The value of application

I’m middle-aged, and sensible, and a bit dull, so of course I have a monthly contract for my cellphone, with unlimited minutes and texts (not that I ever use many of either, since I don’t have much of a social life to speak of). Anyway, I guess that means that I’m well outside the target demographic for WhatsApp, and not really in a position to even begin to understand why it might be popular among the youth, or what its revenue model might be.

Even if I did comprehend how money can be made by facilitating gossip among teenagers, I’m still not sure that I would be able to get my head around the fact that Facebook just paid $19 billion for the app. How did they come up with that valuation? Why not $12 billion, or $25 billion, or some other random figure? For $19 billion they could have got a proper, profit-generating, corporation like ConEdison, and still had some change left. I know that the deal was mainly financed with Facebook stock, which may or may not hold its value, but reportedly there was about $4 billion in actual real cash involved too. The guy who sold them Instagram must be feeling he left some money on the table.

I probably shouldn’t care what Silicon Valley venture capitalists choose to waste their money on, but it’s impossible to read about these astronomical sums being thrown around and not wonder if some more productive use might have been found for the cash, like, you know, fighting world hunger or something.

No doubt such naive sentiment would earn me a stern lecture from today’s tech entrepreneurs, about how enriching the wealth-creators is the true road to global prosperity, just like Ayn Rand said, but even if I was a hard-headed capitalist rather than a soft-hearted communist the WhatsApp deal might raise a few concerns. If the rate of profit in traditional industries has declined to the point where capital is forced to find a home at the risky edge of new technology, then it doesn’t auger well for the economy as a whole. Of course tech enthusiasts will argue that we’re talking about a new, disruptive paradigm, and that the old rules don’t apply, and that the sky-high valuations of internet stocks are completely justified and not at all based on any sort of irrational exuberance, but that’s what they’ve said about every bubble since the days of tulip mania.

At least us poor folks can look forward to the whole edifice collapsing at some point in the future, though the Googles and Facebooks are probably already preparing plans to lobby the Government for a bailout when the crash comes, because these arch-objectivists do tend to embrace corporate socialism when times turn hard (for them). In the meantime I guess we just have to keep organising, and resisting where we can.

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