The last couple of weeks there has been excitement about Facebook’s IPO announcement. When you look at this closely, this can be Mark Zuckerberg’s worst nightmare.
Early on in his career, he exclaimed about not wanting to report to anyone while at the helm of his empire, Facebook or any other company. This will change when the IPO transpires and he has to report to stockholders about Facebook’s daily business success.
This is one of many things that can go wrong…
Facebook IPO: What Could Go Wrong? – The Washington Street Journal “Deal Journal”:
What could go wrong on Facebook’s march to one of the biggest IPOs in history? Let Facebook tell you — a fall-off in growth of users, a clash between Facebook’s culture and the expectations of public investors, and advertiser resistance to the company’s advances.
Here is what Facebook said in its IPO document filed today about risks to its business:
Could Facebook Be the Next MySpace?: Facebook already has 845 million active users each month — how many more people exist in the world who don’t have Facebook accounts? Facebook flags this as a concern, and warns that other social networks (cough, cough…MySpace, or Friendster) also grew like weeds but then imploded.
In its IPO document, the company says: “We anticipate that our active user growth rate will decline over time as the size of our active user base increases, and as we achieve higher market penetration rates….A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously.”
Advertising: Relatively few people click on Facebook ads, which is a traditional way online advertisers measure the effectiveness of Web ads. Facebook may need to boost this “click through rate” to convince companies to spend more money pitching their wares on Facebook. From the earliest days of Facebook, CEO Mark Zuckerberg also has prioritized the website’s users over advertisers, which means Facebook is giving up money is could make by larding up the site with ads or making them very prominent. In its IPO document, Facebook says:
“Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven.”
Competitors Large and Small Could Eat Facebook’s Lunch: Facebook is worried about competition from everyone and everywhere. Here are just some of the rivals named in Facebook’s risk factors section: Google, Microsoft, Twitter, Google+, Cyworld (Korea), Mixi (Japan), vKontakte (Russia), Renren, Sina, Tencent (all in China).
Why Work When You Can Sail Your Own Yacht? Facebook says: “We have a number of current employees whose equity awards are fully vested and shortly after the completion of our initial public offering will be entitled to receive substantial amounts of our capital stock. As a result, it may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they continue to work for us.”
Facebook’s Culture May Not Mesh with Public Investors: Again, from the IPO document:
“We have a culture that encourages employees to quickly develop and launch new and innovative products. As our business grows and becomes more complex, our cultural emphasis on moving quickly may result in unintended outcomes or decisions that are poorly received by users, developers, or advertisers. Our culture also prioritizes our user engagement over short-term financial results, and we frequently make product decisions that may reduce our short-term revenue or profitability if we believe that the decisions are consistent with our mission and benefit the aggregate user experience and will thereby improve our financial performance over the long term.”
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