apples to apples

Facebook turned 5 years old last week, and a couple of commentators took the opportunity to compare the company’s progress unfavorably to Google’s.

I understand the compulsion to compare every hot startup to the current media darling that literally put its name next to the definition of “Zeitgeist” – but still, I don’t believe there is any practical value in that exercise.  A meaningful comparison compares things of like kind, and comparing every company to the once-in-a-decade champion is not apples to apples.  Take a look at this list of companies, which I’d say are all the same kind of apple (of course one of them is literally an Apple):

Company Year Founded Year IPO Feb 09 Market Cap
HP 1939 1957 $87 B
Intel 1968 1971 $83 B
MSFT 1975 1986 $173 B
Apple 1976 1984 $91 B
Oracle 1977 1986 $91 B
Cisco 1984 1990 $99 B
Google 1998 2004 $119 B

These are the true giants of Silicon Valley (plus our favorite giant from up north), all companies that have spent a goodly amount of time with a market cap over $100 billion.  Comparing any private company to these monsters is a fool’s game; it’s like comparing a college basketball player to Michael Jordan.  Actually it’s worse than that – projecting athletic talent is considerably easier than projecting $100+ billion success for a company, because there are orders of magnitude more points in a company where externalities and luck play a tremendous factor.  (I always like to recall that Intel and Microsoft were initially made giants not by their own strategy, but by the strategic decision made by IBM when it chose to outsource production of its PC microprocessor and operating system.)  These true giants are Black Swans, by definition nearly impossible to predict, and useless as comparative points except when holding both points in retrospect.

If you must make comparisons, it’s more realistic to compare to the next tier, for example:

Company Year Founded Year IPO Feb 09 Market Cap
Sun 1982 1986 $4 B
Amazon 1994 1997 $44 B
Yahoo 1995 1996 $19 B
eBay 1995 1998 $18 B

I could put a dozen more on that list, but I’ll let you pick your own peer group.  Any one of those companies (yes, even that one that you think is irrelevant/dying/dead) could still take the multi-decade journey to giant-hood.  But even if they never do, they’ve accomplished something extraordinary in growing up from a tiny Silicon Valley startup (with one favorite from up north) to an independent company, a true a difference-maker in technology and the daily lives of millions upon millions of people.  Because they haven’t had such outstanding externalities and luck in their favor, they are a better basis for comparison.

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2 thoughts on “apples to apples

  1. Hi there. I’m one of the commentators you cite at the beginning of your piece. One quick note: Absolutely agree that one should compare apples to apples. But in this case, I think it’s fair to compare the standout business of the Web 2.0 era with the one from the previous year. And note that my comparison does indeed compare privately-held Facebook with Google when it was a privately-held company of the same age. The fact that there’s a huge gap between the two when it comes to revenues and profits could be meaningful — or not. That’s up to you. But there is indeed a big gap.

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  2. Peter, I get that you compared the companies at the same age. My point is that this is like comparing a high school athlete to Michael Jordan in high school. The comparison is meaningless because whatever the similarities or dissimilarities, you cannot expect the kid to turn out to be Jordan. The best you can do is maybe project that he will become a pro basketball player.

    A comparison is a statement of implicit norms: when you compare something to something else, you imply that one *should* turn out like the other. But there is no *should* in becoming a Google (or Cisco, Intel, etc.). Getting to that megasize has so many factors that the path cannot be projected.

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