Time is ticking down to Facebook’s initial public offering (IPO) on 18 May and the company is on the road reminding potential investors what exactly it is they do and why anyone would want to buy into it. While the former remains ephemeral at least there are compelling stats to back upits value proposition. A membership base of 900 million active members (525 million of which are daily visitors), 2 billion ‘likes’ per day, 125 billion connections between users, 1 billion comments per day and 488 million users connecting through mobile devices has to be worth something, and its already profit-making ($3.8 billion in revenue last year). If Facebook’s management has its way the IPO should raise $5 billion, putting the actual value of the company at $100 billion. Anyone who thought its valuation in 2007 of $15 billion as farfetched would be forgiven for suffering an acute attack of the dizzies.
As always there are caveats in an IPO and Facebook submitted 38 reasons not to be so cheerful, most of which have been foremost in the minds of critics for as long as it has been around. Could a new network come from nowhere and do to Facebook what it did to Myspace? How important is its founder and CEO Mark Zuckerberg and what succession strategy is in place should the worst happen? Will data protection issues and ongoing litigation cripple Facebook’s ability to turn a profit? What happens if the casual game space implodes and cash cows like Farmville and Mafia Wars disappear?
The above are valid questions but there are also two elephants in the room (it’s very a big room). First, how Facebook is to maintain a user base that, while currently expanding, is certain to plateau in the near future. Keeping 900 million people engaged and amused is an impossible task but Zuckerberg and co. may have found a way to keep more people within its ecosystem for longer by revisiting one of the network’s initial draws: apps.
(App) Centre of attention
There was a time when people were happy to spend time playing Scrabble, take quizzes on movies and music, find out which Simpsons character they most closely resemble and even which illicit drug you are. That apps became a cornerstone of the smartphone revolution while waning on Facebook again points to the difficulties Zuckerberg faces.
Now Facebook is revisiting apps with the launch of App Center. Basically ‘me too’ version of the iTunes App Store, Google Play, Windows Marketplace, Facebook’s take on the walled garden will stock the usual mix of movie and movie streaming, e-reader and integration with other social networks there’s nothing here that won’t be familiar to smartphone or tablet users but that can be a good thing – especially if the plan is for users to pay for them. As the battle of digital versus physical formats has told us, convenience always wins out but consumers will pay for soft copies if the quality supersedes ‘free’. If subscription services like Netflix can be aggregated into accounts without adding clutter people on the site longer become more likely to engage with targeted advertising.
The second elephant is also its biggest growth area: mobile. Nearly 490 million people log on to the site from a mobile app, yet to date these have not been ad supported and offer no revenue stream. Basically it’s possible to enjoy the entire Facebook experience and not be reached by any advertising at all. By adopting the app store model where some content is available for free and some paid for mobile could be successfully leveraged. Introducing ads might be a step too far, for now.
May 18 will be a big day in the history of the Internet. As the world’s most-hyped social network opens up for between $28 and $35 a share we will finally have a ‘gold standard’ for social media, and a dose of realism to go with it.
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