Ever since the Facebook IPO there have been many comments on how the Facebook story is over. Ever since Mark Zuckerberg captured the imagination of his dorm mates eight years ago by setting up a platform that allowed them to rate their fellow students, Facebook has become the most popular social networking site in the world with over 800 million members. Facebook soon had many corporates setting up their pages as well as advertising on Facebook.
Then what seems to be the challenge?
Well that challenge is three fold.
First challenge is that Facebook already has almost 70 % of the 220 Million odd Internet users market in the US. Figures for Western Europe, Japan and Korea are similar. So there is no more growth. The runway is over and now there would be only marginal additions to those numbers. Most people would have to live with that.
Secondly the Facebook ads are not working. A few weeks before the IPO, General Motors declared that they were going to reduce their exposure to Facebook ads. KIA motors had similar concerns. I believe that the problem is simple; you might visit a restaurant on a friend’s recommendation but were unlikely to make a high involvement purchase like a car just on recommendations. You might value other sources as well as technical specifications and expert opinions. Hence the question on the Return on Investment (ROI) on the advertisement spends.
Thirdly now that mobile has become the new norm, Facebook still has technical challenges getting the site optimized to the new mobile platforms. Recently Apple and Facebook just agreed on settling on a interface that would work for the iPhone. But the bigger challenge remains with Android and its owner Google.
In conclusion though Mark owns almost 51% of Facebook he still has to contend with Wall Street now that the stock in public. Today the stock which had an IPO price on $ 38 is trading at $ 27. Morgan Stanley has definitely made matters worse by getting the pricing wrong on the IPO.
So is the story over?
Maybe not but definitely Facebook and its promoters will now get a hard dose of reality from the street both Main and Wall Street. And it will take more that technical arrogance to get over that…