Last week’s Facebook IPO is a milestone for the social media industry and its meteoric rise over the last decade. It signals the coming of age for social media, recognizes ‘information’ as a commodity and establishes a commercial value for any other business in the same sector.
When you really think about it, Facebook is a marvellous idea. In its original form it was little more than a personalised webpage, which could be regularly updated. It was a simple format, with an easy layout that allowed you to share your personal activities with friends. All Facebook provided was the standard template and a web-based network, you provided the ‘friends’ and the content. That was what the site was designed to do, it was free with no strings attached; people ‘liked’ Facebook.
Fast forward to the present, and Facebook is the premiere social media site, boasting 900million users, thousands of shareholders, offering mobile access, video calling, advertising and sales, informatics, apps, social/media impact campaigns, the list goes on and on. The enterprise is now valued by the markets at around $100billion- very impressive, especially considering you still provide the ‘friends’ and content. Facebook still provides the user with a template and network for free, but creates monetary value from controlling the network and accumulating data about its users which it can then on-sell.
What is truly remarkable is the nature of this social media business. Facebook grew with the evolution of the online community, in an amazing and dynamic symbiosis. Mark Zuckerberg has been both inspirational and at times visionary in his approach, but it would be misguided to suggest he could have planned this, no one could have. Rather his brilliance has been to sense and harness the mood and the needs of the Facebook users and in essence create two intimately connected businesses, one for the users and one for the advertisers.
With the listing of Facebook on the bourse he has now added a new business situation to the equation that may start to complicate matters. Shareholders want returns, company value is pegged to share price and profits. In this case, profits depend on happy advertisers, which depend on happy Facebook users and the information and networks they generate around themselves. Such is the nature of the social medium, should this balance is upset for some reason, then the entire enterprise could be left behind as quickly as we’ve seen Blackberry and Nokia lose their markets.
At the moment there are no competitors to Facebook, and any potential competition has been bought out quickly. While this can be done easily as a private company, it might be more difficult for a public company to do so without the approval of shareholders. Some of this could even be considered anti-competitive, although its hard to see how current laws could be applied in this situation. A significant privacy scandal could also cause an exodus that would see Facebook’s popularity wane. With a focus on profit maximisation working against the needs of users, a scenario such as this becomes all the more likely.
But social media is business built around human behaviour, and our species is a strange one. We can be convinced to follow all manner of fashions until our interest fades. On Facebook it only takes a single click to ‘unlike’.
Watch FiST Chat 69: Facebook Goes Public for more on this topic.