Economy

Facebook Angst: Waiting For The Internet Bubble To Pop

Facebook offices
Facebook offices
Caroline Ferstl

Over 150 years ago the Gold Rush began in California. It made some people very rich, but most people who were a part of it were only enriched by the experience.

Today, the state is making people dream again – but this time it’s silicon, not gold, that’s making them see big. The half-metal is used to make computer chips and is not to be confused with the silicone of breast implants - although there’s plenty of that out here too.

South of San Francisco, Silicon Valley draws men and women from all over the world – all of them hoping to get rich. Since a certain Mr. Hewlett and David Packard took $538 starting capital in 1939 and set up a semiconductor business in a Palo Alto garage, the place has possessed a kind of magic.

In the decades that followed, businesses like Intel, AMD, Google and Yahoo were born in the Valley, and since 2004, the new millennium turned the enthusiasm into real hype when a young man named Mark Zuckerberg started making headlines there.

Zuckerberg, now 28-years-old, had the chutzpa to turn down offers to buy his social network called Facebook for several hundred million dollars and then, on May 18, 2012, to go public with a $100 billion IPO.

But May 18 could also turn out to be a breaking point, because since that day there has been something damped about the company’s aura. Nobody wants to say it out loud, but the fact is that since going public the value of Facebook shares has been heading south. They are now worth about 50% less.

Since then some other high profile stock exchange newbies have bitten the dust. And the uncomfortable questions are starting to surface. Is social media hype going to turn out to be another bubble? Are billions of dollars of "silly money" going to disappear into thin air again?

Facebook itself doesn’t see things that way and has enlarged its premises by taking over offices once occupied by Sun Microsystems, which it is in the process of converting. The new offices have the feel of shoes several sizes too big – Sun had 29,000 employees before its takeover by Oracle, and Facebook currently has 3,500, albeit with the intention of growing that number.

The magic number: one billion members

Mark Zuckerberg, despite the setbacks is still considered something of a saint. The offices may be different, but he still has a Q&A session with employees every Friday, many of whom became millionaires after the company went public. But now they’re worried about their money. There’s a feeling that Facebook has been unfairly treated by the market. After all, the numbers are good, they’ve met expectations – and 955 million people worldwide use the social network.

Some say that maybe the market wanted the magic figure of one billion members. But the reason the stocks fell was actually the lack of future perspectives -- because despite the large number of users, Facebook has yet to demonstrate how it intends to bring in advertising revenues as more and more users migrate to smart phones and tablets. "We have the strategy, we just can’t talk about it yet," says Facebook VP for marketing David Fischer. And there’s another thing – the market hates secrets.

Despite or maybe because of the worries about Facebook, investors with large amounts of money continue to look for Silicon Valley vehicles to sink it into. They don’t care if they put it into one or five companies: the goal is to find that rare pearl, maybe the next Facebook, a future Zuckerberg.

The fever also affects recent graduates: "Hardly anybody goes for employment," says Lucas Artusi of Stanford d.school (Institute of Design). "Everybody’s a founder, an entrepreneur." The big money and ideas have also led to new recruitment styles: “aqui-hire” is the new buzzword for turbo-charged success – you don’t hire individual employees, you buy whole teams or start-ups. And global investors are throwing even more money at companies just before they go public.

And that’s an area where expertise is required – something that seems to escape investors struck blind and dumb in their frenzy over cloud and mobile, virtual reality, e-commerce. They prefer to spend money on quick success. Just how sustainable that strategy is, remains to be seen.

For now though the new ideas out of Silicon Valley continue to amaze and delight. Something about the place and the money seems to bring out the creativity in people. So you end up sitting near a young entrepreneur at Starbucks who’ll tell you that so far the link between social media and regular media hasn’t worked: "Nobody’s been buying movies off of Facebook," says Andrew over a caramel Frappuccino. He claims to have figured out how to make regular and social media mesh. But it’s a business secret. And he’s not about to let anybody steal his idea.

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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