Facebook’s meteoric rise from dorm-room-prank to one of the world’s most valuable companies (based on recent valuations) has been well documented. The website is used by hundreds of millions of people worldwide and in February of 2012, Mark Zuckerberg, the famous CEO of Facebook, announced that the Company had filed with the Securities and Exchange Commission for an Initial Public Offering. Facebook seems poised to capitalize on its success and its soon-to-be inflow of fresh capital, but is it all tailwinds for the company or does it face considerable headwinds as well?
Competitors Want a Piece of the Pie
Competition from other social media companies, including the up and coming Google+, could affect the profitability of Facebook. If users choose to migrate to other social media sites, Facebook’s current staggering usage rates (845 million active users a month) could drop dramatically, and with fewer users come lower income from advertisers.
Contentious Relationships with Advertisers?
Advertisers have an uneasy relationship with Facebook due to Facebook’s culture of putting users first and promising privacy. Regardless of whether in fact privacy is protected, advertisers are not convinced that Facebook is the best venue for their advertising dollars. If advertisers find the grass greener with other social media they may walk away from Facebook, reducing profitability.
Another challenge in the ongoing battle to retain advertising income is the fact that mobile technology, including smartphones and tablets, are increasingly the access point for users of Facebook. Currently Facebook does not put ads on its mobile applications. These devices, with their smaller screens, make it harder for advertisers to access screen space with effective ads. As users increasingly ditch their PCs and laptops in favor of mobile devices, advertisers may lose interest in trying to develop postage stamp size ads.
A bigger issue with the mobile device market is the uncomfortable fact for Facebook that they do not control the technology for many of the new and up-and-coming mobile devices, especially the Android platforms. If advertisers choose to link up with other social media providers who have better relationships with the developers of apps and technology for these devices, Facebook could well find itself shut out of this emerging market altogether.
Will Monetization Trump Privacy?
Privacy, always a concern online, will be more difficult to control as ownership and control of Facebook goes public. Internet users, increasingly aware of and wary of the uses advertisers hope to develop from their personal data stored online, are rightfully anxious at the thought of what it means to their privacy when the number of shareholders of Facebook stock run to the millions. Who will control and have access to that data, and how secure will it be? If Facebook loses the trust of its users, they will flock to other media sites they perceive as more secure and respectful of their privacy.
Of more immediate concern to Facebook, it is foreseeable that the creators and employees of Facebook who have made it the giant it is today may well leave the company once they become wealthy from the IPO. For those whose compensation packages have included stock options over the years, the temptation to cash in, retire and kiss Facebook goodbye may be very tempting. If many of these essential employees choose to leave Facebook, the site could find itself with a leadership, talent, and expertise vacuum that would be hard to fill, becoming a victim of its own success.
Welcome to the Patent Wars
Litigation from other platforms such as Yahoo could also impact the profitability of Facebook. Yahoo has stated in no uncertain terms that they will not shy away from litigation if Facebook balks at paying licensing fees for use of proprietary technology owned by Yahoo. This means potentially expensive patent battles tying up Facebook for years to come.
Internationally, Facebook is in the same boat as all internet sites; they are at the mercy of governments who may decide that they don’t want the social media giant available within their borders, and decide to shut down access. For some countries this could be for political reasons, but giants such as India and China may well decide they would rather leverage their huge population numbers into homegrown social media sites that they create and control, and Facebook would be entering risky territory if it tried to interfere.
Clearly the growth of Facebook, phenomenal to date, will likely slow in the future, as users move to other social media and new providers come on the scene, and as owner of competing media and technology flex their muscles in the market. Facebook does not own or control the advertisers, technology developers, and governments who allow for its success. Success breeds enemies, and the success of this IPO in dollars may cost Facebook its continued existence.
David Nance is a freelance writer for EverSpark Interactive, an Atlanta SEO company that utilizes a full suite of marketing practices to maximize the return on their clients’ investment.