Will an IPO change Facebook? The sudden influx of $5 billion (and more) will certainly give it lots of opportunity, though it'll also mean Facebook will soon answer to shareholders. And those shareholders will demand that the company keep increasing the value of their investment.
In his letter within the IPO filing, Facebook CEO Mark Zuckerberg talks high-mindedly about his creation being a social experience first, and a company second. But in the same document, Facebook talks about the value its massive scale and knowledge of "demographic factors" can bring to advertisers and marketers, calling out vaguely uncomfortable examples, like Starbucks being able to pay to get users' check-ins promoted in their friends' news feeds.
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There's no question Facebook's utility as an advertising tool is huge, and it's only getting bigger. Facebook's ad revenue was over $3 billion last year and has been growing at more than $1 billion every year since 2009. That's what's really driving the its evolution, and it would be true whether Facebook went public or not.
The Problem With Google Comparisons
We could to Google's IPO for guidance in what will happen to Facebook. But when Google went public back in 2004, the online advertising market was just $9 billion -- less than half of the roughly $32 billion it garnered in 2011, according to the Interactive Advertising Bureau and eMarketer.
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While digital advertising came of age over the past seven years, Google continued its pattern of innovation for years after its IPO. Google Labs cranked out project after project, many unveiled with great fanfare (remember Wave?) only to fall flat.
Then last year, under CEO Larry Page, Google started to get "serious." The company cut an unprecedented number for projects, and launched a full-fledged effort to unite its many services into a more cohesive platform, connected to its new social network, Google+.
This has led to some clumsy attempts to capitalize on its products, the latest of which is "Search Plus Your World." The change to its fundamental search tool -- which now points users toward Google+ every chance it gets -- has been widely criticized for worsening the search experience.
Online Advertising Gets Real
Twitter has gone through similar growing pains. When it introduced the Quick Bar (a.k.a. "Dickbar") to its mobile app last year, it was so widely criticized that the company had to relent and remove it. The blatant attempt to steer users toward one of its ad-revenue streams, promoted trends, was ultimately not in Twitter's best interests.
Even smaller digital players like Flipboard have begun integrating ad platforms to their tools. Everyone wants to monetize their apps, of course, but Flipboard to launched its advertising tool just one year after the app's debut. Foursquare, which took more than two years to roll out brand pages, is really taking its time.
There's a reason all these digital brands -- big and small -- are getting money crazy. The online advertising market has reached a tipping point, and virtually every digital brand is getting swept up in the change. According to eMarketer, spending on online advertising in the U.S. is due to surpass print for the first time this year -- and it's projected to double by 2016.
Meanwhile, major players like Google and Facebook are gobbling up much of that new revenue for themselves. And they both keep innovating, leveraging their networks and aggregated data to try and make themselves more valuable then other options as well as each other's.
If you're in this space and you're not making noise with your ad platform now, you risk getting left behind. That's certainly what happened to Yahoo, which has now challenged itself to re-establish itself as a leader in the game or die trying.
The Real Reason Behind Facebook's IPO
Again, all of this would have been happening whether Facebook went public or not. What led Facebook to IPO, I believe, is a desire to steer where online advertising is going rather than vice-versa. As its revenue grows, it recognized a need to create its own Google- or Amazon-scale services with the back end to match. As big as Facebook is, you need IPO money for that.
Will that fundamentally be better for the user? We'll have to wait and see, but there are two ways this could go. One the one hand, competition is fundamentally good, and the more players that can go toe-to-toe at the highest levels of online advertising, the better. On the other, the digital players are now so large and so influential that they risk losing sight of the very customers they're fighting for.
This is the web in 2012, and the stakes only get bigger from here.
Image courtesy of iStockphoto, -Oxford-
BONUS: Facebook's Greatest Fears
1. Competitors
"Users increasingly engage with competing products."
Image courtesy of Flickr, MukumburaClick here to view this gallery.
Additional Facebook IPO Coverage
- Facebook Files for $5 Billion IPO
- Facebook IPO Reveals How It Made $3.71 Billion in 2011
- 10 Giant Things Less Valuable Than Facebook
- Zuckerberg to Potential Shareholders: Facebook Is on a Social Mission
- Facebook IPO Filing Flings Open the Social Network Kimono
- Facebook: Zynga Generates 12% of Our Revenue and We Need Them
- Sheryl Sandberg Was Facebook’s Best-Paid Employee in 2011
This story originally published on Mashable here.
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