How many people reading this have already checked Facebook today? Its allure is strong.
It’s a one-stop shop where one can reconnect with old friends, make new friends, play games, join like-minded groups, read the news…the list goes on and on. Well, soon you will have the chance to own your very own piece of that addictive pie.
Facebook filed its Initial Public Offering (IPO) with the U.S. Securities and Exchange Commission (SEC) earlier this month to become a publicly traded and owned entity.
In a letter to potential shareholders CEO Mark Zuckerberg said, “We’re going public for our employees and our investors. We made a commitment to them when we gave them equity that we’d work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment. As we become a public company, we’re making a similar commitment to our new investors and we will work just as hard to fulfill it.”
Facebook generated $3.7 billion in revenue in 2011, and could be valued between $75 and $100 billion when it goes public.
An article in The Economist titled Facebook: A fistful of dollars warns that Facebook faces a couple of issues that may give investors pause.
One is how the company will continue to operate with the same level of urgency with employees who will suddenly become “paper millionaires” when the stock goes public.
The second is an issue with a broader scope and the potential for regulatory backlash.
Facebook knows a lot about its users. And it is constantly working on ways to find out more. The idea being that the more it knows, the better it can cater to its users' specific wants and needs. This is a nebulous area for many people.
It’s also an area that is hard to regulate, which could cause problems for the company down the road. The Federal Trade Commission (FTC) has already sentenced Facebook to twenty years of twice-yearly privacy audits and has required that Facebook get consent from its users before sharing their information.
This results from a two-year investigation into Facebook for “unfair and deceptive business practices,” including promising users that it would not share their personal information with advertisers (it did) and representing third-party apps as having access to only user information they needed to operate when the apps could actually access nearly all of the users’ personal data, even when they didn’t need it to operate the app.
Basically, Facebook’s greatest asset also has the potential to be its greatest downfall.
Facebook is free (Their slogan: “It’s free and always will be.”), so profits have always come from display ads—chosen based on a specific user’s information to be most of interest to them.
If Facebook violates its users' trust, it risks losing access to their information as well as any potential buying power they may bring with them. I’m sure that many people and companies will watch with interest as this process proceeds.