A Week in Digital – 18th May 2012

Facebook IPO – what does the future hold?

Facebook IPO

This week saw the official launch of the Facebook IPO – you can buy a piece of the world’s most popular social network.

There are mixed feelings amongst investors as to whether this is a great investment opportunity or the start of another dot com bubble similar to the one in 2000. But how will the IPO work out?

There are a number of challenges that Facebook has, and I am going to cover off the key five that I think Zuck should be spending his time on.

Is this the start of another dot com bubble – I think there are a number of differences between the bubble bursting in 2000 and where we are right now. In 2000, the internet was relatively new and only used by a comparatively small number of users. Ecommerce was a new phrase and there was very little social interaction on digital platforms. Today, the internet is recognised as possibly the strongest medium available to organisations and consumers. And of course, organisations are delivering huge profits unlike in 2000 – in 2011, Facebook delivered $620m of profit from $2.3bn of revenue, an impressive ratio.

Facebook will have to become more monetised – whether users like it or not (and they don’t like it), there will be more ads appearing on Facebook moving forward. There has already been many blogs which have complained about sponsored stories, recommended likes and so on. But this is a fact of life when you have public investors expecting a healthy return for their cash. If we want to use Facebook for free, this is the price you pay.

Your information is cash – information is the commodity of the digital age – just ask Google. The more information an organisation has, the more targeted their adverts can claim to be, and the more they can charge for these adverts as they are so highly targeted. Facebook have already tried to squeeze more information from users through the introduction of Timeline – a smart way to encourage people to share their date of birth, family members, key events, etc. And there was no opt-in. If you don’t like this, I have got some bad news – inevitably there will be further drives for more information from the 900m Facebook users in the future

Facebook faces a culture change internally – it has been a few years since Zuck was working out of a small house in Palo Alto, but Facebook has always tried to cling onto the culture of being a start-up. Its unofficial motto is ‘move fast and break things’ and this entrepreneurial spirit has delivered the network we use today. But an IPO is going to challenge this – public investors are keener on delivering against a strong, strategic and corporate plan. If they don’t get what they want, the share price will suffer. How can Facebook satisfy the investors and still maintain that excitement of a start-up culture?

Who wants to be a millionaire – not many organisations can say that they have over 1000 paper millionaires in their office and even paper billionaires in the case of Sheryl Sandberg. But the IPO is going to make a number of Facebook employees very rich indeed. They may leave Facebook which will leave the organisation facing a recruitment drive on a large scale, but bear in mind who these people are. They are extremely talented people who have been at Facebook for a long time, and it is likely that they will have their own ideas – a sharp injection of cash may be what they need to turn their idea into reality. So Facebook may lose good quality people and have a more competitive market place.

I think that the Facebook IPO will be a success, certainly in the short-term. There are around 140m US users of Facebook who may want to buy a stake in their favourite social network – that is a big market. And I think as long as Facebook continues to monetise, the share price should remain buoyant. But the rate of double or triple digit growth will have to slow down at some stage. It is then that investors will start looking to Zuckerberg and Sandberg for new ideas to keep the growth accelerating – but without ruining the user experience. A big ask!

What do you think about the IPO – will it be a success, and how will it affect the Facebook user experience? Let me know what you think!

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