Osterman Research Blog

Some musings on the Facebook IPO
May 24, 2012, 5:17 pm
Filed under: Uncategorized

Since everyone else seems to be weighing in on Facebook’s IPO and the subsequent surprise in its valuation in the days following, I thought I might pass along a few thoughts on what I think this might mean:

  • Learning from the past is important:  Before the dot-com bubble burst a little over a decade ago, the inclusion of “Internet” or “Web” in a startup’s business plan was about all that was needed to get investors to throw cash their way.  After the bubble deflated rather rapidly, investors and business managers re-learned the basic principle that business fundamentals and realistic market assessments are more important than hype.  Then along came social media and most of the lessons learned were lost, and are now being relearned since last Friday’s Facebook IPO.  Admittedly, Mr. Zuckerberg was a teenager when the dot-com bubble popped, but many of his older advisors who lived through it should have been paying more attention.
  • Real-world thinking and math are important:  One of the fundamental problems that the Facebook IPO surfaced is that many investors considered the social media business as fundamentally different than other types of businesses.  It’s not.  For example, would you buy a restaurant if it was priced at $115 per customer – and if its average customer spent $4.84 per year?  Probably not, but many Facebook investors were willing to do just that – up until a few days ago anyway.
  • Social media is still important:  A knee-jerk reaction by some might be to discount the importance of social media in the workplace, for advertising, or for commerce in general.  After all, if the biggest, most popular and most pervasive social media company can’t generate sufficient interest in its IPO, some might surmise that the category isn’t as important as they were led to believe.  However, it is important to remember that social media is perhaps the most important development in communications and collaboration for the past decade.  In the workplace, it offers enormous potential on a variety of fronts, including real-time analytics to improve business processes and decision making, the ability to establish deeper connections with those inside and outside a company, the ability to enable informal interaction and insight gathering in a way that other tools cannot – and we’re just scratching the surface.
  • Reputation and likability are important:  A recent survey found that Facebook is the most hated social media company in the United States, while Google is among the best-liked companies.  Facebook’s IPO has seriously disappointed, while Google’s stock price has increased nearly six times since its IPO.  I think there’s a connection here.
  • Beware of popularity without impact:  Facebook is extraordinarily popular, used by 900 million people around the world and the numbers continue to grow.  However, users spend relatively little money with Facebook as a result of their interaction with it.  The lessons here are a) that popularity doesn’t necessarily lead to impact, b) impact doesn’t necessarily need popularity, and c) build your brand (and your life) so that if you disappeared tomorrow you would be missed.
  • Nothing has really changed:  Although Facebook’s IPO has been a debacle in a way that relatively few could have guessed just a few days ago, nothing fundamentally has changed.  Facebook is still used by 900 million people and counting, you can still “like” the breakfast or vacation or video that one of your friends just posted, and the money that some people lost investing in Facebook last week is still there, just in different pockets.
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