The Facebook IPO: What went Wrong?

By Abhishek Kaul
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Facebook | The Tech Weekly

The much anticipated Facebook IPO was launched on 18th May 2012. The company had filed in the papers for the same on February 1st, on the  8th birthday of the immensely popular Social Network. What was anticipated to be the most talked about Tech IPO since Google (in 2004), surely lived up to those expectations, though not for the right reasons one might say.

So lets go over the events that 'stole the thunder'.

The 'Technical Problems' at NASDAQ

Typically the US Stock markets start trading at 9:30AM, and stocks listed on the NASDAQ don't begin till an hour later. Come 11AM, and there wasn't much action around the Facebook (FB) stock. By 11:30AM began some very fast and intense transactions leading up to 80 Million shares changing hands within the very first 30 seconds. However, some traders stated that the orders weren't being carried through, and some said that the prices they paid were higher than the prices that they had ordered shares at.

Later on, NASDAQ did state that there had been some technical issues on their part. As many traders had changed their orders before the system had opened, problems arose leading to a delay in the orders being processed. By 11:30AM they did change over to a different system, which caused the discrepancy in the prices. Some firms did not know even till Tuesday the next week whether their orders had been carried through. For NASDAQ to settle the claims made by these firms, will be a time consuming, costly affair.

So the fault was with NASDAQ, why is Facebook being sued?

Facebook IPO Compared to other companies | The Tech Weekly

The claims against Facebook

Very simply put, Facebook has been accused of withholding sensitive information about the financial situation of the company. Information that may have been privileged only to the big banks before the IPO. Information that may have left the small shareholders in the dark.

So what was this vital information that wasn't disclosed to everyone before the Facebook IPO?

Facebook would have liked the analysts at the underwriters of the Facebook IPO to lower the revenue forecasts for 2012. And they did. Goldman Sachs, JP Morgan and Bank of America reduced the earnings outlook of Facebook to a lower level. The new level presented by these underwriters were actually very similar to each other.

Why did Facebook want to reduce the revenue forecasts of 2012 right before the Facebook IPO?

Facebook has got over 900 Million users, a grand feat in itself. A relatively recent trend has shown the upward movement of the users preferring the Facebook Mobile Platform over the Desktop browser website. Approximately 500 Million users are on Facebook Mobile. Incredible as that is, Facebook has yet to show any significant revenue from the mobile platform, and that is where the problem lies. Facebook has not been able to properly monetize the mobile website. With the increase in a variety of platforms that are used to run Facebook Apps as well as the mobile site, there is a need to ensure that all these platforms can as effective in revenue generation as the desktop browser site is.

Seeing this data, Facebook may have wanted to lower the forecast for the current year, until they made a significant breakthrough in monetizing the Facebook Mobile Platform.

My Take on the Facebook IPO

Facebook has and (probably) always will be a huge social networking platform. It has been successful where other platforms have failed. It has given us the chance to express ourselves to a larger group of people. It has given organizations the capacity to reach out to new customers. Whatever the reason be for the success of Facebook, one cannot deny that it has changed the way we live our lives.

But at the end of the day, it is a Social Networking Platform. We share our thoughts, upload our photos, and connect with people of our interest. Facebook is a tool, a means to an end. Facebook is the sandbox in which we make our own castles.

The reason that Facebook has not been able to effectively monetize the mobile platform yet, I think, is that people don't come to Facebook as customers. Facebook, being a place where people connect, may be the most visited site by the average internet user, but I wouldn't feel it safe to assume that most people go there to buy something. Yes, people may visit Facebook to connect with the companies that they is fond of. People may also 'like' products that they have used and recommend it to other potential customers. But when one goes to make the purchase, Facebook is probably not the first site that comes to mind.

Facebook would be very effective as a 'Brand Awareness' creation tool for organizations to get spoken about by their customers. Being a place where people (not 'consumers') share 'What is on their minds', getting noticed by the 'person' (not the 'consumer'), is very easy. This would be very helpful in Brand Recall, but that's as far as it goes. Personally, I feel that this in itself is a very strong proposition, especially in today's world of cut-throat competition.

Facebook Ads and Sponsored stories are the primary source of revenue right now. Facebook may even be looking into 'Sponsored updates'. This, I feel would allow them some more traction in generating greater revenue, especially on mobile devices. If they are able to integrate the money generating content along with the non monetary content in one place, then it would get greater visibility to their adverts as well as a much better proposition to their advertisers and investors.

Facebook has always been a company that makes the headlines very frequently. It has given birth to what we call 'Social Media Marketing', and has enabled a plethora of applications to synchronize with it and benefit mutually. It may not always be in the limelight for the right reasons, but Facebook is here not just to survive, but to thrive.

These were my views on The Facebook IPO and their upcoming challenges. If you have suggestions or would like to contact me, you can reach me at 'contact [at] thetechweekly [dot] com' or @abhishek_kaul on Twitter. Would also like to thank Harish Advani (@harish_advani) for his valuable contribution to this article.

Posted in : Internet
Tags : Facebook

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