I’m going to jump on the band-wagon here and write a little bit about the Facebook IPO. I put all the pre-release speculation on the back-burner mostly because of the infantile approach to predicting how it was going to blow up. I’m no prognosticator by any stretch of the imagination, particularly when it comes to the market, which is about as predictable as tourist footfalls in Times Square.
What intrigued me about Facebook becoming a public company was in fact how it would act as a public company. Privately held entities are shielded from so much of the speculation and tribulation that naturally occurs once investors hold stock. The success or failure is judged on perceived shareholder return and not on the innovations that have brought Facebook so much of its acclaim and success at this point. How the staff manages those expectations, rather, those demands for growth will be key.
Which metrics to reach for
Typically, privately held entities can determine their own benchmarks for success and the timelines for which achievement of such successes can be measured. The most important persons to answer to are the internal stakeholders who defined such benchmarks. Financials are mostly shielded from the outside and interpretation can be manipulated against the the company mission. The company is defined largely by itself.
That’s not so for most public companies which have evaluations on a quarterly basis as defined by the market at-large. Success is based almost solely on financials rather than the intangible missions many private companies can strive for. Shareholders define as much of the direction and determine the benchmarks while the market speculators who attempt to read the tealeaves for the shareholders predicting what the expectation should be.
Facebook will now be tasked to reach revenue and profit expectations which return the shareholders greater returns on their investments. This is not an easy task and it is a challenge the company has yet to truly face. Private investors are much more patient than the market at-large.
Innovation versus profits
To this point, Facebook like most private companies, generally held its future in its hand and thus its fate. Innovation came at the speed of it’s own development and by its own expectation and internalized needs. What it saw fit to put into the marketplace it could, be it consumer facing changes to the user experience or additions to its robust connectivity apis or delve further into its micropayment scheme or find new advertising units. Generally, it worked toward the greater good of what Facebook defined as it’s optimal user experience: How could it seamlessly collect the greatest number of user interactions (if I were to define it myself).
No more will that be the case. The new public entity will have to focus on one word: monitization. Any and every effort will be graded by shareholders and the market at-large against this one simple word. If it cannot directly impact the bottom line in this quarter with positive results it likely will be met with increasing speculation on if and how it can be monitized and criticism about its assumed adoptability and impact. As many companies thrive under this spectre many more fail under its crushing expectations. At no point can there be any attempt at doing anything other than deliver monitization, particularly in the short-term as the quarterly investing cycle continues to collapse into the 24-hour news cycle.
Joining the Ranks of…
Where once it was shielded from much more than a passing comparison to Google as a forefather or Twitter as a rising star beneath it disrupting and changing how tech companies existed. No on was really sure outside of the user experience and assumed depth of database how it actually measured up. It was all speculation and assumption and it provided Facebook with the endless ability to try new things and expand into new sectors to deliver whatever it believed its mission was.
Now, rather than being some young starling being gawked at in the distance it will be held up to the scrutiny against Apple and Microsoft and Yahoo! and every other public tech company, and not just those in web interface software and advertising as the usual competitors but the big guns of tech across all sectors. That’s a tall order for a company going into an IPO with big expectations. Look at how Microsoft performs against these odds. Or Yahoo!. Or RIM. Granted Apple out-performs, for now, but they didn’t always and as more companies make inroads into the verticals Apple dominated under Jobs will they continue that dominance. Will RIM figure out how to regain ground in the lucrative but ultra competitive device and mobile data distribution chain or will it become even more like struggling Nokia? Can Yahoo! which still maintains a top 4 ranking for views figure a way to remonitize itself or will it fall into the hole that AOL and MySpace fell into – and is that where early investors are betting Facebook falls with the early sell-offs? See how now that everything is under the microscope of the market at-will and what Facebook is in for.