February 2, 2012

Facebook shouldn’t pay its users. Its users should pay to own Facebook.

“Facebook was not originally created to be a company,” founder Mark Zuckerberg wrote in his letter to investors announcing the IPO of his already hugely successful and profitable company. “It was built to accomplish a social mission — to make the world more open and connected.”

Facebook has succeeded wildly, despite internal admonitions that its “journey” is only 1 percent finished. Journalists have latched onto Zuckerberg’s statement that Facebook wants to “rewire” the way the world works. In a world of thousands of self-anointed “social media experts,” only Zuckerberg can claim to have basically invented what the world thinks of as social media. He has etched himself into the timeline of human innovation.

Pity then, that Zuckerberg hasn’t turned his talents or attention toward Facebook’s financial underpinnings. After all, an IPO? How ho-hum can he get? If Mark really wants to accomplish his social mission with Facebook, he should share the company’s ownership with the people who helped him create it. Not just his Harvard contemporaries. Not just the programmers. Not even just the venture capitalists.

I’m talking about us. All of us. The users. Facebook should be a user-owned, user-managed company, run for the benefit of users. For the Facebook, by the Facebook. The company should be a cooperative.

Before I explain further, let me lay out the case in four simple points:

1. Facebook won’t necessarily get rich as a public company. LinkedIn, the grown-up social network, IPO’d last year, but is now down from its initial price after having had a big pop on its first days of trading. Zynga and Groupon, meanwhile, lost ground on their IPO prices as soon as they hit the markets. Tech journalism might work itself into a froth over a company’s earnings potential, but the broader market is still confused as to how to price these companies.

2. Distractions. Every story from now on is going to be less and less about Facebook’s incredible technology and more about how its stock is doing. Facebook’s social mission will be obscured by its profit motive.

3. Who’s being rewarded here? The whole point of an initial public offering is for a company to raise money by selling shares in the open market. An important secondary point is that the IPO provides liquidity to existing shareholders, making it far easier for them to trade and take profits (and losses) on what they own. Big banks underwrite IPOs — they go get the high-rolling, qualified investors and get them to commit millions of dollars to buy into the offering, collecting copious fees for themselves in the process, not to mention getting first crack at shares for their own products and funds. In short, everyone in an IPO process gets their beak wet except for the people who give the company its profits — its users. That might be fine for a car company, an iPhone company, or even a search engine company, but social media exists to connect users to companies and each other in unprecedented and previously impossible ways. Shouldn’t finance be one of them? That leads to…

4. Why not share the company itself? It’s fine to talk about technology’s power to change the world if you’re the one who’s going to profit from it. But this isn’t really a change: In fact it looks like a highly conventional way to run what everyone says is supposed to be a very transformative company. Facebook needed a gestation period, and its incredible growth in that period made it very special. The moment its IPO is over, it becomes one of a herd.

That’s why it should become a nearly one-of-a-kind company for the technology sector: a co-op. Invented in England in the 1840s, the co-op is a company organizational structure where membership is voluntary but members have democratic control and economic participation and in turn are supposed to act with concern for their community — in this case Facebook. Businesses of all kinds — for-profit and otherwise — are run through the co-op model, or variations of it.

  • There is the Park Slope Food Coop, a crunchy place where 16,000 members (disclosure: I am one of them) buy groceries at just enough of a markup over wholesale to cover expenses (about 17 percent, making many items far cheaper than in other stores). They also run and staff the store, with the help of just a few paid employees.
  • There is the San Remo, one of the most luxurious apartment buildings in Manhattan, where prices are in the tens of millions for a single apartment, and as in thousands of other co-op buildings, residents share the cost of maintenance and retain control over key property decisions.
  • Then there is banking and insurance company USAA and mutual fund firm Vanguard, models for highly sophisticated financial services businesses that are run according to co-op principles and are highly successful and respected businesses.

But all of the businesses above use the co-op model’s social nature as secondary to their main business. For Facebook, social is the business.

Facebook wouldn’t be forgoing its fundraising if it abandoned its IPO and became a co-op. When I joined the Park Slope Coop, I had to pay a $25 membership fee and a $100 investment, the latter of which is refundable should I ever leave. In Facebook’s virtual community, its 845 million users could easily pay a small sum — say $5 in the U.S. and some locally adjusted equivalent in other countries — to become an owner. Some of that money would be used to buy out existing stock owners and set up the new management model — it would still have Zuckerberg as CEO with a management team, but with the same one vote that every other member has. Over time, if Facebook’s owners keep the cost of becoming a member as low as possible without in any way starving the site for cash, Facebook could even become the world’s first trillion-dollar company — just in a way no one has ever previously imagined.

Users who invested would earn the right to help govern the company. If it sounds unwieldy to let hundreds of millions of users govern a site, well, it may be at first. But as Zuckerberg himself will attest, his engineers are hard at work helping users connect to each other in ways previously impossible. Facebook already offers voting tools, organization pages, recommendation links, polling, etc. With the help of a management team and committee structure, it would be pretty easy to let members assign themselves to committees and shape Facebook into the community they want it to be. Besides, if there’s one person in the world not allowed to use the excuse that this undertaking would be too technically complex, it’s Mark Zuckerberg.

Zuckerberg may chafe at the idea that hundreds of millions of users are suddenly in control of his company, but think of a sample proposal. Say a user wants Facebook to give 10 percent of its income to charity.

  1. She creates a new page and persuades her friends to follow it. The page holds the pro and con discussions of the proposal.
  2. After hitting a certain threshold of followers, the page makes the Revenue Committee agenda, where a subcommittee is assigned to study its feasibility and write a summary about the proposal’s impact on Facebook, including how it would affect the bottom line.
  3. The committee then votes on the summary — if it’s approved, it goes into a general Facebook meeting, where the entire user base gets to vote. The beauty of this is twofold. First, only the best ideas percolate to the top; propose anything crazy, and it’s simply going to languish. Second, with Facebook’s technology, there need not be a formal meeting time — the proposal exists just like any new Facebook alert. If a user feels strongly about a proposal, he can even buy a targeted demographic ad!

As the site’s leader, the famously controlling Zuckerberg would still retain quite a large chunk of control in that he’d have to implement the strategy and actually make it work, and one would think that if he explained why a given proposal wasn’t a great idea, his words would carry great weight.

But ultimately the site would belong to the users, not a tiny management team. When Zuckerberg eventually decides to hang up his keyboard and retire, the company would not face the cult of personality problems that Apple did during Steve Jobs’s protracted illness — it would simply persevere.

In the meantime, Facebook would have plenty of capital to pay its engineers, thanks to its owners’ contributions. In good years, it could return dividends to members or explain to them that it was better to bank the money for future investment or rainy-day funds. In tough times, it could first ask members for low-interest loans before turning to the capital markets, perhaps using a Kickstarter-like platform to fund specific initiatives in the company. In other words, this is a model compatible with capitalism and competition, not a replacement for those things. The whole system fits almost perfectly with Zuckerberg’s investor letter saying that Facebook doesn’t “build services to make money; [it makes] money to build better services.”

Facebook will probably never be governed this way. Too many early investors simply stand to get too rich. But if Facebook is not to be a co-op, that means social networking — and all of the truly incredible tools, culture, community and change that its visionaries claim will change the way the world is wired — will really just reinforce the highly stratified and imperfect way the world works today.

Mark, put your money where your mouth is; after all, you already have more of it than you will ever need. If Facebook was truly built to change the way people relate to their world, that change should begin with how people relate to Facebook.

PHOTO: An employee works on a computer at the new headquarters of Facebook in Menlo Park, California, January 11, 2012. REUTERS/Robert Galbraith


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This will never happen b/c Zuckerberg is Darth Vader. He may have had good intentions in the beginning, and probably still thinks he has good intentions now. But in the end it’s all about him being the master of the universe, and in-turn creating the perfect world that reflects his vision of what the world should be and how it should operate.

Posted by skomalley | Report as abusive

It would be great to have cooperative such as this but you still have to understand that zuckerberg wants to fulfill his vision and the team he has currently is obviously happy with his leadership. Why change the principles of his company in an IPO! I welcome that fact that he will continue to direct the company. It is that direction that made the company that it is today. Apple would not have been where it is today without Steve Jobs. Strong leadership is better than no leadership. Who would be the leader if Zuckerberg would give up authority?

Posted by sindia | Report as abusive

I question whether Facebook is even good for society. Fun? Yes. Useful? Yes. Good? Not so sure.

Posted by BidnisMan | Report as abusive

Whoa, better check the ‘shrooms at that Park Slope co-op.

We agree with skomalley, above, except the part about Zuckerberg having good intentions in the beginning. If the recountings of the birth of Facebook are accurate, and we’ve seen Darth’s own IMs at Business Insider this week, so we think they are, he pretty much stole the idea from the Mesomorph Twins in what every Harvard student understands was not the way it’s done.

But it’s done. Another interesting little “borrow,” if you like, by Darth, was the name. Harvard Business School used to publish a book of all incoming students which was called, simply, the facebook. We guess other schools there did the same (they’re on line now). If that’s been acknowledged somewhere, we’ve missed it. We guess nobody’s thinking about a royalty.

Which pretty much makes the whole thing an ethical stinkhole, if you ask us.

No, our boy doesn’t seem much like the sharing type, and he seems to have a touch of megalomania to boot, changing the way government works, and all that. So we’re not too optimistic about the co-op idea getting much traction today. Maybe five years from now when the user mob has moved on to whatever the new hot thing is and FB looks like a Yahoo he’ll donate his shares to a co-op and get a small tax deduction for them. We doubt it though.

Posted by WeWereWallSt | Report as abusive

https://joindiaspora.com/ already provides a user owned and controlled experience.

Posted by PeterWeyant | Report as abusive

Nice idea, but MZ will never go for it. Nor would the advertisers and investors who are looking to make zillions out of all those user habits and friends. Nice idea though. I might even think about joining if it were a coop, but probably not. The internet is a great thing but some things are best left out of it.

Posted by lhathaway | Report as abusive

shae the wealth brotha~~
yea~~ share it.

Posted by cp61 | Report as abusive

Whoa, better check the ‘shrooms at that Park Slope co-op.


Posted by cp61 | Report as abusive

This model has been tried before, its called communism. Instead of shoulda woulda coulda, why don’t you start your hippy communist social network and see how many people actually sign up.

Posted by AsKSeattle | Report as abusive

Look at all the latchers on. gimme gimme gimme. Or He shoulda-woulda-coulda.blah blah blah. How bout you all create your OWN social network?? Then you can be Master??
Wow! What a concept!

Posted by Douglas77 | Report as abusive

The short answer, surely, is that doing this would be entirely redundant. There is already an “Open Source” clone of Facebook which, a priori, is “controlled by its users”. If Mr Smaleri wants a social site that doesn’t reek of capitalism, then he is entirely free to user this (or even vk.ru!), rather than undemocratically telling business people what they “should” be doing. The fact that Mr Smaleri is apparently unaware of the Open Source alternative may help explain why Facebook’s current business model is successful.

The problem with high-tech co-operatives of course is exactly the problem that has always stalked the Open Source community itself – in practice resources aren’t allocated by its users, but merely by a bunch of high priests, replacing autocracy with oligopoly. What’s so great about that (unless Mr Smaleri hopes to be one of the few)?

Indeed, resources cannot practically be allocated by the users. The hypothetical charity example shows how social media give people the illusion of power without responsibility – just ten similar suggestions would bring the business to its knees. When I was in business I got a dozen suggestions a week about what I was doing wrong – most of them mutually incompatible, many dangerous, but any of which, in the scenario Mr Smaleri gives would easily attract millions of votes. (My response was always “become and OEM and take the risk yourself” – that always stopped the conversation dead in its tracks!)

Of course, Mr Zuckerberg will, if he is a good businessman, be guided by the best ideas of his customers – the advertisers – but not by random crowd movements in his audience, who are not his customers.

Posted by IanKemmish | Report as abusive

Seriously,that would never work. I understand your desire to have a say and get rich by whatever means possible. After all, we do live in a society that is driven by consumerism and where greed is an important part of our culture. However, the fact is it is doubtful large corporations are going to invest in a company with 800 million users and whom all have a say in the day to day operation. It’s a pipe dream, and one taught by liberal universities. Moreover, there is not one hugely successful business in the world that is run that way. All business’s must have strong leadership and having 800 million leaders would not work.

Posted by RBone | Report as abusive

For what it’s worth, the largest co-operative in the world, The Co-operative Group, had £11.9 billion in revenue last year and has 6 million members.

Posted by Paul Smalera | Report as abusive

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Great article. Amazing vision, but it is unfortunate that they have already taken the irreversible IPO step.

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