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Published on February 21st, 2012 | by Saira Khan
Image © [caption id="" align="alignleft" width="568" caption="Mark Zuckerberg's original Facebook profile, niallkennedy ©"][/caption] Want your fair share of Facebook? Think twice. Earlier this month, Mark Zuckerberg, CEO of Facebook, announced the social network’s Initial Public Offering. Facebook is to issue shares to the public with a valuation of $75-$100 billion. However, this valuation is based upon an optimistic growth path. Many people may jump into this investment purely because it is Facebook. However, it is important to consider whether public ownership of Facebook will negatively impact its success and whether it is, in actuality, a profitable investment.

Will Facebook continue to grow?

At first glance, the IPO looks to be successful, with Facebook seeking 27 times revenue, or 100 times earnings, and generating $3.7 billion last year -- 88% up from the year before. But this growth is unsustainable. In developed countries, such as here and the USA, everyone who has the potential or will to be on Facebook is already on it. Facebook has 845 million monthly active users, worth approximately $4.39 each, but could see a decline in new users. The company has reached its peak in these regions and its growth will soon become negatively exponential. Furthermore, any growth it is experiencing is coming from developing countries where other companies are less keen to advertise due to consumers’ lower spending power. No advertisements means no revenue growth, regardless of any increase in users.

Will other up-coming social networking websites be a threat?

There is increasing competition from companies such as Google +, who now seek to ride the social media wave. Some countries have created their own versions of Facebook which are more popular locally, such as Russia’s Vkontakte and Japan’s Mixi. New platforms are trying to tempt away potential Facebook users, limiting its ability to extend its popularity globally. Moreover, Google created a more efficient form of advertising with its targeted search innovation, earning itself $9.7 billion just 15 years after its founding – we have yet to see such a financially beneficial innovation in Facebook of late. Half of its users operate the social network on mobile devices, which creates zero revenue for the company. Facebook needs to keep up with the innovate ideas of other companies.

Will this affect Facebook users' privacy?

Of concern is that it is in advertisers’ interests that users have less privacy in order to target specific people with advertisements relevant to their interests. The majority of the public is against such information being shared with companies. But should it really bother people that they are, for example, one of a hundred thousand IP addresses with similar characteristics – from a certain age group, interested in engineering developments? Should it bother them that engineering-related advertisements get sent their way as opposed to something they are uninterested in? An individual is practically anonymous as regards their relative importance in the volume of information companies are collecting and a company’s actual interest in knowing about a person’s personal life. Of course, there is the argument that information or names may be passed on to third parties. But those who are so greatly concerned about their privacy should abstain from using or putting information on Facebook to begin with.

Will Facebook change due to a new corporate culture?

With a relatively small percentage of the company being sold, shares are more likely to go to institutions than ordinary members of the public. There is apprehension over whether an addition of possible multi-millionaires into the company may dilute Zuckerberg’s management into a more corporate culture. Mark Zuckerberg is known for placing his users above advertisers and his initial low regard for making money. In contrast, institutions have a view to make profit and may seek aggressive means to achieve this. However, public market shareholders will, in actuality, have very limited control and Zuckerberg essentially has veto power over investors, controlling 57% of Facebook. Moreover, he has thus far proved his financial prowess so investors should have little impetus to seek change in the company. Zuckerberg and employee shareholders also want to see a growth in the value of their shares and are far from likely to take shareholder money and use it for their own purposes. Nonetheless, there are new pressures to continue its high growth path with Facebook no longer being a private company, and Zuckerberg may find himself compromising Facebook’s essence for the interests of his investors. For this resolution to be worthwhile and share values to grow, Zuckerberg must either realise higher advertising sales and risk disillusioning users by changing the user-friendliness of Facebook, fundamentally innovate Facebook to thwart up-coming competitors, or extend Facebook’s reach beyond its own platform, as Google has done in the past. One thing is for sure; Facebook needs a breakthrough at some point in its lifetime for this IPO to meet expectations further down the line.

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Facebook status: Uncertain.

Mark Zuckerberg's original Facebook profile, niallkennedy ©

Want your fair share of Facebook? Think twice.

Earlier this month, Mark Zuckerberg, CEO of Facebook, announced the social network’s Initial Public Offering. Facebook is to issue shares to the public with a valuation of $75-$100 billion. However, this valuation is based upon an optimistic growth path. Many people may jump into this investment purely because it is Facebook. However, it is important to consider whether public ownership of Facebook will negatively impact its success and whether it is, in actuality, a profitable investment.

Will Facebook continue to grow?

At first glance, the IPO looks to be successful, with Facebook seeking 27 times revenue, or 100 times earnings, and generating $3.7 billion last year — 88% up from the year before. But this growth is unsustainable. In developed countries, such as here and the USA, everyone who has the potential or will to be on Facebook is already on it. Facebook has 845 million monthly active users, worth approximately $4.39 each, but could see a decline in new users. The company has reached its peak in these regions and its growth will soon become negatively exponential. Furthermore, any growth it is experiencing is coming from developing countries where other companies are less keen to advertise due to consumers’ lower spending power. No advertisements means no revenue growth, regardless of any increase in users.

Will other up-coming social networking websites be a threat?

There is increasing competition from companies such as Google +, who now seek to ride the social media wave. Some countries have created their own versions of Facebook which are more popular locally, such as Russia’s Vkontakte and Japan’s Mixi. New platforms are trying to tempt away potential Facebook users, limiting its ability to extend its popularity globally. Moreover, Google created a more efficient form of advertising with its targeted search innovation, earning itself $9.7 billion just 15 years after its founding – we have yet to see such a financially beneficial innovation in Facebook of late. Half of its users operate the social network on mobile devices, which creates zero revenue for the company. Facebook needs to keep up with the innovate ideas of other companies.

Will this affect Facebook users’ privacy?

Of concern is that it is in advertisers’ interests that users have less privacy in order to target specific people with advertisements relevant to their interests. The majority of the public is against such information being shared with companies. But should it really bother people that they are, for example, one of a hundred thousand IP addresses with similar characteristics – from a certain age group, interested in engineering developments? Should it bother them that engineering-related advertisements get sent their way as opposed to something they are uninterested in? An individual is practically anonymous as regards their relative importance in the volume of information companies are collecting and a company’s actual interest in knowing about a person’s personal life. Of course, there is the argument that information or names may be passed on to third parties. But those who are so greatly concerned about their privacy should abstain from using or putting information on Facebook to begin with.

Will Facebook change due to a new corporate culture?

With a relatively small percentage of the company being sold, shares are more likely to go to institutions than ordinary members of the public. There is apprehension over whether an addition of possible multi-millionaires into the company may dilute Zuckerberg’s management into a more corporate culture. Mark Zuckerberg is known for placing his users above advertisers and his initial low regard for making money. In contrast, institutions have a view to make profit and may seek aggressive means to achieve this. However, public market shareholders will, in actuality, have very limited control and Zuckerberg essentially has veto power over investors, controlling 57% of Facebook. Moreover, he has thus far proved his financial prowess so investors should have little impetus to seek change in the company. Zuckerberg and employee shareholders also want to see a growth in the value of their shares and are far from likely to take shareholder money and use it for their own purposes. Nonetheless, there are new pressures to continue its high growth path with Facebook no longer being a private company, and Zuckerberg may find himself compromising Facebook’s essence for the interests of his investors.

For this resolution to be worthwhile and share values to grow, Zuckerberg must either realise higher advertising sales and risk disillusioning users by changing the user-friendliness of Facebook, fundamentally innovate Facebook to thwart up-coming competitors, or extend Facebook’s reach beyond its own platform, as Google has done in the past. One thing is for sure; Facebook needs a breakthrough at some point in its lifetime for this IPO to meet expectations further down the line.

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