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My Cynical Take on Facebook’s IPO and the State of Social Media

Česky: Logo Facebooku English: Facebook logo E...

Facebook launched it’s Initial Public Offering today, making it’s stock available for purchase on the open stock market. According to a CBS News article, the IPO could raise as much as $18.4 billion and puts the value of the company at $104 billion making it the 36th largets company in the world and 23rd in the U.S.

First, let me be clear that I am in no way a finance or economics expert. The extent of my participation in the stock market is the paltry percentage of my paycheck that I put into my 401k. But I do have a decent understanding of technology, technology companies and technology users.

The numbers above are impressive, 23rd in the U.S. is pretty big! But in sales, Facebook only ranks 909th. Doesn’t quite add up, does it? Most of Facebook’s income is from advertising that’s targeted directly at you based on the information that you willingly give them. Users are willing to put up with the ads so that they don’t have to pay for the service, like broadcast television. In order to make good on income promises to it’s new stockholders, they’re going to have to grow their income at a pretty fair clip and I see a few options for them to accomplish that task.

The first option is to increase ad revenue. They could do that by making ads more frequent, more targeted or more obnoxious, all of which would be more annoying. The other option is to institute paid subscription services where you’d have to pay to use the site at all or pay for premium features. Neither option is very attractive to users and either could result in a backlash of users leaving the service. But they wouldn’t do that, would they? I would!

Although many people have come to rely on Facebook as a way to communicate and keep up with their friends and families, it’s not the only option. Plenty of free competitors exist, services like Google+ and Twitter may not have all of the features or polish of Facebook, but they’re free. Google+ has struggled to find it’s user base, but users would show up in droves if Facebook starts charging for service! Compared to Facebook, I love Google+ but don’t use it often in favor of Facebook and Twitter.

Looking beyond Google+, Twitter and even Tumblr and Pinterest, there’s some pretty cool stuff in the works that could offer some alternatives. Projects like Diaspora may give us social networking that’s not controlled by any company or single entity but rather takes advantage of the Internet’s decentralized nature. Best of all, Diaspora is built with privacy as a high priority, how refreshing.

As I said, I’m not an economist or even a business expert but I think I’m a pretty smart guy and I believe that Mark Zuckerberg is too. He either has a great plan to take Facebook up a few notches or he’s planning on cashing out and running in the near future. My cynical nature tells me that it’s the latter. I believe that he realizes Facebook is at or close to it’s peak. It’s a great time to build a fortune based on an IPO and then “Take the money and run”.

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About Todd E. Grady

I'm a dad, husband, IT guy and geek of all trades.

Posted on 05.18.2012, in General Geekery, Technology and tagged , , , , , , , , . Bookmark the permalink. 4 Comments.

  1. I heard that the pressure for a public offering in businesses like this comes from start-up venture capitalists who have waited long enough, only look for large short-term gains, and an IPO like this allows them to cash out big.

  2. Actually, Sean Hyman, who happens to be a financial services professional, did a nice write up on the subject (http://www.newsmax.com/StreetTalk/hyman-facebook-stock-ipo/2012/05/18/id/439592). His does include a few more financial bits to support his position. But, his conclusion, like yours (and mine, for that matter), is that the Facebook IPO was good for very few people. Namely, Mark Z. et al. The rest of the investment community will take it on the chin.

    But, does this portend the end of Facebook? Not likely…in the short term. There is simply far too much critical mass (with 800+ Million users), for the house of cards to come crashing down. And, none of the other sites you mention (you forgot MySpace, and the failed effort Unthink) have either the inertia, the sex appeal, the simplicity required for most non-geeks or the complete social networking experience to compete. So, in the short-term, we’re stuck with Facebook.

    As for the future, sadly, I share your cynical sentiment. I don’t see Mark Z. taking Facebook to the next level. I see it as another Trantor, that will take years to die off. The question is what will fill the gap. At this rate, Google+ will be shelved due to lack of interest, MySpace is already a has been, and no one else offers a complete solution. I suspect the next great social network simply doesn’t exist yet and won’t for a few more years. Just my two cents…

    • Great insights Mark. You’re right, Facebook has a critical mass that will keep it going for a long time even if it does drastically change after the IPO.

      Pressure from initial investors and now shareholders can make dreamers, gurus and innovators make decisions that they never wanted to make.

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