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The Effect of Facebook’s IPO

Posted on Wednesday, Feb 8th 2012

By guest author Daniel Burrus

Facebook’s IPO may well be the biggest and most hyped IPO ever … and for good reason. Many people would like to have bought Google or Apple when they first went public, but they didn’t. Now they’re kicking themselves for it. Unfortunately, you can’t go back and undo the past.

With Facebook’s rapid growth and social media dominance, all the people who regret not making those two moves in the past are going to want to buy Facebook. Additionally, all the people who are excited about social media and see it as a key part of the future are going to want to own part of Facebook, too. 

Realize, though, that when Facebook or any company goes public, the game automatically changes. Now the company has to look at quarterly earnings, manage short-term profitability, and decide how it can generate new revenue—all things it didn’t have to do before it went public. For Facebook, this means an increasing focus on revenue generation through advertising and other means.

The biggest problem is that these changes will interfere with the user interface. As I see it, Facebook has two options:

1) Change, once again, the privacy policy to allow Facebook to be more intrusive. Facebook has already changed the privacy policy several times to create new revenue streams from users and their behaviors. And it usually resulted in some strong backlash.

2) Allow more advertising on the site. But that interferes with the experience of being online with friends and the conversations taking place. Again, the possibility of backlash is real.

Facebook needs to be careful here. While it’s true that it is the leading social networking site, let’s remember that before Facebook, MySpace was the leader. So, does that mean that Facebook, with its millions of users and market dominance, is forever the leader? No. Nothing is guaranteed.

For example, throughout the 1990s, Yahoo! was the leader of search until a couple of young guys founded a company called Google and did some major technology changes regarding search. In fact, history is littered with category leaders that got displaced, even when they had full and total dominance. So, although Facebook is very big and dominant, its future is not guaranteed. To stay on top, it will have to continue to do rapid innovation.

Facebook has done a good job with innovation, but it has some challenges ahead over the next five years due to massive technological transformations. Processing power, bandwidth and storage are all going through exponential changes, giving us super-computing capabilities on our phones and 3D experiences on our smart devices. We will transform how we sell, market, communicate, collaborate, innovate, train, share and network with each other in a very short period of time.

For Facebook to stay the leader, it’s going to have to rapidly evolve … and in the right direction, because it’s always easier to take a wrong turn. So, the key for Facebook is to realize that any IPO creates new internal rules, processes and focuses for a company. But Facebook can’t let those things bog it down. With massive transformation ahead, Facebook must stay ahead of the game to remain the market leader.

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