billion in an IPO.
So Zuck, I have to ask: How much money must be glued to your Facebook wall to make services tip-top? After all, this isn’t a capital-intensive business like manufacturing. There are no raw materials to buy or costly production machinery to upgrade.
The great things about many tech companies is that they can start from nothing and succeed on a good idea and little else. Take the flagship product of Google (NASDAQ:GOOG), its search algorithm. I suppose there’s “upkeep” in the form of programmers tweaking the code and server space to make AdSense work. But that’s about it.
Why else do you think Google has a staggering $44 billion in cash on its balance sheet? It literally has more money than it knows what to do with, toying with cars that drive themselves and offshore windfarms and still turning an obscene profit.
In short, either Facebook is just another corporation hoarding cash for no reason, or Facebook is daydreaming about its own self-driving vehicle projects.