Will the IPO kill Facebook?

Facebook goes public this Friday. That has put us on full irony alert. The company that has been pilloried by privacy wonks will be forced to shred its veil of secrecy.

That is the least of Facebook’s concerns as they move forward in the public eye. Wall Street is a harsh mistress. The demands of being a publicly held company are many and will inevitably change how Facebook operates.

I am not a financial expert (but I play one on the radio) but recent history tells us that the Facebook we know today will not be the Facebook of the future. Two examples spring to mind – Starbucks and the entire radio industry.

Starbucks – the company that single-handedly changed our coffee consumption habits –  built themselves upon a smart and meticulously crafted strategy. The were very rigid in planning their expansion – down to which side of a street to locate their stores on. Then, they went public. To satisfy Wall Street growth demands, Starbucks abandoned their strategy and started opening more stores. This was not a retail decision – it was one forced upon them by Wall Street analysts. Of course, the strategy failed and they had to close stores and get back to where they once belonged.

Remember radio? Those local stations that talked about local events and were tied into your local community? This was an industry that routinely had 50% profit margins! Well, the Telecom Act of 1996 changed all that. Stations were gobbled up en mass by large conglomerates. They went public. Despite huge profits they could not afford the payments on their notes. Worse, they could not satisfy Wall Street’s insatiable demand for dramatic growth. A succession of bankruptcies and dramatic cutbacks have left this industry a shell of its former self.

How will this affect Facebook? What kind of changes can we expect to see in the coming months and years?

At its core, the product won’t change much. Despite their stock market woes, Starbucks still made great coffee. The actual user experience did not change. Expect the same for Facebook. They will continue to evolve, add and subtract features and make the kinds of changes people will bitch about. More importantly, our need for connections that Facebook has mined will not go away. While the folks at Google+may see this as an opportunity, the reality is that our Facebook experience will continue on its current course.

But, Wall Street’s demands for growth will be satisfied. Analysts – those people on the outside looking in – will start opining about what Facebook is, should be, needs to be, etc. The first time Facebook’s quarterly statement does not meet analyst’s projections (read: guesses) – Facebook will be forced into scramble mode in order to maintain their stock price. Like Starbucks, they will have to invent a new strategy that looks good on paper and bolsters analysts’ confidence –  which is usually a recipe for disaster.

Facebook built itself on a cowboy mentality. Mark Zuckerberg had a vision and because he was “the man”,  that vision was fulfilled. Now, he will have hundreds of bosses. Watching that battle will be entertaining.

While I’m not in the prediction business – here is one I will lay out there: Facebook advertising WILL change. Once they go public we will see how much revenue Facebook really generates and – more importantly – how much of that revenue goes to the bottom line. Facebook will then have to prove it can grow that pie. Not just grow it but grow it in a sustainable, quantifiable way that the analysts will believe.

Wall Street does not care that 850 million people use Facebook. They care about how much  money Facebook makes off those 850 million people. The growth they are seeking will not come from more people joining Facebook. Facebook’s goal may be total world domination but their audience growth curve is already plateauing. Sure, they’ll pass a billion – and probably more. But, those are just numbers on a page. Wall Street cares less about audience growth and audience share. They want you to “show me the money.” This is part of what happened to the radio industry.

So, expect to see Facebook ad rates change. Like gas prices, they will not be going down.

Expect to see more and different types of ads. Hello flash and leader board.

Expect to see Facebook become much more aggressive in selling and promoting those ads. Messages in your in-box promoting ads?

And, expect to see them try to branch out into other areas that are not currently part of their core business. as Google is trying to establish a beachhead in social, Facebook will get more aggressive in search (where the real money is).

This week’s IPO will not kill Facebook. However, unless Mark Zuckerberg decides to take his billions and go away – Facebook will change. Again.

Your thoughts?

Steve Allan, Social Media Specialist


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About Steve Allan

I am a Social Media specialist uniquely focused on the management, messaging and marketing of social media platforms for non-profits and small businesses.
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