At the worst possible time — on the eve of the social site’s IPO — The Wall Street Journal reports that General Motors plans to quit advertising on Facebook because ads there don’t get the job done:
General Motors Co. plans to stop advertising with Facebook Inc. after deciding that paid ads on the site have little impact on consumers’ car purchases, according to a GM official.
The move by GM, one of the largest advertisers in the U.S., puts a spotlight on an issue that many marketers have been raising: whether ads on Facebook help them sell more products. On Friday, Facebook is expected to sell shares in an initial public offering that could put a market value on the company of as much as $104 billion…
That aside… personally, I have trouble understanding why Facebook wants to go public anyway. Of course, I’m pretty sure Mark Zuckerberg doesn’t want to — hence his childish, obnoxious gesture of showing up for business meetings on Wall Street in a sweatshirt.
But while I blame him for not dressing like a grownup, I find any reluctance he feels to go public totally understandable. I say this as someone who suffered for decades working for publicly-traded newspaper companies — and who would still be a newspaperman if his paper had not been owned by an overleveraged public company. To me, anyone who is making plenty of money from his private company would be totally insane to go public.
No one, but no one, would accuse me of being any sort of financial whiz. But I fail to see the presence of any of the usual reasons for going public. What does Facebook really need an infusion of cash for? It’s not capital-intensive like, say, a steel mill. It’s always been able to rake in the money for relative little investment.
Yes, I’ve gone out there and read explanations of why. But I’m unconvinced. So what if, for instance, going public would be a huge windfall for Facebook employees? Why would I, as an investor (if I were an investor), want to spend my money to give them that windfall? Where’s the competitive advantage in encouraging a company’s founding talent — the people responsible for making the property valuable — to cash out?
The one rational excuse seems to be that in this converging online world, the only way to compete with the other titans out there, such as Google, is to have mountains of cash on hand, so you can beat the others to the punch when it comes time to buy a YouTube or an Instagram.
In other words, it’s a necessary step in the bid to become all things to all people online. Which seems, in and of itself, a debatable goal. But hey, nobody’s asking me.
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I’m pretty sure Mark Zuckerberg doesn’t want to — hence his childish, obnoxious gesture of showing up for business meetings on Wall Street in a sweatshirt.
-Brad
Talk about your gratuitous (and childish) slap in the face. Geez what is with you and this obsession with 1940s era dress standards.
There’s nothing 1940s about it, bud. It’s a simple matter of showing respect to the people you’re meeting with. He was flipping off the people he was meeting with.
Haven’t you heard, Facebook is just a fad.
Zuckerberg doesn’t really have to show respect to anybody as long as Facebook is as popular as it is. He could flip everyone in those meeting rooms off and they’d still come knocking on his door asking for his blessing.
If I were you I’d write him a nasty note and put him in touch with your bow tie source.
As with any IPO: Caveat Investor!
There are several things going on with this (or any) IPO. As you point out, FB doesn’t need cash to expand, and that’s true. Some of the shares are being sold by the issuer, but the majority are being sold by existing stockholders.
Those existing stockholders want to cash in – big time. These existing stockholders are venture capitalists, angel investors, hedge funds, private equity investors, corporate insiders and whatnot – some of the “smartest” money out there. If they are selling, why would a small retail investor want to buy?
Basically, it’s an opportune time for getting one’s money out of FB, the market for IPO’s is fairly hot and they need to get while expectations are still high, that is before revenues stagnate and FB starts festering subscribers.
Mark Zuckerberg stands to make billions. If he wanted to show up in a jockstrap and a Tyrolean hat, Wall St. would still kiss his butt.
A good read on the subject of IPO’s and stock valuation would be Adam Smith’s (George Goodman’s) book Supermoney.
At least the Tyrolean hat would demonstrate a sense of respect for the formality of the occasion.
Although a plain trilby would be better.
And from what I hear, this younger generation doesn’t wear jockstraps. They got no respect…
I guess my question is, and it’s the thing NO ONE wants to talk about, does ANYBODY pay attention to Facebook ads, Google ads or BradWarthen.com ads? I find it all a massive waste of money.
(But advertisers, please keep doing it so Al Gore’s internet can remain FREE!)
“A good read on the subject of IPO’s and stock valuation would be Adam Smith’s (George Goodman’s) book Supermoney.”
I think I just found bud’s Christmas present.
Wann seine Name Zuckerberg ist, dann tragen sie eine Hut von der Tirol. Nicht eine Englischer Hut!
I don’t pay attention to ads outside of glossy shelter mags and The New Yorker–and The State, but the latter is to mock them–male enhancement products? Amish fireplaces and swamp coolers? Okay, maybe I drool over the used luxury cars that are sometimes advertised in the front section.
and Al Gore never said he invented the internet
http://www.snopes.com/quotes/internet.asp
I guess “I took the initiative in creating the Internet” isn’t the same thing as claiming to invent it. But it’s sure close.
Its all kind of messy but it seems that given the rules governing when someone can sell their stock Facebook needs to go public in order to keep employees. Losing good talent could kill the golden egg laying goose. I suspect Facebook will decline in value over the next few years. It just doesn’t seem like much more growth potential. And the advertising doesn’t seem particularly valuable as the GM comments indicate. Not sure why FB could possibly be valued at $100 billion. Just doesn’t seem like a reasonable amount to me.
@Greg, as a former advertiser on bradwarthen.com I can assure you that the ads are effective and more importantly, the ones you see are targeted directly to be relevant to your interests! For instance, I see ads from longtime sponsors Platinum Plus, Jake Knotts and the Distilling & Cattle Feeding Company.
I for one, though, have NEVER clicked through on a Facebook ad, and only rarely have clicked on any banner ad, popup ad (worst) or other online ad. They may plant a suggestion in my malleable mind, though.
I understand why the “angel” investors and employees forced Zuckerburg (he’s also included on the personal side as an employee) to go public.
That doesn’t mean I won’t laugh at those who want in on the offering.
Advertising on the web is real. Facebook as a business proposition? That’s far from certain – especially when Facebook can’t even decide what it wants to be when it groes up.
I agree with bud & Mark Stewart. Buying into IPO’s is frequently a horrible deal. This one has the possibility of being particularly horrible.
FaceBook’s strength is it’s 900 million person user base, but it’s also the smart people who built the framework for a site people wanted to visit repeatedly. A lot of those folks will cash in this round. They’ll go from well paid and holding a lot of stock options to fabulously wealthy. At that point, they may decide they no longer need to work so hard, or at all. Some will go on to found other companies or become venture capitalists themselves. They’ll take talented employees with them, many of them will want to get in on the ground floor of the next big thing. Losing this talent will hurt.
Facebook has critical mass, but it’s grown stagnant, and only by growing revenues and profits can they support a $100B valuation. Earning $3/share isn’t going to cut it for long. A more reasonable valuation might be 15X earnings, and that’s with some growth. How many more folks are going to join up? How many folks are going to increase their time on the site? How will they increase their click-through? All hard to do.
Investors are better served buying into well managed, well established companies at reasonable valuations.
To quote Eric Bana in “Black Hawk Down:” “Y’know what I think? Don’t really matter what I think.”
But here it is anyway…
I think Facebook is the AOL of this decade. It’s overreaching, trying to be everything, trying to be people’s only interface on the Web, and it’s gotten so junked up and unwieldy trying to be all that that its usefulness dwindles as each day passes.
Remember when AOL was the Big Dog? When IT bought Time Warner instead of the other way around? Pretty laughable now.
AOL grew to what it was because people were ignorant enough about what the Internet was that they thought they needed AOL to bring it all to them. (Hey, at first AOL didn’t even OFFER you the Web — just a dialup service to what was on its servers — but once it DID, it tried to be people’s one window on that experience.)
Eventually, people realized that not only did they not NEED AOL as a portal, it actually got in their way and unnecessarily junked up the experience. If they were going to use a standard jumping off point, it needed to be clean and simple, unadorned, practically unnoticeable — and so Google rose.
Facebook was perfectly suited to what it was started for — helping horny college students hook up. From there, it adapted to other types of interpersonal relationships — connecting with old high school friends, sharing pictures of the kids with relatives, etc. Onto that was grafted a sort of slam book of likes and dislikes, which theoretically added market appeal. But none of that is generic enough to be the total Web experience. And why would I want to wade through all those bells and whistles to get to information that I need? Are human beings only their sets of friends, and likes and dislikes? What are we, a bunch of seventh-graders?
Facebook doesn’t even know what to do with likes and dislikes. Every book that I say I like, for instance, shows up as a link to… a page about the book. Only the page doesn’t tell me anything about the book. It’s just a page with the name of the book, and a bunch of junk. Total uselessness…
OK, I’ve ranted about this enough…
The risk to Facebook employees is akin not only to AOL, but to Myspace and Bing — too many of the public can get along without them, believe it or not.
From an investor’s viewpoint it would take a hefty dividend to justify the dot.com -V2 risk, and even Google, which very few people can get along without anymore, is bare of any dividend yet.
However, Google does provide services of quantifiable value to the public and charges advertisers for the public’s exposure to ads. If Facebook provides similar services to the public, the values appear less quantifiable and more “psychic”.
That is why real investors know it is a fad whose popularity will wane about as suddenly as it was gained.
I don’t know about the horny college student part but otherwise Brad has nailed this one. No way Facebook should be valued at $100B.
From the WSJ: “Here Are 10 Reasons Not to Buy Facebook Before You Buy It Anyway”
http://online.wsj.com/article/SB10001424052702303879604577408724178786822.html?mod=WSJ_hps_sections_markets
Where would bud value Facebook? $100?
Mark Stewart makes a point about why Facebook went public. Facebook was using OPM, Other Peoples Money, the angel investors. They want to realize gain on their investment.
I think Facebook’s business plan is just to make revenue from advertisers. There is nothing compelling about Facebook that I would want to pay my own money into. I just recently joined Facebook because a few awesome contests require a Facebook ID.
Flikr? I paid for a Flickr Pro account because I wanted to have more than their free limit of photos available. That is a subscription model
Subscription models can fail. I was a member of CompuServe in the early 80’s. AOL is a subscription model.
I worked for a great technology company in Columbia. I thought they had a great product, the ability to approve loans based on their customer’s (banks) lending criteria. I was not a pre-IPO employee, but a post-IPO employee of Affinity Technology.
My assessment of why Affinity failed: 1) They had trouble closing sales; 2) Once they had a customer (bank) and a contract, they couldn’t resist modifications to the contract that the bank wanted. Instead of saying, this change will cost this much, they “McDonald’s Supersized” it and said “Sure! Do you want fries with that also?”
I was granted stock options in the company as bonuses, but my options were “upside-down” the minute that I received the options. There was never, ever any hope of making a profit from the options.
Brad,
I think your breakfast club (Capitol City Club) meets in what was once known as the “Affinity Building”.
Working downtown was great. I worked on the 23rd floor and had a great view of the west. I worked with a talented group of software developers. There were great places to eat lunch in walking distance.
Great article following up on the FaceBook IPO debacle:
http://online.wsj.com/article/SB10001424052702304065704577422643666002940.html
Everything pretty much went off as I predicted.
@Ralph – “Working downtown was great. I worked on the 23rd floor and had a great view of the west. ”
I hear that the chicken plant can be beautiful, especially as the sun sets on it in the summer.