Facebook has made a significant decision that will most likely affect its future stability. It decided to go public to raise $5 billion, which will be the largest flotation ever by an Internet company on Wall Street. Companies would want to go public because of several reasons. Most would want to raise additional capital for business expansion, others would want to improve their credit rating, some would use it as an exit strategy, etc. According to the articles I read, Facebook has decided to go public primarily because it wants to raise capital. The capital will be used to roll out more features that will eventually make it difficult for others to compete.
I can see that Facebook is solidifying its presence in social networks to be able to stay alive for at least a longer period of time. It wants loyalty from its subscribers. A lot of lessons were learned with the downturns of Friendster, Multiply, and MySpace because of the emergence of a new and a better social networking product. This is what I think Facebook is trying to avoid. With continuous improvements and innovations, Facebook thinks that it will command loyalty and still rule social networking.
From a layman’s perspective, I am just worried about the business model of Facebook. It basically gets its revenues from advertising: banner ads, sponsored groups, and text announcements. Although Google sources its revenues from advertising as well, unlike Facebook, it has a wide array of products. If the business model of Facebook will not expand, profitability of the company will suffer, which in turn will affect improvements and innovations. If such improvements and innovations are the only proposition of Facebook in exchange for loyalty, it can say goodbye to the subscribers because another ‘Zuckerberg’ may just come out in the future.
I have this wild thought of Facebook issuing a stake to its subscribers instead of going through an organized market like an exchange. I am pretty sure that there will be a lot of legal repercussions to that especially because subscribers come from different legal jurisdictions. But without thinking about the complications, I think it will be cool for a subscriber to be given an option to purchase even just a single share. No board lot required. In that way, subscribers will continuously support Facebook wherein the latter will think less about a possible future competition.
Adrian Francis S. Bustos, Entry #7