The botttom line with Facebook is that it went public far too early. It doesn't have its footing on solid ground as far as revenue growth, stability, and profitability are concerned. Its advertising model, dependent as it is on these much-maligned targeted display ads, is promising -- but has a lot of kinks to be worked out. The more I look at the Facebook IPO, the more I don't see the conventional narrative, i.e., that the company itself is a flop, or that its ad model is inherently flawed. Rather, I see a company that was forced to IPO before its time, by taking on too many private investors and too much private funding. Furthermore, I see a bunch of the people behind that private funding basically giving Facebook as shiny of a paintjob as possible in order to make its public debut. But the paint was applied hastily, and it's all flaky and spotty at the big show.
To me, this cautionary tale is every bit as much about VC funding bubbles as it is about advertising bubbles. Sure, Facebook could never have been bootstrapped to its current scale. But it could have stopped taking on such massive amounts of funding, and, instead, opted for more organic growth until it found time to perfect its ad products and business model.
When we talk about the Dotcom Bubble of the mid 90s, we talk about a frenzied funding (and IPOing) of companies with little more than userbases and unproven (or occasionally nonsensical) business models. Facebook is not that, exactly. It's more userbase than business, but that doesn't necessarily have to be the case. Unfortunately, it was funded (excessively) in Dotcom Bubble fashion, and forced to IPO in Dotcom Bubble mode: grow insanely fast, worry about profitability later.
That it happened to benefit, temporarily, from a misguided advertising bubble is material, but also somewhat incidental.
So by saying that you think they went public too early, you are maybe implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate.
Are either of those things true? Is there some other difficulty?
"implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate."
I'm implying both. First, if they'd have shrugged off the early pressure to take on too much VC money, they wouldn't have been propped up with an indefinite runway and would have been forced to get creative, and quickly, with monetization. They'd probably be in much stronger shape today, because they'd have had to scale up profitability in line with operating costs and userbase. (At least to some greater extent than they were).
Second, because they're now public, they're having to crash-develop profitability while still being held to the fire to make quarterly projections.
I'm aware of the apparent contradiction in what I'm saying here, i.e., does it really make a difference when their feet are or were held to the fire to grow revenue? At least in my preferred scenario, they'd have been forced to deal with it early. Before growing to 1 billion users -- all of whom expect the service to be 100% free -- and going public to the equity markets -- who expect those users to be monetized pretty much overnight.
Not so sure that Facebook's strategy would be in-line with early monetization.
Their business strategy was clearly to rapidly gain default status and solidify the barrier to entry of being the de-facto social network... by monetizing you either piss off or scare away users, or decrease your eyeballs (that you can sell in-aggregate to advertisers).
That's been their strategy, yes, but the problem with not finding a way to monetize as you grow -- by putting off monetization -- is that you risk pissing off users even more when you suddenly introduce it, and at such large scale as to satisfy the needs of public shareholders. It's sort of like burying a mess under the rug: it's out of sight for awhile, until it festers, rots, and really starts to stink.
Sooner or later, Facebook was always going to have to monetize. Its deliberate strategy of putting off monetization until it became a de facto standard social network was a gamble. It seemed reasonable at the time to many inside and outside of Facebook. But my point is that, knowing what it was gambling on, Facebook shouldn't have taken in so much money that it was forced to go public before its gamble was ready to pay off. Now, it's going to have to start monetizing quickly and massively, come hell or high water -- at a time when it still doesn't quite know how to do so without pissing off its userbase. It's in a worst-of-both-worlds scenario, which could have been avoided regardless of its user growth vs. monetization strategy.
To me, this cautionary tale is every bit as much about VC funding bubbles as it is about advertising bubbles. Sure, Facebook could never have been bootstrapped to its current scale. But it could have stopped taking on such massive amounts of funding, and, instead, opted for more organic growth until it found time to perfect its ad products and business model.
When we talk about the Dotcom Bubble of the mid 90s, we talk about a frenzied funding (and IPOing) of companies with little more than userbases and unproven (or occasionally nonsensical) business models. Facebook is not that, exactly. It's more userbase than business, but that doesn't necessarily have to be the case. Unfortunately, it was funded (excessively) in Dotcom Bubble fashion, and forced to IPO in Dotcom Bubble mode: grow insanely fast, worry about profitability later.
That it happened to benefit, temporarily, from a misguided advertising bubble is material, but also somewhat incidental.