Facebook IPO: Enter the digital future

Nearly eight years after its inception, Facebook Inc. is all set to go public this Friday. Potentially valued at over a hundred billion dollars, Facebooks is a modern-day rag to riches story, the story of an idea that has transformed how people socialise. The social networking website, now available in 70 languages, is a behemoth. The Companys website reveals that Facebook boasts 901 million active users as of March end 2012, of which 526 million paid daily visits to their profiles. More than 500 million users accessed the site through their mobile devices, as of April 20, 2012. On an average, 300 million photos are being uploaded to Facebook every day. This would be the third-largest IPO in US history and the largest thus far among Silicon Valley companies. Reuters reported yesterday that Facebook now plans to raise as much as $16 billion, after increasing the size & price band of the offering. Mark Zuckerberg, Facebooks founder & CEO, would see his net jump north even as many others in his core team become multi-billionaires as the shares hit Nasdaq on Friday. There is a lot of hoopla surrounding the Menlo Park, California-based Companys IPO. In CY11, Facebook Inc. earned $1 billion in net income on revenue of $3.7 billion. However, revenue growth dropped in first quarter this year owing to slowdown in ad revenues. Since the IPO announcement, the Company has generated a lot of interest and scrutiny from investors regarding its business model & revenue generation. Facebooks value proposition is its mammoth user base. It is no secret, when a service is offered entirely free to an audience, and then that audience becomes the final product. Hence, Facebook is actually selling its nearly billion-strong, diverse user base, and has various ways to make money through it. The Company tracks its users online behavior, activities and preferences, which it can sell to the third party websites in a rather meaningful form. Though Facebook is walking a very fine line vis-à-vis privacy concerns in the US and abroad. It also enables advertisers and marketers to reach its user base - filtered by age, location and interests - through direct advertising, display ads and sponsored stories. Facebooks footprint has also pushed the idea of Social Commerce forward. Local and global brands, across the range and breadth of industries, have created highly interactive pages for their customers and enthusiasts. The future of Facebook will be on mobile devices, something which Zuckerberg has been stressing on his road shows, stating that his major focus would be to make user experience seamless and more interactive on Smartphones. The $1bn purchase of the mobile photo sharing app Instagram and the announcement of launching Facebooks own app store seem to be in that direction. However, skepticism regarding Companys revenue model are still there. For instance, the future of display ads on Facebook Mobile is under question. Display ads bother and hurt user experience, less so on PCs, but more on mobile phones which already have a small screen to fit everything in it. Moreover, for advertisers (and eventually Facebook) to make money, the users need to have purchasing intent, which is unusual when the website is normally used for social networking. It is an interesting debate, albeit with a majority foreseeing a promising future for the Company. Rory Cellan-Jones, BBCs Technology correspondent, cogently summed up the emerging scenario in his recent piece: "Facebook IPO is a bet on the shape of digital future. If you believe in a world where billions of us share our lives online with our friends and with advertisers, then shares in the social webs dominant business may look attractive. But, if you think that people are going to start rebelling against the idea that, if they e not paying, they e the product, then, maybe, you won be buying a stake in Zuckerbergs Company".