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Thursday, 30 September 2010

Business Lessons of "The Social Network"

The Social Network, which opens on Friday, is a clever drama about the early days of Facebook. This fast-paced quasi-courtroom romp, deftly directed by Se7en and Fight Club helmer David Fincher, will probably become the de facto legend of Facebook, because it's just so darn enjoyable.

But you'd also do well to watch it with an investor's eye, ready to absorb valuable lessons about how to ruin an e-business startup.

Like what?
The movie is packed with business-related detail, starting with Facebook founder Mark Zuckerberg's complete lack of entrepreneurial instinct. Without a more revenue-oriented cofounder in early-days CFO Eduardo Severin, the whole project would have faltered long before it became the global icon of online interaction that we see today. That phase was followed by angel investors, and then seed funding -- and then came the lawsuits that frame the entire film.

By watching The Social Network, you can learn at least a little about:

* Venture capital financing: Zuckerberg and Severin bump heads and shake hands with noted PayPal billionaire Peter Thiel and others. The scene takes place in 2003, just after Thiel became filthy rich by selling PayPal to eBay (Nasdaq: EBAY - News) and was hungry for new investment opportunities.
* Startup culture: The Facebook team goes through extremes of low funding, big ideas, and constant challenges at a dizzying pace. At one point, Zuckerberg recruits programmers through a drinking game, which is not something you'll see at any large and established corporation.
* Backstabbing and the lawsuits that follow: This is the heart of the movie and the human takeaway: Success will quickly turn your friends against you. Be prepared.
* Viral marketing: From scene one, Zuckerberg displays a stunning understanding of how to create, grow, and then keep an online audience. Make it cool, get your users to involve their friends, and never accept service outages.
* Network security, and the consequences of its absence: If Harvard's network had been properly hardened in 2003, Facebook and its predecessors wouldn't have existed today. A little bit of hacking can collect a lot of information very quickly.
* Why Silicon Valley still attracts technology startups: It's where you go to meet the smart money mentioned earlier.

A lot of this should interest you if you invest in Valley darlings and online phenoms such as, say, Google (Nasdaq: GOOG - News) or eBay. You'll be better equipped to understand the business environment these companies work in after watching this movie, and the marketing lessons may even make you a better eBay seller and AdWords marketer. In addition, there's always the chance of Facebook going public itself one of these days.

Colored by filters
Mind you, all of these lessons passed through several individual perspectives before they reached the screen. Director Fincher and all-star screenplay scribe Aaron Sorkin (The West Wing, A Few Good Men) surely added their own touches to a book by Ben Mezrich, who never worked for Facebook or attended Harvard. Mezrich's main source and consultant was Severin, who unsurprisingly comes across as a hapless victim in the movie. You want the truth? You can't handle the truth! Or at least, you'll have to accept a version of the truth with any project like this.

Distributor Sony (NYSE: SNE - News) is clearly hoping for a viral hit of Facebookian proportions, since its slate of releases this year has been rather uninspiring. But the marketing has been minimal and not always clear on what the movie is about. None of the trailers convey the courtroom drama feel I got out of the movie, and Sony would have been wise to play up a captivating performance by pop star Justin Timberlake as Napster co-founder and later Facebook investor Sean Parker. In other words, don't buy Sony stock just to capitalize on a runaway hit here -- I don't think that's in the cards.

Some critics compare The Social Network to Citizen Kane with a straight face, and one of my peers at last night's press screening enthused that this was Fincher's finest work yet. Me, I prefer Fight Club, but I'd watch this one again just to reabsorb the business lessons.

Will this movie flop or fly? Discuss in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. Google is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers recommendation. eBay is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a bull call spread position on eBay. The Fool owns shares of Google. The Motley Fool is investors writing for investors.

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