Facebook's Feb. 1 filing for a $5 billion initial public stock offering has the potential to give the world's biggest social network a market capitalization that would put it in the same rarified league as Google and Apple. The question is whether its future growth and financial performance will keep it there.
Facebook filed for a $5 billion initial public offering (IPO) Feb. 1, claiming to make $3.7 billion in annual revenue, $1.8 billion in operating income and $1 billion in net income.
With some 845 million users, Facebook may not have been an Internet darling for a few years. When the social network goes public, it will get a seat at the adult's table, joining Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) as an arbiter of online services.
The question turns to what will happen to Facebook when its financial performance is watched closely by investors and public shareholders. While Facebook follows in the footsteps of Yahoo (NASDAQ:YHOO) and Google as a well-heeled Silicon Valley company, it will go public with a massive ecosystem of dependents already plugged into its matrix.
"I call Facebook an ecosystem, or a mothership, or a microorganism," Altimeter Group analyst Rebecca Lieb told eWEEK. "There are so many companies using either its API or its advertising services, and we're only going to see more of that."
For example, Facebook has tapped The Washington Post, Foodspotting, Spotify, Netflix, Pinterest and dozens of other companies as "social apps" partners. These software makers integrate their apps into Facebook to facilitate sharing users' interactions with those programs.
Social gaming platforms such as Zynga butter their bread in Facebook, making money from virtual goods and giving Facebook a cut. Ad platforms such as Buddy Media rely heavily on Facebook. Lieb also sees great untapped potential for Facebook in social commerce, where the company could compete with daily deals providers such as Groupon and Google's Offers deals service.
This ecosystem has made Facebook so rich in user data that Lieb believes talk of the IPO may have forced Google to announce its privacy policy streamlining early. Google last week said it will be putting nearly 60 of its Web services under one privacy policy, breaking through the silos of disparate Google accounts to enable each of the services to share data. Facebook already has this in place.
"Their product is customer data," Lieb explained. "Their revenue stream is advertising. Advertisers are advertising on Facebook because targeting is theoretically so precise on the platform. In order to compete with Facebook as a media, Google had to do this."
Catherine Tucker, associate professor of marketing for MIT's Sloan School of Management, said Facebook itself is only beginning to recognize the "untapped potential" of this kind of advertising through its platform, APIs and resulting ecosystem.
While social network Websites haven't borne a lot of financial fruit for advertisers to date, Tucker said Facebook's data can be hugely valuable to marketers. In a research paper, Tucker examined data from an experiment in which a nonprofit charity used both traditional and social advertising on Facebook.
Tucker found that social ads tailored for friends of "fans" of the nonprofit on Facebook attracted far more clicks than those that were not. "When you target ads based on who is friends with whom, you can double the number of clicks," Tucker said. "This is because advertisers can uncover consumers who could also get excited about their product."
Facebook itself acknowledged in its IPO filing:
"We believe that the recommendations of friends have a powerful influence on consumer interest and purchase decisions. We offer advertisers the ability to include 'social context' with their marketing messages. Social context is information that highlights a user's friends' connections with a particular brand or business, for example, that a friend Liked a product or checked in at a restaurant."
Clearly, the rest of the social media market is thrilled with the news.
Take this comment from enterprise social software specialist Jive Software CEO Tony Zingale, who went so far as to say Facebook's success "paved the way for us at Jive to bring the social revolution to the enterprise and have one of the most successful IPOs last year."
"Facebook's IPO is the ultimate proof that social is the new way to connect and share personal information," Zingale said.
http://www.eweek.com/c/a/Cloud-Computing/Facebook-IPO-Will-Put-Social-Network-in-Google-Apples-League-551919/