The Facebook IPO last week marks a huge milestone for the company, the tech sector and web 2.0. As a tech lover I am often asked by my friends as more and more tech companies fill the bubble “Did you buy Xynga? LinkedIn? Facebook?” the answer has always been no because I can see past the hype. I want to use this blog post to explain why I haven’t bought into the tech bubble yet despite my love for all these companies going public (especially facebook) and then talk about where Facebook should go from here.
Technology is the cool thing and the internet is the fuel that technology runs on. Anything big that catches on the internet is instantly hot and big news. Big news generates a lot of hype, a lot of hype generates over valuation and incredibly high expectations. When those expectations aren’t met you will see a decline and an overwhelming response of disappointment. Facebook is a big example of what many other internet companies who went public have seen. Just because a company has a really neat idea, large bases of users or corner a particular market segment doesn’t mean that they have good ideas to make themselves a good public company (you know, that always important basic account equation assets-liabilities=stockholders equity). If any other idea or company that wasn’t on the internet went public without a real solid and reliable source of revenue you would NEVER hear a large level of hype around them, but since it’s tech and cool, internet companies are not the normal case.
In the specific case of Facebook I made my decision not to even think about buying earlier in the week when a poll showed that a large segment of American’s don’t trust Facebook and GM announced they were pulling all Facebook advertisements because it’s not effective. The vast majority of Facebook revenue is from advertisement sales. If people don’t trust a company they won’t click on (the revenue generation part of the formula) the ads and the advertisers will pull their advertisements (see GM example). This is a serious issue that Facebook will have to tackle before they even address the “bells and whistles” features that users want and go elsewhere to receive.
Facebook has a number of other issues that they have to work on. A growing concern is that an increasing number of users are using mobile applications or mobile web browsers to use Facebook. Currently I can access Facebook a number of different ways using my Windows Phone or my Kindle Fire without seeing a single advertisement. If Facebook wants to grow and keep up with future trends they will need to develop a serious mobile strategy that includes revenue generation.
Another ever present issue is the constantly present battle between Facebook and your expectations of privacy. Facebook has a huge amount of information about you (all information that you voluntarily gave, remember) and it’s all gold to advertisers. Now that Facebook has stockholders and earnings expectations to meet. Will your data be safe?
Ultimately I think Facebook will do just fine. They may have been overhyped at the IPO stage but they are already doing things that position them very well in the future. They have a whole ecosystem surrounding the company, their network is huge and most importantly the company is incredibly fast to adapt. Everyone should take one lesson from the Facebook IPO. No matter what you think of a product or how much hype it gets in the media, you should always do your own independent research.