Unless you’ve been sleeping under a rock lately, you already know that Facebook has gone public with their IPO. Despite the hype leading up to it, the IPO has gotten off to a pretty rocky start, and is already facing criticism from all sides, with many reporting it was overvalued and with multiple investors already filing lawsuits due to huge losses on their investments. Google and Facebook share some similarities, and many predicted that they would have the same successful start to their public debut as Google did. So what happened? Why did Google’s IPO do so much better than Facebook's? Part one discussed the history of both companies IPO's and some things that went wrong. This article will touch on further differences and on why comparing Facebook to Google isn't realistic.
Business Model Breakdown
Google can provide users with Facebook information...Facebook however cannot provide users with the information Google can, so people who compare the companies simply aren’t thinking logically. Everytime someone uses Google to search, it’s all trackable via Google analytics. Google’s business model is based on just that...business. Facebook’s is mainly based on hype, and while hype has a HUGE effect on how people behave, the model is not a realistically sustainable source of revenue in its current state.
This may sound like I’m bashing Facebook and saying they are a failure. Umm..no. Facebook is certainly a powerful company, and their success is undeniable. What they need however, is a solution that works hand in hand with how other people/companies advertise and buy products, and until it has that, it will continue to decline (as it has steadily done since 2010). Facebook gets around 82% of its revenue from advertising, yet they don’t even really advertise in the business sense of the word. I can’t be the only person seeing the flawed logic in that.
Google however, is extremely efficient at placing ads. They are the ultimate middleman, can control the user space where buyers search and where sellers sell, offer an affordable and highly efficent way of placing ads on the net via AdWords, and anyone who wants their services just has to make a phone call.
A Huge Price To Pay
Another issue is that if Facebook fails, it could very well take a big piece of the ad supported world wide web with it (say world wide web with 3 times fast). Other tech companies are crossing their fingers for a successful Facebook IPO in order to boost their own shares, so a lot is riding on this. With the way things are going now with the IPO, that halo effect that many companies were hoping for is all but gone.
Asides from the business model, there are corruption accusations coming from everywhere, which goes in hand with another issue....greed. I don’t even want to think about what might (or might not) have happened when it came to people wanting a piece of this IPO.
I’m not saying Facebook will fail. What I am saying is that without a very clever idea that they CAN fail as a healthy revenue generating business, and in doing that could take a massive part of the web with them. Facebook has TONS of data at its disposal, and they need to figure out a way to profitably use that data. Facebook cannot depend on pedaling as fast as they can to become a viable business force. They need a sustainable business model, and they need it badly.
The Facebook we all use to keep up with what our friends and family are doing is not the same Facebook that’s in the news right. We use that Facebook for our own pleasure and entertainment. The Facebook in the news is a company that is struggling to make money. If they want to turn that around, some big changes need to happen. Whether those changes will happen or not is yet to be seen.
Sources: technologyreview.com, forbes.com, guardian.co.uk, socialmediatoday.com (personal views expressed throughout)
Picture credits: blog.intrapromote.com