It’s hard to escape reports that Facebook’s recent IPO (initial public offering) is the ‘flop of the decade’, but is it really as big a flop as the news reports suggest? And what does this mean for Facebook in the future?
Facebook is the most asked for topic on our social media course. We will be keeping a close eye on post-IPO Facebook to see if any changes affect marketing on Facebook.
Was Facebook’s IPO a Flop?
According to the news and to the initial investors: yes. But, according to Billy Conerly at Forbes: no! Billy thinks that the IPO is a huge success for Facebook.
Unlike a normal IPO, where shares are expected to rise throughout the first week so that early investors get the best deal, shares actually dropped. Facebook were able to sell their shares way above market price and not lose out on an increased price later on.
No matter what the outcome of the IPO was, Facebook has now gone from a business relying on private investment to one with a lot of capital to play with.
Early investors will not be thinking along the same lines.
Normally, these first day investors will have bought shares at the best price and would be able to make a tidy profit selling them in the coming days – this time round they are the ones who have bought the most expensive stock.
These investors are unhappy, and stories have been flying around about foul play and law suits. Whether this will lead to anything is uncertain but Facebook & the banks involved deny any wrong doing. Some of the claimants believe that Facebook hugely oversold their potential revenue streams, which turn out to be quite low due to their current advertising policy.
So Facebook has a lot of money, but also a lot of angry shareholders. What is the next step?
Nothing is certain as this is almost an entirely new scenario. We believe that Facebook will come under massive pressure from shareholders who want to increase profits and justify the price of shares.
Here are five possible outcomes of the Facebook IPO:
Increased Revenue from Advertising
It turns out that Facebook’s revenue from ads isn’t as high as investors thought. As Facebook’s main source of income, this is a big problem that shareholders will want to fix.
To increase revenue they will either have to increase advertising opportunities or increase the cost of ads. Both routes will upset current advertisers whose ads will be devalued under any new system.
The shareholders will be coming up against both Facebook users (who hate all ads) and Facebook developers (whose primary aim is to increase user experience and not ads), but they should be able to keep advertisers happy.
Flexible Advertising/ More Opportunities
The advertisers will push for more creative opportunities for advertising. Many are unhappy with the limitations of Facebook ads – currently just small sidebar ads, sponsored Timeline stories and logout pages. Facebook users have become very good at ignoring these. General Motors have pulled their “ineffective” $10 million Facebook ad campaign. You can also read Ryan Holiday’s description of Facebook as a Ponzi scheme.
The most recent update to advertising options is the logout screen, but quoted costs have been huge and questions have been raised as to who will click an advert after logging out?
Facebook developers will need to think of a way to increase flexibility for advertisers without alienating their users. The most likely outcome will be more news feed ads.
The problem of making money from free mobile products is one that all social networks are trying to solve.
Thanks to a lack of real estate on small screens, it is a thankless task trying to monetise apps and mobile sites. Any visible ad on an smartphone is going to take up around 20% of screen – which isn’t great for users.
However, as the great untouched source of revenue, this will be the first step towards increasing Facebook’s profit.
With 425 million users accessing Facebook from mobiles each month, that is a lot of potential customers.
Firstly, Facebook will need to work out a way to start advertising on their mobile platform (both the mobile site & the apps). Then they have the challenge of stopping Facebook users just switching to a 3rd party app that allows them to access Facebook without the ads.
Any advertising element on Facebook Mobile could seriously dent the number of users.
Facebook’s IPO will definitely result in a monetised mobile platform.
Exodus of Facebook Developers
Facebook staff have always driven towards one goal: providing a great user experience.
Shareholders will be looking to replace that goal with a new one: make money.
However, thanks to the IPO, many of these developers are now millionaires. Under pressure from shareholders they will happily leave for greener pastures. They have the capital to set up their own start-ups so expect a lot of them over the next year or so.
With its new found wealth, Facebook shouldn’t have too much trouble replacing these employees – but it may come at the cost of what makes Facebook so popular to users.
Exodus of Facebook Users
Ultimately, Facebook’s biggest resource is its users. Without users its advertising platform is useless. Facebook is worth so much because of its huge fan base.
If Facebook starts to bow to shareholder pressure and increase the size and quantity of ads while letting the user experience slip to one side, they will lose users.
Many of these users are unhappy that Facebook is profiting from their private information – the biggest reason businesses advertise on Facebook. Any increase in targeted advertising is likely to upset them even more.
The Death of Facebook
If all of the above happens, I can see Facebook following MySpace’s demise. By listening to shareholders and advertisers instead of users they lose their biggest resource.
No users means no advertising, no advertising means no Facebook. It’s a tricky situation and I can’t wait to see what Facebook does about it.
- Facebook Buys Instagram – What Does This Mean for the Photo-Sharing Start Up?
- Google Analytics NEW Mobile Application Tracking
- Google and Bing Recommend Responsive Web Design for SEO
- Why Google+ shall inherit the earth
- I Can’t Upgrade My Facebook Group