It is safe to say at this point that Facebook’s IPO was a dud.
That is not to say they will not bounce back, or beat estimates on earnings, or make boatloads of cash. But their Initial Public Offering certainly left something to be desired.
Maybe these investors are more keen on the value of Facebook than we gave them credit for. Maybe people outside Silicon Valley realize that Facebook has an incredible amount of holes in their business plan, chief among them the fact that their “mission” runs directly into the face of how they plan to make money.
The biggest black mark on Facebook heading up to their IPO was GM pulling out $10 million dollars in ads from the social media platform. At the time I wrote how it was no big deal, and I continue to believe the story is more fluff than substance, but this week we got some new details.
We previously knew that GM and Facebook had a meeting to discuss GM’s ad buys. Previously, all we knew was that Facebook had pushed the free services it provides (brand pages) to GM, and we were puzzled. Facebook was going public, they needed to push not the free stuff, but rather the paid stuff. This made little sense. Well, recent news cleared up some things. Turns out GM wanted to buy more ad space, but not the pathetic little Facebook-looking squares, rather they wanted something bigger, spectacular, and unique to GM. Facebook declined.
I saw one comment about this story that bashed GM for wanting to turn Facebook into “TV advertising.” Hardly. That completely misunderstands what’s happening here. GM wanted to spend more money to reach consumers, no problem with that. Facebook wants to maintain the integrity of their network and user experience, no problem with that either. GM already has a plethora of free brand pages where they interact with consumers, and I’ve interviewed an executive at GM who handles their social media and digital strategy, I assure you, they get it.
This story does not present a GM problem, it presents a Facebook problem. Facebook is now public, they generate money from advertising. Yet at the same time, they seem opposed to advertising. The truth is, paid advertising on Facebook is no better than TV or print – it interrupts and clutters the experience. However, Facebook offers no other options. That needs to change, and fast.
Facebook’s mission is “to give people the power to share and make the world more open and connected.” That is a great textbook mission; short, concise, and to the point. However, it forces Facebook to walk a very fine line with advertising.
There is a knee-jerk reaction, that certainly has truth, that when corporate dollars begin to invade a platform, it is no longer open and free. Facebook did not want to give GM more visible ad buys because their platform would no longer be viewed as “open and free,” it would be viewed as “sponsored by GM.”
To many of its users, open and free means unfettered by major corporate dollars. It means that no corporation has such a large advertising stake that they can make critical decisions about the platform. To be fair, I don’t believe GM has any interest in making key Facebook decisions, all they care about is selling cars, but user perception is what matters. Facebook does not have users locked into a long-term contract, they can leave en masse at any time.
Furthermore, there’s a chasm within the company between business and changing the world. It is very clear Mark Zuckerberg has little interest in business affairs; he ruffled feathers in the investor community by wearing his signature hoodie and jeans during the IPO roadshow, and he couldn’t even travel to New York for the the first day of trading, opting to “ring the bell” from Menlo Park, CA. Zuckerberg is 100 percent focused on the user, their experience, and how they can use Facebook to make the world “more open and free.”
Sherly Sandberg, on the other hand, is focused 100 percent on making money. Facebook is now a public company, if investors are going to put up money, they need to see returns. Especially when Facebook’s stock price is over 100 times their earnings. Sandberg is committed to making sure Facebook stays in the black, very high in the black.
At face this is not an issue, it is not unusual for a company to have someone focused completely on business and a separate person completely on the consumer. However, Facebook is different. Their desired path of monetization directly affects the user experience.
Consumers are inundated with advertising everywhere, furthermore they are tired of advertisements that interrupt – taking away from the experience of consuming media. Facebook understands this, so they’ve done their darndest to make their advertising targeted and cohesive – thus limit the interruption. Visually, Facebook ads look like any other Facebook post, except they are on the right hand side and marked as an advertisement. Anything above and beyond this might be deemed too loud and interrupting.
Thus, GM’s ambitions of having a more grandiose advertising presence on the site, could run the risk of turning off users. So Facebook turned down what was likely millions of dollars and sided with the user.
Totally fine for a private company, not so great for a public company.
If Facebook is going to succeed monetarily with advertising as their primary income they will have to expand its scope and size. They cannot continue growth with blended in ads that are poorly targeted. They need to go bigger. It does not have to be huge banner ads on the top of the site, it could be a host of tools for brand pages that increase visibility and performance, but something must be done to break the mold of the tired ole’ “targeted” ads.