Will the Facebook IPO be liked?

Later this week Facebook will make its initial public share offering predicted to value the business at around $100 billion and immediately become one of the biggest companies in America.


This blog has frequently commented on Facebook as a marketing medium. Undoubtably in its short history it has been a phenomenon, but is it sustainable? Lets evaluate the product against some fundamental criteria. According to books and the movie describing Facebook's origin and short history it grew out of a student venture that wasn't based on a particularly novel idea or execution, or from the result of in depth research. Neither was it driven by a business plan and financial forecasts. The surprise is that it took off in spectacular fashion with users signing up at an amazing rate to currently around 900 million world wide. Big numbers inevitably appear attractive to advertisers seeking to reach big audiences and this in turn led to talk of monetizing the product and then to the IPO.


As Facebook kind of 'took off' there is always the concern that if the fundamental appeal of the offering is not understood, then keeping the users happy if what it is that made them happy in the first place is itself not clear, there is always a risk of alienating them. Of course the initial success is based on a free product that generates just $5 per member. If it cost to join, would users pay to belong and would it have taken off as it did? Initially there was some exclusivity in so far as you needed a university email account to join.Two things that might just alienate users are the use of personal information and the presentation of advertisements on personal pages. Offering very targeted audiences appears to be an advertiser's dream suggesting low waste of advertising dollars.  I have just returned from Thailand, Vietnam and Malaysia and suddenly all the advertisements served to me are in Thai. Spooky, but not really appropriate especially as I can't read them.


And despite the big numbers of users,  it is still a small percentage of the world population which is counted in billions. And what proportion of an advertiser's target audience total population are regular Facebook users? In traditional marketing target audience populations can be defined and media addressing a particular group similarly evaluated. I wonder how many companies have any idea what proportion of their target audience are regular users of Facebook and are they typical of the whole target population or a sub set with different needs?


In the UK and other countries numbers are falling.This Guardian article quotes  Magnus Hoglund, chief executive of the law media portal Law360.com, who has worked on digital media companies for the past decade, saying: "From my experience, I get the sense that being on Facebook is not cool anymore. The early adopters and trend setters are moving away. [But] these are also exactly the type of people brand advertisers want to reach; if they are leaving, it doesn't look good for Facebook." The Daily Telegraph reports, "Facebook now has more than 900 million users, who share 46 billion pieces of “digital content” every day. That content might be short updates, photos, links to other websites, or invitations to events. Many of Facebook’s members use it instead of email. Others play a variety of games. Then there are those who follow pages run by celebrities, sports teams and even brands." It goes on, "All of the data those hundreds of millions of users add to Facebook contribute to building a profile of their interests. Using Facebook’s tools, advertisers can target very specific sections of the membership. If you want to reach women aged 18 to 24 who live in London and are fans of Lady Gaga, then Facebook can sell you an advert that will be shown only to members who match that profile." It begs the question, will it so effectively deliver engineering specifiers who work in Birmingham for a b-2-b company producing components?

Then as Facebook themselves have pointed out the greatest growth is in mobile platforms - smart phones and tablets - which they have not yet monetized. Commentators seem to agree that income will primarily be from advertising and this is unlikely to be additional money, but diverted from other media.  Interestingly General Motors has announced it will no longer pay to advertise on Facebook.


Of course companies can still communicate through their Facebook page without paying to advertise and here is another dilemma - what is it that Facebook does for b-2-b's? Other social media platforms have a ready-to-understand proposition. YouTube is great for videos - product demos, user endorsements, events etc. Twitter great for news headlines. LinkedIn for professional contacts and recommendations, blogs for specialised content, but Facebook's heritage is in personal communication  rather than broadcast messages and it takes resource and effort to build a loyal group  of followers. There then remains the not trivial task of then turning them into buyers!