The(not so) Fragile Side of Facebook
The(not so) Fragile Side of Facebook
With every IPO comes a plethora of information about the potential “risks” associated with the operation of the company and Facebook is no exception. Designed to inform investors about situations that may negatively impact the profitability of the company, the information is also of tremendous interest to social media consulting firms and small business owners alike.
Wondering what could possibly harm Facebook? According to their own internal documents, the biggest threats to the company include the following. We have outlined each threat and presented a short “probability” note or comment to elucidate the reader.
1. Failure to retain existing users or add new users.
Note – While possible, the probability of Facebook failing to acquire new users appears slim especially given the recent entry into a global marketplace and strong push toward mobile applications! Facebook currently has 845 million monthly ACTIVE users, 483 million active daily users and 425 million mobile users; while impressive, this still represents a small percentage of total possible users both domestically and globally.
2. Threat of users decreasing current level of engagement.
Note – Facebook is obviously being quite conservative and using current levels of engagement rather than expecting total time spent on the social media site to grow. This is significant since mobile users tend to spend a greater cumulative amount of time on Facebook and represent a growing segment of the market.
3. The loss of advertisers could negatively impact business.
Note – Short of a catastrophic social, environmental or political event it is unlikely advertisers will withdraw from the largest and most significant social media site in history. As traditional advertisers struggle to survive the current economic downturn, Facebook has clearly thrived as evidenced by the upcoming IPO. Among business guru’s and economists alike, it has long been recognized that a company able to thrive during a tough fiscal downturn is likely to grow even bigger once recovery is in full swing.
4. The growth of mobile products – where they do not currently display ads – may negatively affect revenue and financial results since Facebook user growth and engagement on mobile devices depends upon effective operation with mobile operating systems, networks and standards which are not under the direct control of the company.
Note - While it is certainly true that Facebook does not “currently” display advertisements on their mobile platform nor directly control the mobile operating systems, networks and standards in use there are several considerations to keep in mind. First, with a major influx of new investment capital, Facebook will be well positioned to acquire a controlling stake in mobile operations if desired or perhaps simply dictate the terms of standards in much the same manner that Walmart establishes the terms of buying/selling with the company. When a company is as large and strong as Facebook, chances are providers and developers will work to meet the needs of their business partner. Also, be sure to pay close attention to the use of the word “currently”…Facebook has already announced the decision to pursue mobile marketing in a big way so it would not be surprising to see a major impetus toward mobile advertisements in the near future.
5. Competition. According to Facebook “our business is highly competitive and competition presents an ongoing threat…”
Note – Every business faces competition – it’s a sign of high demand. Over the years there have been many players in the emerging social media field including a few that have fallen by the wayside like MySpace. However, in much the same manner than Amazon came to dominate the online bookstore (and later nearly all retail sales), Facebook is clearly the leading social media site as of this writing. Niche sites may find a footing in the future in much the same way that smaller business concerns have rode the wave of acceptance to the online shopping concept after Amazon paved the way. As social media becomes mainstream, expect smaller niche sites to pop up everywhere. Whether or not any will become significant enough to compete head-to-head with Facebook remains to be seen but most experts agree it will be quite some time before that becomes even a remote possibility.
6. Regulatory Risk. According to Facebook ” Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. May of these laws and regulation are subject to change and uncertain interpretation, and could harm our business”.
Note – Every corporation in the world is subject to regulatory risk. It’s simply a part of doing business and not exclusive to Facebook or the social media arena. While it is true that regulatory risk can dramatically impact both the profit and day-to-day operations of a company, Facebook has repeatedly demonstrated the willingness and ability to successfully navigate these considerations in the past. In fact, the very delay of filing for an IPO despite rapid growth and large numbers of investors provides a working example of the savvy manner in which Facebook addresses these concerns.
7. Important People. Facebook openly admits that Mark Zuckerberg will retain a significant level of control over key decisions in the company and the loss of Zuckerberg or other key personnel could harm the business.
Note – Perhaps no better example of the importance of leadership can be found that that of the late Apple Founder Steven Jobs. While leadership is indeed a critical cornerstone of every corporation…especially those with an innovative vision and transformative technology…a properly run company protects against this threat at every turn. Certainly the loss of a great mind is never easy to replace but at 27 years of age, Zuckerberg is not only a very young and vibrant leader but one likely to be around for many years to come.
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