First it was a dorm room start-up offering social networking for students.
Then came The Social Network, the movie.
And now Facebook has launched an initial public offering that has unleashed an almost hysterical frenzy of the type experienced more than 100 years ago when fortune hunters fought over gold in the Klondike.
An Associated Press/CNBC survey this week found half of Americans polled think Facebook is a passing fad. Yet other Americans are betting — if not the farm — at least their kids’ future education on Facebook’s success. The Wall Street Journal found one family in New York state where the 11-year-old daughter asked her dad to buy shares in the company. Her father is trying to figure out how to turn his daughter’s $25,000 college fund into Facebook stock.
Will the kid have enough for Harvard or will she be taking out student loans?
“Is this bubble popping? I don’t see any sign of it slowing down, not in Facebook’s case,” said Peter Chow-White, a Simon Fraser University communications professor.
“One way to think about it — to beat Facebook all you have to do is come up with a billion users. When that happens, if you’re Facebook, then there’s probably something to worry about.”
At over 900 million and heading toward the one-billion-user mark, Facebook would have to lose plenty of users if it were to suffer the fate of Friendster — one of the first social networks to reach one million users but later edged out of favour by MySpace and it successors. Queen’s University business professor John Pliniussen points out Facebook has become indispensable for many of its users, particularly young people who have been using it their entire teenage years.
“If you want to connect at this level with these features and these apps, there is only Facebook,” he said. “That has become as important to some people as staying hydrated, as going to the washroom — there are some people who are never off Facebook, they are tethered to it.”
Alexandra Samuel, director of the Social + Interactive Media Centre at Emily Carr University of Art + Design and co-founder of Social Signal, Vancouver’s first social media firm, thinks that while the Facebook IPO has a gold rush air about it, it’s a gold rush that could be worth joining.
“Would I buy Facebook shares if I could and I was the kind of person who bought shares? Yes, I would,” she said. “I honestly think Facebook has got a huge growth potential still.”
There are caveats though. Going public will change both the company and the people who work there.
“Every time a start-up gets acquired or goes public, it creates a possibility to change the DNA of a company,” said Samuel.
Many employees will become millionaires and could leave, perhaps to create their own start-ups. Companies use it for advertising and marketing and developers have apps entwined in it.
“There are a lot of people who are stakeholders in this question of whither goes Facebook,” said Samuel.
Does Facebook’s 900-million-plus user base make it immune from failure?
“The Internet is young and faddish,” said Samuel.“I don’t think anybody should assume Facebook is unstoppable.”
One threat is the shift to mobile. Last year Facebook made $3.1 billion from ads viewed on laptop and desktop computers, but it’s struggling to transform that success to the growing mobile market. Close to the eve of its IPO, GM announced it was putting an end to its display ads on Facebook, a move that could prompt other major advertisers to rethink their Facebook strategy.
Facebook’s business model — it makes its money on advertising, giving users a free service in exchange for their personal information, habits and other data that is the holy grail for marketers — has drawn the ire of privacy experts and prompted class action lawsuits, both here and in the U.S.
Will the privacy issues eventually disappear as upcoming generations worry less about sharing personal data? Or will those issues remain, with the potential to make a dent in Facebook’s ad revenue?
Its user base is the envy of marketers.
“They offer the opportunity to target demographics specifically,” said University of B.C. Sauder School of Business professor Marc-David Seidel. “I think they haven’t fully tapped into the possibilities of what they can do with their data yet, so there is potential upside.”
Its very success could hamper Facebook’s ability to respond quickly to market changes, a drawback start-ups competing in the space don’t have. While the company is headed up by its founder, the hoodie-wearing Mark Zuckerberg, who is still a couple of years short of turning 30, it has grown into a corporate behemoth and its IPO is the third largest in U.S. history, after Visa and General Motors.
Seidel said the challenge for Facebook is to get future generations to become loyal to Facebook. The average age of Facebook users jumped from 33 in 2008 to 38 in 2010.
“The biggest threat to them is a demographic shift,” said Seidel.