What Will The Future Hold For Facebook?

Facebook held it’s initial public offering (IPO) on May 18, 2012. This IPO was one of the biggest in technology, and the biggest in internet history, with a peak market capitalisation of over $104billion. For many years Mark Zuckerberg had been unwilling to float the company and resisted a number of buyout opportunities for Facebook since it’s founding in 2004. The company had continued to remain private up until this point but was forced to go public after the number of internal private investors reached 500. The target valuation for the share in May was sitting somewhere between $28 and $35, and continued to increase to $34 to $38 per share. High demand from retail investors encouraged them to decide on a high selling price of $38 per share. Everything was set up and ready to go. The next series of events however have been described as nothing but disastrous for the company…

Firstly the Nasdaq suffered a computer malfunction during the first few hours of the IPO leading to tens of millions of dollars in trades being wrongly placed. An article by the New York Times (2012) states that it is almost beyond belief that a major stock exchange could fail so badly during one of the most publicized I.P.O.s in history.

The biggest killer though was the huge decline in the share price within the first month.  After the first week, Facebook’s stock was more than 17 percent below its $38 offering price. It is now sitting at roughly $22 per share. I don’t know about you, but I wouldn’t be a happy camper if I had invested in the stock…

Facebook now have a new set of challenges to deal with:

- How they deal with the negative PR of the disastrous IPO. The company raised $16billion in capital at the expense of many eager investors who bought into the hype. How many mum and dad investors wanting to ride the tech boom would have lost out? Not only that. Early investors such as the venture capital firm Accel Partners are selling an unusually high number of shares as well as Goldman Sachs selling about half of its stake – far more then the firm initially planned.

- How they manage their users needs and shareholder needs in unison? Who is more important? An article by Bloomberg Businessweek (2012) suggests that Facebook will have to ‘annoy their users to justify their valuation’. Bottom line. Facebook need to boost revenues and the only two ways to do this are to either find more places to advertise or to further promote their digital currency; Facebook credits which users use to buy virtual goods. Either of the two will however require users to be constantly bombarded by the two to increase revenues.

- How do they continue to build revenue when almost 80% of Facebook usage is now done on mobile devices? I don’t know if any of you have realized this but if you have recently downloaded the new update for the Facebook app you will see that it gives users significantly less features. You are now unable to upload albums or tag photos and I’m sure there are a variety of other things they have removed. I can only assume that this is a pledge to try to get people back to using the site on their computers? To me this is a really obvious way of showing that increasing shareholder revenue is more important then user needs and I’m sure I am not the only one..

It will be really interesting to see how Facebook goes about managing these above challenges. How do you see it playing out?

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  1. Ja

    Nice post. A few thoughts come to mind – the first about the IPO itself – they knew that mobile traffic pre launch – hence knew its impact on future revenue without a mobile platform advertising model. With respect to the big boys who jumped on and supported them early and held a number of the shares – I don’t feel their decision to sell them swiftly was an accident, and of course the rest is history with respect to mum\dad investors.

    With respect to the future – whilst their shareholders are the ones who ‘own’ the biz, who is their most important stakeholder? (not a retorical question, one that needs consideration)

    Contextual spaces like facey that have their content populated by the people who choose to hang out there are in effect a living pulsing organism and representation of the species current thought patterns and behaviour. So on the macro level the time dated trend data this contextual space has being consistently loaded into it is priceless – how do you price this? Again the issue of money (linear man made paper) being able to represent value of information (the value and amount growing at an exponential rate).

    My purpose for the above is to articulate this question: Will this information goldmine be hindered in its true value because of the traditional public shareholder model it has chosen to adopt?

    I feel yes, and as a result facebook’s true brilliance will be held back and restricted.

    • sammydoyle

      Some great points you have raised. Thanks for the great feedback. I agree totally in the sense that a traditional shareholder model might not have been the most appropriate for something as new age and progressive as Facebook. The website has revolutionized the way we communicate, consume, connect and has moved society forward in the process – maybe an old school bureaucratic shareholder model wasn’t the best approach for the company… Also what I find hard to understand and comprehend is, how do you value such a company? Information, I know, is the currency of today but how do you value that? For example the $1billion Instagram acquisition. How did they come to that valuation?

  2. Kirst

    The next six months will be an interesting time for Facebook – I look forward to seeing what, if any, rabbit Zuckerberg can pull out of his hat. Revenue initiatives like promoted ads are not enough to fill the leaks and I also wouldn’t write off Google+ taking market share if FB do start to alienate their customers with desperate attempts to raise revenue. One gets the feeling they are just waiting in the wings. Time will tell but I can’t see FB not being a part of our lives for quite some time yet.

  3. lilymrktng

    I can’t even imagine using anything else right now….! not to mention moving on to another social networking site- if facebook begins to bombard me with more ads and brand names in attempt to raise funds! Perhaps its because many of us (and shareholders) know that facebook is inevitably replaceable. If it was a necessity than maybe the IPO would not have been such a disaster (people might disagree with me on this)..However with facebook buying instagram, it may mean more apps like these have ads (noooooo!). Whatever the case google and facebook will be at war: http://www.brisbanetimes.com.au/it-pro/business-it/google-buys-instagram-rival-nik-software-20120918-26367.html, in an attempt to get social network followers.

    • sammydoyle

      Yep will be interesting to see what the future holds. Personally I reckon something new will need to launch, as many of the early adopters who were first to use Facebook are now shutting down their accounts as it’s not ‘cool’ anymore with all the mum/dad users and business pages. Guess we’ll just have to wait and see…

  4. Oz

    What is Facebook? What does it do? How can we quantify it? Facebook is a game changer and the impact it has had on the way people communicate is similar to the telephone, fax machine and internet itself BUT having listed as a public company it is now at the mercy of the market, the media and the savages.

    Ideologically I don’t think Facebook would consider themselves as purely an advertising company but in 2011 85% of Facebook’s revenue comes from selling advertising and only 15% of revenue from non advertising sources.

    Ad revenue works for Google because where better to advertise stuff than in a place people go to search for stuff. Having said that, Google have diversified their portfolio of “stuff they do” to integrate further with people’s lives.

    The profitability of Facebook is currently linked to it’s popularity (which is fickle at best) and the market will judge them on their ability to find new ways to monetize that aren’t advertising related…

    roll on the next big thing…

    • sammydoyle

      Some great points there Oz. I agree on all levels. It makes it really hard to quantify a value for Facebook when it isn’t anything tangible and purely effected by how popular and ‘sticky’ it is. Will be interesting to see what the future holds for it now. I agree. To me it sounds like the perfect time for someone to roll out the next big thing…

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