There’s a good chance that you will have heard the murmurings about Facebook’s proposed IPO months ago. Well, it’s now official; Facebook has officially filed to go public in an effort to raise an approximated $5 billion – valuing the company at $100 billion.
Whilst this might be exciting news to existing and potential investors, for the wider world it is just another stock floatation. But what will the impact be on the company and the 800 million that use it?
Whenever a company chooses to, or is forced (as is the case with Facebook) to trade publicly, there will invariably be a slight shift in its dynamic. Insular businesses suddenly have to satisfy stockholders and open up about their financial activity. This can slow down developments and force them to take a more cautious approach.
Maintaining a Controlling Stake
In the case of Facebook, the IPO is actually relatively small – despite the huge price. The $5 billion that the social network will plunder from investors is only a tiny fraction of the company as a whole. Mark Zuckerberg still has the largest controlling stake, owning some 28.4% of Facebook, enabling him to remain firmly in charge.
It’s not as if they have been shy about introducing new features that have proven to be unpopular. In the past few weeks Facebook has decided to roll out ‘Timelines’, which is a privacy nightmare and has caused the usual unrest amongst many users. This of course is just one of the many overhauls that the social network has implemented without much in the way of public consultation or prior warning.
Facebook are far from stupid though. Over the years, users have been enraged by the changes made by Zuckerberg and his cohorts. Sometimes they bowed to pressure, mostly though the protests and threats of mass-boycotts were ignored. Why? Because they know that they offer the best/most popular product in the market and that it would take an exodus in the tens of millions to even dent their revenue.
Fighting User Lethargy and Competitors
I’m one of the many lethargic Facebook users with a profile that largely lays dormant. However, I can accept that I am probably in the minority, with hundreds of millions of people accessing the site everyday to find out the latest gossip, share photos and stories. However, few would surely argue that it has a very faddy nature.
Just as quickly as people get interested in a product, something new usually comes along to distract their attention. To be fair, Facebook has stood the test of time and is now hugely profitable, earning $1 billion last year alone. At some stage it will reach terminal velocity in terms of growth. When saturation point is reached (which probably isn’t far off), it can be a speedy fall from grace – as many companies have found previously.
Even with Twitter, Google+, LinkedIn and the dozens of niche or country-specific social networks, they have continued to grow and prosper. New generations are adopting Facebook as their primary communication tool, replacing those (like me) who have grown tired of it. This has enabled it to remain relevant and to avoid widespread drops in traffic.
With businesses adopting it as a marketing platform too, Facebook is embedded firmly within our culture. Whether as a company it is worth the $65 to $100 billion IPO valuation remains to be seen. There will be detractors, some users might be incensed enough to leave, be this will do little to destabilise the social network. After all, despite the huge controversy in recent years over privacy, grooming and redesigns, Facebook is bigger than ever. However, Zuckerberg will be all too aware that a few false moves and the empire could quickly crumble. But if they stand still, others will soon take their place.
So the impact of the IPO is likely to be marginal. Facebook will obviously have more cash to invest in new products and site developments, which could well benefit users, but otherwise it should be business as usual. Although it will be interesting to see how they deal with the first shareholder revolt. Only a few weeks ago the previously imperious co-founder of Yahoo was ousted after falling out of favour with the new board and shareholders; will Zuckerberg suffer the same fate 10 years from now? Can he avoid the temptation of abandoning ship, like Facebook-investee Kevin Rose did at Digg (although it never went to IPO) if the company does hit a bump?
Probably comparing apples and pears here, but going public has to have an impact, no matter how small. Your accounts are laid bare and there’s no way of hiding small issues internally. Stockholders need to be appeased and so you have to keep delivering success. Internet IPO’s in recent years have experienced mixed fortunes too. Yandex fell like a stone, Zynga, who develop numerous online games and huge revenue streams for Facebook, is at an all high and LinkedIn is slowly recovering after bottoming out in late November. Google offers the shining example that all others want to follow, with stock prices at $580, but whether the social network can do this online or in the exchanges is certainly up for some debate.