John C. Abell

As Facebook continues its search for a bottom after only eight trading days as a public company, there’s a much bigger problem than the $40 billion in market cap it has lost. The people behind Facebook’s dubious $100 billion-plus self-valuation were apparently as doubtful as the rest of us. At stake is the fate of Wall Street’s soul. To paraphrase Sir Thomas More’s line in A Man For All Seasons: “It profits a man nothing to give his soul for the whole world…” – but for Facebook?

Facebook’s interests are no more aligned with The Street’s than with its members‘. Wall Street needs to take the offense, see the handwriting on the wall and project itself as the ultimate defender of transparent, market principles, which is the only asset it has.

Facebook’s much-anticipated public launch has gone from bad to worse. It priced itself at the high range of $38 and opened 30 minutes late – some 20 of those with traders completely in the dark. Nasdaq has egg on its face and a possible liability in the tens of millions of dollars. Retail investors who bought into the hype are still losing money. Days after the May 18 launch, the tangled mess of positions that may or may not have been taken were still being unwound.

The Facebook fiasco revives the oldest knock against The Street: The little guy doesn’t have a chance. IPOs only reinforce this impression. Retail investors have little or no access to a roadshow, and roadshow presentations are borderline farcical anyway. (Did you catch any important financials in that Facebook roadshow video?)

But Facebook was worse than most. Three days into its roadshow, on May 9, Facebook added some bad news to its main regulatory filing. About one-third of the way into an amended filing with the SEC, Facebook speaks to the most important pillar of its revenue prospects:

The other day Glenn Britt, the chief executive of Time Warner Cable, got on the wrong side of history. He stuck with the television networks. On Monday he spoke out against Dish Network’s “Auto Hop,” which allows viewers to avoid the lifeblood of the TV ecosystem: ads. As Brian Stelter of the New York Times reported (emphasis added):

Mr. Britt said that if such ad-skipping became more prevalent, the reduction in ad revenue would be made up through higher subscriber fees or a lower total amount of production of television.

It got me to thinking. Maybe scaling back should be a promise instead of a threat. Television doesn’t serve social and cultural needs as it did generations ago, but what we get from it should be much better. And we already know how it can be, from the Web- and cable-savvy people disrupting a medium that disrupted everything.

We are witnessing a fascinating changing-of-the-guard moment in tech. The old Internet, represented this week by once-mighty Yahoo, is fumbling with another leadership crisis it must solve before it can even think about restoring some semblance of relevance. The new Internet, Facebook, is ruled by a young man in a hoodie who is on the verge of creating a massive public company that, as was the nascent Yahoo back in the early ’90s, will be an Internet darling longer on potential than track record, but running hard on an open field.

The common thread might seem to be the “If it’s big, it’s gotta be BIG” illusion that got us all in trouble at the turn of the millennium, when Internet investment hysteria equated today’s eyeballs with tomorrow’s profits. But it’s always about the profits, and the people who promise them. This time that person is Mark Zuckerberg, who as the books on the Facebook IPO closed Tuesday, well in advance of Friday’s first trade, seems to have convinced Wall Street that his seven-year-old company could be worth more than $100 billion — the richest-ever launch in Silicon Valley.

When you value your company at 100 times revenues, investors are banking on the belief that Zuckerberg has perfected the unstable compound that is social abandon and advertiser hunger.

We’ve all had a little time to breathe after the disclosure last week that Yahoo CEO Scott Thompson embellished his resume. Despite saying he received an undergraduate computer science degree, he in fact did not. And while rising through several positions of increasing responsibility for years, he allowed those vetting his suitability to believe otherwise.

So far Yahoo has said Thompson was guilty of an “inadvertent error” and that it was reviewing the matter. Third Point, the activist shareholder who revealed what had apparently been hiding in plain sight and is trying to grab spots on Yahoo’s board, is now demanding that Yahoo fire Thompson.

Is this what’s best for Yahoo? I doubt it. Is Scott Thompson what’s best for Yahoo? I don’t know. It’s too early to say. And that’s the point.