June 9, 2009
Much like linking Grokster to Lord Macartney three years ago, comparing Facebook with Rio Tinto is absurb on the face of it. Both are currently hard to value, the former being private, the latter subject to a market roller coaster. But what could a social network share with a mining company?
It happens that both have courted foreign investors for significant cash infusions. David Barboza and Michael Wines write about "a proposed $19,5 billion stake" in Rio Tinto by a Chinese company (*). Claire Cain Miller reports a $200 million investment in Facebook by a Russian group (**). The apparent disparity between the two dollar amounts is misleading. In percentage, the deals represent about one third of Rio Tinto 2008 sales and 40% of Facebook estimated 2009 revenues (1).
From a financial perspective, the question is whether the new investor gets a good deal or not. For Facebook, it means whether its implied valuation is credible. For Rio Tinto, it hinges on the market price following the collapse of what increasingly looked like too good a deal.
But these fillips are not a tip sheet for would-be capitalists. What struck me is the kind of attention Rio Tinto has generated in one of the two countries where it is headquartered. The Australian Prime Minister had been accused, no less, of "allowing control of strategic mineral resources in Australia" by "the Chinese military regime". It is not for me to bear judgment on whether such concerns reflect pure xenophobia or the freedom political opposition enjoys from diplomatic niceties. But the contrast with Facebook cannot be starker. Nobody in the United States made any remark implying the national interest was at stake.
Can it be because the US government is too preoccupied by the unfolding economic crisis to spend any time on the digital underpinning of today's Information Age? Hardly the case, as President Obama took time to address cyber warfare in a "speech [which] delved into technology rarely discussed in the East Room of the White House", including "spyware and malware and spoofing and botnets". In their report, David E. Sanger and John Markoff stress organizational problems (***). But even this is a good sign. Such issues would be moot were the topic on the back burner.
The reason I suspect is more profound. I have castigated a prominent member of the Judicial branch of the US Government for his blindness to eprivacy. I have explained the guilty inaction of its Legislative branch. I have lamented the weakness of the Executive watchdogs, who believe wolves can self regulate themselves into protecting the sheep. Given this context, it is no surprise President Obama himself overlooked the fact that Facebook is the modern equivalent of Rio Tinto.
Why indeed Facebook spend so much to gather "307 million visitors worldwide in April" 2009 if not for data mining purposes. Some will object Facebook has still to find how to best monetize its ore. Yet who doubts that refining methods will quickly improve? Read David Gelles on how Facebook is developing its own mint "with the introduction of an internal payment system" (****).
While iron ore can be turned into weapons, others will insist little actual damage has ever resulted from data mining. It is by listening to such blandishments that a country prepares itself to win the last war. I am on the record as scaring readers on Halloween by showing how modern dictators can benefit from the Internet. External threats are not to be discounted either. Didn't the US successfully track down Saddam Hussein by reconstructing his personal network of old friends and family? In the future, Facebook will deliver this information on demand. And beyond individual targeting, social networks interactions will reveal many useful trends to well tuned up military intelligence.
Beware. I am not saying that the United States should have prevented the Facebook deal. Neither am I singling out Facebook nor downplaying the importance of preparing against cyber attacks. Speaking of cyber security, my point is simply that the US Government focused too much on the actions of the hackers, who play the role of armed forces, and not enough on companies like Facebook, which are the new strategic resources.
With this in mind, I have an unsollicited piece of advice for President Obama. There is actually a great difference between Rio Tinto and Facebook. Minerals lie where eons had left them. Data deposits are often created by companies in order to be mined. From a national security perspective, the US should ask themselves, on a case by case basis, whether such data aggregation is worth pursuing in the first place.
To be serious about security, one should be concerned about eprivacy and strive to decentralize data back into the hands of individual citizens.
- (*) ....... Mining Company Is Said to Be Close to Ending Deal Involving Chinese Investment,
................ by David Barboza and Michael Wines (New York Times) - June 5, 2009
- (**) ..... What Is Facebook Actually Worth, by Claire Cain Miller (New York Times) - May 27, 2009
- (***) ... Obama Lays Out His Strategy on Cyberattacks, by David E. Sanger and John Markoff (New York Times) - May 30, 2009
- (****) . Facebook brings in payment system, by David Gelles (Financial Times) - June 3, 2009
- (1) based on the wikipedia entry for Rio Tinto and David Gelles' article (****) for Facebook