News about Facebook’s IPO has been making a lot of headlines lately, and that is no surprise. Facebook has become one of the most recognizable Internet entities, and it has expanded beyond its digital confines. Think about how many brick and mortar businesses mention their Facebook page.
There’s no question that it’s big, but is it profitable? Advertising alone on Facebook has become an over $3 billion dollar industry by itself. Many have forecasted that Facebook’s current private shareholders are about to become overnight millionaires. There’s no question that Facebook will have a huge start when it arrives on Wall Street in a few months, but can it sustain itself for years to come?
The simple fact is that Facebook’s new public investors are going to want to see the company’s profits keep going up, otherwise they’ll sell their stock and take their money elsewhere. This puts the pressure on Mark Zuckerberg to keep finding new ways to get more money out of you, the social network consumer.
Facebook has always said that their service is “free, and always will be.” But with its entry into the public market, it’s only natural for one to worry how much it will take before they break that promise.
Let’s assume for a moment that they will keep Facebook membership free, no matter what. How else can they get money? They could increase the number of ads seen on a page or charge their advertisers more. Perhaps they’ll start charging that brick and mortar business money to keep their page hosted on their site. Other ways include charging more for Facebook credits, making it cost just a little bit more to keep your cows fed in FarmVille.
Speaking of FarmVille, game developer Zynga recently went public. They’ve made billions of dollars from their various Ville games as well as their several Mafia Wars-style games. But when they went onto the stock market, their price plummeted almost immediately. They’ve made modest gains since then, but nothing too spectacular.
In order for an investor to pick Facebook’s stocks, they need to be convinced that as a company, Facebook can deliver profit, and continue to do so. They may have the tools necessary to do this now, but we are worried that down the road, some serious changes may occur to degrade the proud and popular social network. It seems nearly impossible to keep their millions of users as well as their profits
One also has to wonder why they’re going public in the first place. They’ve done nothing but profited so far in their private status. It’s as the old adage says, “If it ain’t broke, don’t fix it!”
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