Look at the news these days from the most dynamic sector of the U.S. economy — Silicon Valley. Facebook is now valued near $100 billion, Twitter at $8 billion, Groupon at $30 billion, Zynga at $20 billion and LinkedIn at $8 billion. These are the fastest-growing Internet/social networking companies in the world, and here’s what’s scary: You could easily fit all their employees together into the 20,000 seats in Madison Square Garden, and still have room for grandma. They just don’t employ a lot of people, relative to their valuations, and while they’re all hiring today, they are largely looking for talented engineers.Friedman could have written the same column back in the 1990's, and he would have been talking about Yahoo!, HotWire, AltaVista, Inktomi, Lycos, AskJeeves.... Or he might have focused on shopping, and lectured us about how Amazon, Pets.com, Boo, Webvan, Kozmo and eToys were going to transform retail - but would have completely missed the boat if he had focused on the market valuation of those companies. Valuation can also be remarkably subjective and unstable. "LinkedIn at $8 billion" - that was "so five minutes ago" - this week it's $10 billlion. In a few months... $20 billion? $2 billion? Time will tell.
Were he to look at that history, Friedman might also notice some serious clustering - companies that are in some senses stepping on each other's toes, copying each other's information, and fighting not necessarily to be the best on the market but to become sufficiently popular that the market consolidates behind them. Facebook has been trying to eat Twitter's lunch ever since the latter service became popular. Google is trying to eat everybody's lunch - and is in the process of rolling out serious competition to Facebook, LinkedIn and Groupon. It's quite possible that a few years from now Google will be the last man standing, and (as with Bing) it's biggest competition in those markets will be from a company that has not yet even entered the market.
Here's another dirty secret: A big part of what these companies is emulation, not innovation - copying the features of their competitors or buying smaller competitors or innovators. Twitter has been on an acquisition spree, consolidating under its roof any number of services that used to be available only as third party add-ons. Facebook was far from the first social network. Like Google with other search engines, they were the late arrival that took down the pioneers, SixDegrees, Friendster, MySpace, Google's own Orkut.... The tech side can actually lag. Facebook would benefit in a serious way from migrating off of MySQL, but they grew so large, so quickly that the technical hurdles to a smooth migration are enormous, so they keep putting it off.
I was joking with a Google employee that they've hired all of the good programmers. I have had nothing but bad luck hiring programmers who prove less than competent, or less than honest about their abilities, in relation to my own web properties, despite paying out quite a lot of money. Those at the top of their game who don't want to work for a company like Google can often make a ton of money developing their own projects, and thus see little need to freelance. Yes, all tech companies are looking for talented engineers, and some of the salary wars between Google and Facebook could make anybody jealous, but part of the issue is that there are relatively few engineers who can compete at that level. They, perhaps more than any other group, do need to stay on top of their fields lest they find themselves able to support only yesterdays' technology, but they're far from a majority of the 20,000 employees that Friedman attributes to his short list of websites. Groupon, for one, employs a great many copywriters and salespeople.
Something else that is interesting about Friedman's list is that the companies he lists are principally about connections - connecting people to people, or helping businesses reach and market to consumers. Friedman later writes that employers want employees who can "adapt with all the change, so my company can adapt and export more into the fastest-growing global markets" - but none of the companies he lists actually produces a tangible product. Ironically, in this "great recession", businesses that actually produce goods often have excess capacity and are thus not hiring or expanding, and depressed consumer demand reduces the export markets. So you have a lot of wealthy people and institutions who have no place to put their money in a conventional economy - so they either sit on their money waiting for the economy to improve, or they help drive up the value of companies like the ones Friedman lists in the hope that the latest group of Internet "rising stars" will fare better than their historic predecessors. History tells us that five years from now there will be two or three social networks, one of which will likely have at least 60% of the market, and one of which will likely be desperately trying to reinvent itself in order to remain relevant. Facebook may be the one on top, or it may look more like MySpace, or it may look more like SixDegrees. When you look at a $100 million valuation, you need to at least consider the following thoughts: "high stakes gambling" and "Pets.com".
At the end of the day, there's a reason that Friedman is only able to identify a small number of highly valued companies with small numbers of employees: even in a bubble the economy can only sustain so many companies that are trying to sell us social games, social networks or social marketing. Were Friedman to expand his list to include established companies with proven revenue streams, or high tech companies that produce and export tangible goods, he would need a much larger stadium. You don't build a sustainable economy by pointing to a bubble and saying, "Everybody should do that," or by pointing to a small industry that employs only 20,000 people (probably no more than 20% of whom are the type of innovator Friedman describes) and arguing that everybody should try to develop the skills necessary to compete for those jobs.