Facebook’s announcement of their upcoming initial public offering was all over the news last week. This $5 billion initial offering places the value of the company at $75-$100 billion, a high figure for an enterprise with 2011 revenues of roughly $3.7 billion and profits of $1 billion. If it proceeds according to plan the service will likely undergo major changes in the near future. A couple recent developments illustrate why this is bound to happen.
Last week, Proctor and Gamble announced that it would lay off 1,600 staffers, including marketers, as part of a cost cutting initiative. CEO Robert McDonald believes that the company can afford to reduce ad budgets because he considers social media more efficient than the traditional channels P&G has previously relied upon. Unless you work in P&G’s marketing department, this approach seems reasonable, right? Maybe so, at least while a corporate presence on Facebook is free, but remember that FB earns most of its revenue through advertising fees. Its recent launch of “Sponsored Stories” indicates that the company is looking at ways to drive top line growth, challenging P&G’s assumption that this form of outreach will remain cheap forever. Are pay-to-play brand sites next?
Changes are afoot on the user side as well.
Perhaps you’ve noticed that unaffiliated web sites now allow you to log in using your Facebook credentials – simply sign into Facebook then connect to a myriad of sites without reentering your information. The reason for this is Facebook Connect, a universal API that allows Facebook users to share data seamlessly with third party web sites. While very convenient, privacy advocates are concerned that it this service gives the social network greater insight into your personal business.
The company noted in last week’s IPO filing that the Internet has 2 billion active users and that “we aim to connect all of them.” Facebook Connect assures that the network will not only connect them, it will gather a great deal of valuable information as well. How do they plan to leverage it?
As a public company, Facebook’s management will be under considerable pressure to ignite growth and justify its high valuations. We’ve detailed some ways that Facebook can further monetize the service; increasing ad rates, pay for play and further commercialization of proprietary data will affect advertisers, affiliates and users alike. Whether Facebook successfully morphs into a gateway platform with an ever-increasing user base remains an open question. However, by raising $5 billion in new capital it appears clear that they are going to give it a shot.
So, will it work? Let us know what you think.
Tags: Facebook, Facebook Connect, IPO, P&G, Social Media, Sponsored Stories
