Facebook, which If you’re 1/9th of humanity I shouldn’t need to explain, has gone public. On Friday, the social network floated on the New York Stock Exchange with an initial price offering (IPO) of $38. By the end of the day’s trading, the stock finished up about 23c, well below expectations but enough to put about $16bn in the safe.
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So now the big questions are: what to do with that money, and how will Facebook start living up to their $104bn valuation? The company has rarely cracked $1bn in profits since they arrived 5 years ago (ONLY FIVE YEARS AGO. THAT’S HOW LONG FACEBOOK HAS BEEN AROUND. WOW). A typical risky valuation is 20 to 1. Facebook’s is effectively 100 to 1. That means that even risky investors are expecting this company to boost its profits dramatically, and continue to boost them over the next few decades. Why would anyone think that?
Reach
Facebook currently boasts some 800 million users, which is roughly one in every 9 people. You could cut that ratio in half, considering how many don’t own or have access to a computer. Then there’s those people who can’t speak yet. The real ratio might be as much as one in every three people on Earth, who can be reached as advertising targets, use Facebook. That’s a level of connectedness never before reached in human history, all using the one service with the one format. Impressive.
Advertising
So Facebook can reach many people with deals and offers for businesses great and small. There’s also the ability to comment, meaning that Facebook can quickly monopolize the great undiscovered continent for advertising – direct word of mouth. If you see a product page on your wall, with several of your friends offering positive comments, would you be more likely to check it out? Also on the upside, it forces companies to really make sure their product is good, because bad feedback from people you trust will be severely damaging.
On that, it will also allow company reps to be more accountable and contactable. This is already happening on Facebook and Twitter, where company representatives maintain a personal presence on these networks to answer enquiries and address complaints in near-real time, without lengthy call delays. It also allows a wide network of people to potentially have their enquiry answered at once, limiting the need for large contact centres, full of people having to answer the same questions over and over again. Instead, it might require large teams of Facebook staff, who can be personalized to a greater extent.
Facebook will most likely have an option to turn off or limit the amount of advertising an individual could be exposed to, limiting its efficacy. Which brings us to:
Tiered Pricing
Would you pay $10 a year to use Facebook? Many would. It’s already there, your connections are already there. What if you had the option of a free, advertising laden service (with strict quality control to avoid spam), or a $1/month advert-free service? Or pre-pay for the year, for $10? If 10% of users went for this option, that’s already a cool billion dollars a year, and might be enough to keep Facebook ‘nice’.
What about as a company? $1000 a year to maintain a distinguishable online presence on Facebook would be peanuts to even tiny firms. That's not couting the little add-ons that can add up.
Would you pay extra for greater amounts of storage, effectively using Facebook as a cloud storage provider like Dropbox, Google Drive or iCloud?
OS
Mobile operating systems (OS) are the new battleground for computing. iOS, Android, Windows Phone and BlackBerry are not going to exactly replace desktop computing environments- they will merge into them. Apple’s OSX Lion already incorporates many elements from iOS, Windows 8 will be a dual mobile/desktop environment and Android can be used as a point-click-keyboard interface on devices like ASUS’ Transformer Prime laptop/tablets (laplets?). Android and iOS are well ahead, but Windows still rules the desktop space, and merging its Windows Phone platform might force everyone to sit up and take notice more than they have been. Linux still has the potential to bust out as a lightweight, free and open operating system for cheaper devices, and BlackBerry might re-discover its ability to innovate. In such a crowded field, is there room for a Facebook OS?
Facebook could offer an operating system built around contacts, stored documents and pictures, ubiquitous communications and even limited content creation. It would look similar to operating systems now, but with even greater attention paid to communicating. Facebook could easily take the Android approach and maintain relationships with several different hardware manufacturers, or it could acquire its own manufacturer and focus on quality control. Google has Motorola in its pocket (though it’s unclear what they’re going to do with them) and Microsoft has a strategic partnership with Nokia, which might one day become a merger. Apple and RIM (BlackBerry) make their own gear. With LG, Sony and even HTC floundering, there’s plenty of potential takeover targets for Facebook. Even BlackBerry might be up for grabs soon. Combine BlackBerry’s excellent handsets, and their security, with Facebook’s ability to integrate their software, and you might have a winning combination right there.
Wallet
I’ve often pointed out here that the next big move for Apple is Near Field Communication (NFC), a secure short-range wireless technology that could allow for quick wave-n-go transactions (secured with a PIN#). Apple, with over 200 million iTunes accounts, could easily become an enormous paymaster, letting people limit their pocketable items by removing their wallet. Amazing stuff!
Facebook currently uses its ubiquity and brand to act as a middleman for many registrations. Online forums (ours included) use Facebook logins and applets to allow for quick site registration. If Facebook culd convince people to handle its credit card numbers as well, the potential for e-commerce and even real world purchasing would be huge. PayPal and Amazon already lock horns in this arena. Google Wallet is in beta, but is certainly part of the long range strategy. Everyone’s waiting to see Apple take it further. Facebook should be in this fight too.
Conclusion
It’s easy to dismiss the hype around Facebook’s public flotation as inflated nonsense, designed to bilk early investors. The fizz with which its first day ended should be indication that not as many people are buying the idea that Facebook will stick around to be a major part of our lives, after the spectacular bust of other popular but money-black hole platforms like MySpace, Bebo and even YouTube. But Facebook has scale on its side, and even after all the privacy fiddling and Timeline shenanigoats of the last 2 years, it still offers a relatively straightforward and powerful way to keep in touch with a wide circle of people.
That said, it could all collapse. In the lighting fast worl of personal technology, you either innovate or die, and the pressure is on now for Facebook to strike the right balance between remaining ‘cool’ and turning spectacular profits. Otherwise, it might be penny stock by this time next year, as euphoric early buyers dump it in favour of the next big thing.