Friday, May 18, 2012

Timeline to the IPO

Facebook's IPO is going to be released today, with an initial per-share price of $38. In other social media news Pinterest has apparently secured $100 million in new funding. Neither of these companies sell a product, nor is there an effective long-term business plan. Is this the beginning of a new tech bubble?

Probably not, but there's still room to be fairly cautious. First, Pinterest--this is a web site with no known way of generating revenue. Businesses love it when you pin their products; at this point, it's mostly recipes and household products, since Pinterest started off with a highly middle-class female demographic. But exactly how Pinterest is going to capitalize off of this remains to be seen. It's free advertising for Crisco and Burberry, so why would they pay anyone any money? It defeats the purpose of what makes it unique.

Likewise, Facebook may eventually run into issues. If you don't know by now, Facebook isn't the product--you are. They make their money through ads, to be sure, but they're also collecting massive amounts of data every time you press a "Like" button or mention Doritos in a post. They then sell this info to marketers. There's plenty of completely valid ways this can be spun, but the big question mark is how long Facebook can remain as popular as it currently is. Hopefully no one has forgotten MySpace.

Even now, Facebook is getting cluttered with games and the new Timeline setup has diminished enthusiasm for many long-time users. If people stop posting and liking on Facebook because they can't stand to be there, and use it primarily to set up events, the entire revenue model of Facebook more or less collapses. Sadly, social media hasn't matured to the point where one big, stable company will always be around. It seems right now that Facebook is it, but it's only been open to the public a few short years. General Motors made a poorly-timed (for Facebook) announcement that they were pulling their Facebook ads, finding then ineffectual. This doesn't bode well for their only other main source of revenue.

Part of me also thinks that social media is sort of a mess. On one hand, we have things such as Instagram that aren't in any way creative or original, but somehow managed to gain a huge following and a pricey buyout by Facebook. There's a lot of seemingly useless stuff out there--Klout, in particular, seems like a badly-algorithmed circle-jerk--that people are paying plenty of attention to and venture capitalists are throwing money at it. And yet the few clean, simple ideas I've thought of in my spare time have yet to be implemented. An I an underfunded genius, or are people pretty much not very demanding when it comes to how useful social media can truly be?

Did Facebook overshoot its value? Sadly, I don't have the time to run any sort of half-assed analysis, but I suspect so. It's a hot new company that people are going to assume is going to be around forever, but once they have to answer to shareholders (even minority shareholders, which is everyone except Mark Zuckerberg at this point) the entire entity known as Facebook is going to change.

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