The countdown to Facebook’s highly anticipated IPO has begun. On April 23rd, Facebook filed its latest amendment to its registration with SEC. According to the filing, Facebook now boasts over 900 million monthly active users, with 300 million photos uploaded, and a whopping 3.2 billion likes and comments on the site every day.
While Facebook’s IPO day will almost certainly be spectacular, its long term success is far from assured. As a soon-to-be public traded company, Facebook faces a conundrum – the balance between shareholder and user interests.
Depending on your perspective, the latest numbers show potential for some, but trouble for other. Facebook’s revenue for the first quarter of 2012 was $1.058 billion, down from the $1.131 billion in the fourth quarter of 2011. Profits for the first quarter of 2012 were $205 million, down from $233 million in the same period in 2011 and down from $302 million in the fourth quarter of 2011. While the setback is hardly a disaster, it certainly generated much anxiety from Wall Street.
There are already signs that changes are inevitable. One way or another, Facebook needs to generate more revenue to justify its projected $100 billion valuation. According to a New York Times article, Facebook announced new advertising features in a recent marketing conference. A departure from the current clean look where ads on only placed on the right side, a new set of “premium ads” will run at different places on the site, as well as throughout a user’s mobile feed. Facebook is marketing itself to advertisers as “a big, fat story-telling canvas.”
What those changes look like is still not clear. One thing is certain, Facebook is attempting to reverse the trend of declining revenue and profit, and it will likely succeed in doing so. How will the user community react over time? Facebook has certainly built up a large enough user base which is not going to abandon the social connections built up over night. However, online trends come and go. After all, Facebook itself was created only in 2004, less than 10 years ago. New ideas are popping up constantly. Facebook’s recent purchase of Instagram shows just how seriously it takes emerging threats. Instagram’s mobile photo sharing service has been gaining popularity, but it is still in its infancy, with an employee count of 13, according to Wikipedia. Instead of developing its own version, Facebook acquired Instagram for $1 billion cash and stock. Sure, Facebook is loaded with cash, and the upcoming IPO will give it even more financial muscle. But is it going to buy up every new promising innovation to prevent itself becoming the Yahoo of social media?
More importantly, under mounting pressure for revenue and profit, how will Facebook balance the interest of its vast user community, with those of advertisers? Facebook will certainly be watching the numbers closely, and make adjustments. Social media trends are viral and exponential. At the end of the day, the fate of Facebook will be decided not by Wall Street, but by the social networks weaved by its 900 million users.
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