Pfffft! Facebook launched Friday with all the fanfare of a presidential inauguration. It sounded like the Oscars, the Premio lo Nuestro and the lottery all rolled into one.
By the end of the trading day, though, it seemed more like a sagging soufflé. Instead of the POP! investors were hoping for, it sounded more like the slow hiss of air leaking out of an air mattress. Believe it or not, that may not be bad news for Facebook. But, "like" it or not, (yes, every story about Facebook is required to have at least one "like" pun in it) becoming a public company is going to put pressure on Mark Zuckerberg's Menlo Park whiz kids to figure out how to squeeze more profit out of its nearly 1 billion-strong user-base.
Get ready for more ads, in more ways, and in having Facebook sifting every one your status updates for data it can sell to advertisers. In other words, Big Brother won't only be watching, he'll be watching and looking for ways to sell what he sees.
Facebook's much-awaited, and much-heralded initial public offering put 421 million shares of its stock on the market at $38 per. After touching $42 momentarily a little after they went up for sale, the price quickly fell back to earth ¿ and almost into a hole. When the price threatened to go below the opening price, Facebook's bankers stepped in with big buys to prop the price up.
It closed at $38.23.
You practically need an EKG to notice a blip that small. Sure, it made gobs of money for insiders and early investors like Zuckerberg (an estimated $20.3 billion) and U2's Bono ($1.5 billion). But compared to other high-soaring Internet companies who saw their first-day share-prices shoot up, it's virtually a non-starter.
But that's what may be good news for Facebook. Too big a pop on day one can scare off the big institutional investors because they're afraid the surge won't be sustainable. A lot of the much-anticipated cyber-stocks that soared on day one tanked shortly thereafter.
What's that mean?
"It's usually best to wait a few weeks to let the excitement wear off," Morningstar analyst James Krapfel told the New York Times. "Buying in the first day is not generally a good strategy for making money."
But buying later, after you've had a chance to watch the company for a bit, may be.
Facebook founder Zuckerberg reportedly didn't want to go public. He had to. SEC rules apparently kicked in, forcing his hand.
Now the company will have to respond to shareholders. And shareholders like the stock to go up in value.
So, now, making money won't be enough. It has to keep growing, making more and more to move the stock price up. (Facebook has done pretty well in that regard. It cleared $1 billion in profit last year. That's almost double the $606 million it made in 2010, and more than four times the $229 million it made in 2009.)
To keep doing that, though, it will have to do is figure out how to make even more money off of its users ¿ us.
The $38-a-share put Facebook's value at about $104 billion. That means investors are estimating that each one of us with a Facebook page are worth about $110. Problem is, each Facebook user only generated about $4 worth of revenue for the company last year, and barely $1 in profit.
So, how might Facebook make up the difference?
More ads. Duh! Ads accounted for more than 85 percent of Facebook's revenues. Simple math says more ads means more money. The challenge for Facebook will be doing that without turning it into TV and turning off its users. MySpace became an ad nag. Look at what happened to that.
More ads in more places. Ever notice the creepy way ads from companies about things you searched for on Google suddenly start showing up on every page you open? If Facebook can start doing that based on your likes, your friends and your posts, look out!
More mobile ads. Facebook is way, way behind on this one. Its mobile app is virgin, ad-free territory right now. That has to change. And fast.
As Farhad Manjoo put it in Fastcompany.com
"And when Facebook does turn on its mobile-advertising machine, it will be able to offer marketers something unique: ads that are hyper-targeted both socially and geographically, a moving billboard that knows exactly who you are, and where, always. No one but Google has anything even remotely similar, and Google now makes $2.5 billion a year from mobile ads."
Using your data. Even though Facebook doesn't sell your personal info, it has access to all of it. Analyzing our data ¿ what we "like," the music and videos and news items we share, our comments about things we buy or want to ¿ could yield a treasure trove of collective info that Facebook could sell that marketers would find extremely valuable.
It already lets advertisers buy narrowly targeted audiences like, say, 18- to 34-year-old men in El Paso. But how much would a movie company pay to know which version of its trailer generates the most interest? Or what would it be worth for a clothing maker to see where people like its new line most - before it stocks its stores?
So, get ready. Facebook's latest status update - "Look, mom, we went public" - changes a lot more than who can own its stock.
Source: Carlos Harrison