Investors will undoubtedly be clamoring for shares of Facebook (FB) when its IPO hits the market in May. But since we still have a few weeks to wait, let's take a moment to look at the tech IPOs of the past 2 years in order to get a realistic view of possible performance.
Most IPOs, especially tech IPOs, do not have a stable earnings stream, and their incredible growth stories are sold to the unsuspecting public.
The surest way to see if the IPO might be a dud is to find out how the initial investors will do with their new riches. Many tech firms are funded by venture capitalists, and you better believe that VCs will hold on to their share of the company if it actually believes that the company is worth more than what the general market is paying for it.
This does happen sometimes, but most of the times it does not. IPOs go through the roof on the first day, and then everyone bails out. It is just the nature of the business - which is why some people are arguing that social media companies are the new tech bubble.
Everyone likes fads
An all-out IPO strategy for an investor is rarely a wise wealth building strategy. Ironically, many investors seem to know this, but it all seems to get forgotten. LIke the new fluorescent-colored athletic shoes, everyone seems to like a new fad. And everyone loves a fast-moving stock.
I looked through a few previous tech IPOs and their performances. The results were surprising to even to me. The IPOs did even more poorly than I anticipated. Only 4 of the 10 IPOs have yielded absolute positive returns since their debut. A full 9 out of 10 of them have underperformed the Nasdaq with only Zynga (ZNGA) - and Zynga is still highly dependent on Facebook - outperforming by a tiny 0.3%, as shown below.
We can also see that the IPO performance is loosely impacted by the price level, which I have shown as a Price to Sales/Revenues ratio in the year of the IPO. (The purpose of using P/S is simply because most of these companies did not generate any earnings in the year of they had an IPO, which renders P/E meaningless.) It is also important to note that the performance of the S&P and the Nasdaq were positive during all the different periods that we calculated, which shows that the general market investor sentiment was not negative, which could have affected the perception towards risky tech IPOs
We do not see a pure relationship between valuation (P/S) and post-IPO returns, but we can see that companies like HomeAway (AWAY), Renren (RENN) and Pandora (P) Media with extremely high valuations have performed terribly with losses of 59%, 79%, and 73%, respectively, since their initial IPOs. Groupon (GRPN) did a bit better, but the problems with Groupon's business strategy are well-known.
The best performer has been Zynga, with a relatively low valuation of P/S of 2.2. Facebook is expected to be valued around $100 bn at its IPO, (although Facebook may not be worth as much as some people think.) Given that Facebook's revenues were $3.7 bn in 2011, this would value the company at around a P/S of 27 and P/E of 100, pretty expensive, and on the upper scale of the companies noted above.
But like LinkedIn (LNKD) - and LinkedIn may already may be too expensive - Facebook might be able to maintain its extremely high valuation as long as it can grow its user base simply because of the Network Effect, which means that the value of a product, like a network or community, increases with the number of users. This will at least maintain the high valuations, at least for a while.
So a final word on tech IPOs, they tend to very expensive and unproven business models. Facebook has a more solid business model, as it generated solid growing earnings of $1 bn in 2011. Question is, is its potential growth worth the $100 bn sticker price? Probably not, and even though most people will know this, many will depend on the greater fool theory to make money, as long as they are not the greatest fool.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Wednesday, April 18, 2012
Facebook's Ad Business Booms Before IPO
While Google’s (GOOG) advertising cost per click fell 6% since Q4 2011, Facebook (FB) keeps commanding higher prices from advertisers with CPC up 23% in key markets during same period according to a study of the last full quarter before the social network is expected to go public. It seems the shift to mobile where users are harder to monetize hasn’t phased Facebook’s ad rates yet, which could make its stock very appealing come IPO day. Ads tool developer TBG Digital saw the average cost per thousand impressions (CPM) of the ads it runs on Facebook increase 15% over Q4 2011 and a whopping 41% over Q1 2011 in key markets.
The contrast between the performance of Facebook and Google’s rates could lead analysts to see Mark Zuckerberg’s company and its highly targeted, friend-infused ads as critical to the future of online marketing. And while Facebook only began showing ads on mobile at the start of March, its Sponsored Stories format could fit better on small screens than the traditional display and search ads Google relies on.
Looking year over year, some of Facebook’s numbers are even stronger. CPM climbed from $0.21 to $0.296 on average across the U.S., UK, Canada, France, and Germany over Q1 2011. Since Q4 2011, CPM rose 11% in the U.S. and 13% in the UK, indicating its most important markets are still strong. Meanwhile, Facebook has managed to boost CPC 35% in France and 20% in the U.S., with average U.S. CPC up 34% since Q1 2011.
While Google’s numbers are across all markets and Facebook’s are just from one ad platform, TBG Digital, and are just for its five biggest markets, year over year Facebook’s CPC went up 28% while Google’s went down 12%. Now since Facebook has only begun to monetize mobile, lower prices there aren’t reducing its overall CPC as harshly as Google’s more established mobile ads business is being hit.
One negative finding of TBG’s study was that ad click through rates on Facebook are down an average of 8% in the U.S. and 6% across its five top territories. It’s not as bad as it sounds, though, as a year ago there were only four ads per page but now as many as seven can appear. This means attention from clickers is spread more thinly. Facebook needs to balance making ads prominent enough to secure clicks without trampling its user experience.
Other findings include that the click through rate of ads for Facebook news reader apps like The Guardian and Yahoo News increased 194% since Q4 2011.This shows that Facebook’s open graph reader apps that auto-publish news feed stories about what their users read are driving so much referral traffic and are enjoyed enough that news outlets are willing to pay to attain installs much the way social games have for years. Finally, competition for brand Page fans is getting tougher, allowing Facebook to increase the cost per fan through ads for Pages by 43% over Q1 2011.
TBG Digital conducted the study on 372 million ad impressions in 190 countries for 235 of its clients across verticals since Q1 2011. The findings have been verified by the University of Cambridge Psychometrics Centre. Facebook has the power to manipulate its ad rates, so as it prepares to IPO it could be increasing them beyond what’s dictated by supply and demand to make more money and appear more attractive. Also, TBG’s data does not indicate Facebook’s ad performance across the long-tail of international markets, which aren’t necessarily faring as well.
Still, the fact that it can sustain higher rates with more users and more ads per page is a sign of health for Facebook’s primary revenue stream. We’re hearing that most brands are now dedicating significant spend to Facebook marketing, while they’re still hesitant about Twitter, Google+, and other social networks. If Facebook can convince investors of this, $100 billion could look like a low-ball valuation the day after it hits the NASDAQ.
The contrast between the performance of Facebook and Google’s rates could lead analysts to see Mark Zuckerberg’s company and its highly targeted, friend-infused ads as critical to the future of online marketing. And while Facebook only began showing ads on mobile at the start of March, its Sponsored Stories format could fit better on small screens than the traditional display and search ads Google relies on.
Looking year over year, some of Facebook’s numbers are even stronger. CPM climbed from $0.21 to $0.296 on average across the U.S., UK, Canada, France, and Germany over Q1 2011. Since Q4 2011, CPM rose 11% in the U.S. and 13% in the UK, indicating its most important markets are still strong. Meanwhile, Facebook has managed to boost CPC 35% in France and 20% in the U.S., with average U.S. CPC up 34% since Q1 2011.
While Google’s numbers are across all markets and Facebook’s are just from one ad platform, TBG Digital, and are just for its five biggest markets, year over year Facebook’s CPC went up 28% while Google’s went down 12%. Now since Facebook has only begun to monetize mobile, lower prices there aren’t reducing its overall CPC as harshly as Google’s more established mobile ads business is being hit.
One negative finding of TBG’s study was that ad click through rates on Facebook are down an average of 8% in the U.S. and 6% across its five top territories. It’s not as bad as it sounds, though, as a year ago there were only four ads per page but now as many as seven can appear. This means attention from clickers is spread more thinly. Facebook needs to balance making ads prominent enough to secure clicks without trampling its user experience.
Other findings include that the click through rate of ads for Facebook news reader apps like The Guardian and Yahoo News increased 194% since Q4 2011.This shows that Facebook’s open graph reader apps that auto-publish news feed stories about what their users read are driving so much referral traffic and are enjoyed enough that news outlets are willing to pay to attain installs much the way social games have for years. Finally, competition for brand Page fans is getting tougher, allowing Facebook to increase the cost per fan through ads for Pages by 43% over Q1 2011.
TBG Digital conducted the study on 372 million ad impressions in 190 countries for 235 of its clients across verticals since Q1 2011. The findings have been verified by the University of Cambridge Psychometrics Centre. Facebook has the power to manipulate its ad rates, so as it prepares to IPO it could be increasing them beyond what’s dictated by supply and demand to make more money and appear more attractive. Also, TBG’s data does not indicate Facebook’s ad performance across the long-tail of international markets, which aren’t necessarily faring as well.
Still, the fact that it can sustain higher rates with more users and more ads per page is a sign of health for Facebook’s primary revenue stream. We’re hearing that most brands are now dedicating significant spend to Facebook marketing, while they’re still hesitant about Twitter, Google+, and other social networks. If Facebook can convince investors of this, $100 billion could look like a low-ball valuation the day after it hits the NASDAQ.
Facebook Will Eventually Crush LinkedIn: Why This Is Just The Beginning
By now the headlines ending in "Instagram" are starting to finally dwindle down. Facebook (FB) had finally given the bloggers and media something to get excited about when they scooped up the mobile photo-sharing app, Instagram, only weeks before they head out on an IPO roadshow in what looks to be the most anticipated IPO … well, ever. No company has ever had a more extensive reach at the time of their public offering than Facebook. The crown jewel of Web2.0 is marching down Wall Street with nearly a billion users in its shadow. It's implied market cap when it goes public? (Insert Doctor Evil Voice) One Hundred Billion Dollars.
The pundits say it's a sure sign of a market top. The market cap is unjustified by both their revenue and earnings. The multiples are simply too rich. Their growth is unsustainable. No one is clicking those damn advertisements! The bears make many compelling points, and very well they may end up being right. However, I believe many of these analyses are being made under the assumption that Facebook is a social network, and in the future it will make all of its money solely on advertising and collecting some of Zynga's scraps. I would like to take a different approach. An investment is a stake in a company's future cash flows, and in order to fully understand the potential of Facebook's future value, we must assess and identify future value drivers that the company can capitalize on. When you look at the "Big 3" tech titans: Apple (AAPL), Microsoft (MSFT), and Google (GOOG) they all shared the ability to innovate and expand on the business models they had when they went public. Thanks to the emergence of venture capital and the popularity of second market exchanges, Facebook has been able to wait much longer than the others before it went public. Thus, at the time it goes public, Facebook will have been a much larger company and under far more scrutiny than any of it's innovative ancestors. For it's implied market cap based on the current financials, it's hard for some to justify the valuation. If from here on out, Facebook's only source of revenue and income will be derived from those little advertisements on the side of the page, I would agree with this sentiment. However, I believe there exists a high probability this will not be the case and this article is the first of a series of many, on what value drivers Facebook will look to exploit as it moves past the advertising revenue model and into the next level of the web.
I must admit, I was only a wee lad when the Dot Com bubble had struck Wall Street back in 1999 and 2000. Thus, my approach in this analysis may seem just as hopeful and naïve as the speculators back then. The horror stories are well documented. However, my take on situation is that back then, the Internet was the Wild West, retail investors were the gold speculators, and the banks and brokers were the guys selling the picks and pans. Things got a little out of control. Can you blame them? The giddiness and excitement over these new companies was still spilling over from back when only a few years prior, Americans were just finding out that the Internet even existed. (Hint: It's not a computer billboard) On behalf of many of those dot com companies, the good intentions were there; they wanted to be successful, but their business models were undeveloped and the firms had yet to really figure out how to make money using this new technology. Even today, web and technology companies are still learning how to extract value out of their business models. Coupons have been around for ages, the Internet has been around for decades, and it was only until recent that a company (GRPN) figured out how to put the two together. (The same cannot be said for their income statement, however.) Yet, we have made great strides in the last ten years and the future is bright. There are a slew of macro trends that support the belief that over the next ten years, the amount of money to be made online will be a great deal higher than the last ten. The question is who will monetize these trends and benefit most from the future growth within the industry? Looking at Facebook today, we see a company that in less than one decade, has grown from a social network for college students into a company that is approaching 800 million users and trying to build the foundation for the next level of the web. Can they fail? Of course they can. Do I expect them to? But not before they go for the throats, and by that I mean market share, of nearly all their competitors.
The first on this list, and perhaps the easiest for Facebook to pick off, would be LinkedIn (LNKD). It makes sense for Facebook, as it would be a valuable first step towards what I think is one of their major long-term goals, which is to make a major move into the enterprise market. If you are looking at the potential to unlock value, corporations and businesses have much deeper pockets than individual consumers do, even if that consumer base is a very large one. By making a noted effort to go after LinkedIn's market share, Zuckerburg and company will begin the first of many steps towards building long-term relationships with businesses as well as their future employees. In addition to opening the door to the enterprise, the online jobs classified market has a great deal of earnings potential on its own. LinkedIn grossed roughly $500 million last year. Monster World Wide (MWW) pulled in a billion. Mark Mahaney of Citigroup has estimated the online jobs recruitment market to be a $3 billion a year industry. This is peanuts in Facebook terms, but I believe it is a market they could conquer with some level of ease and would be another step towards their long-term goal, which I believe is to establish the next level of interaction and experience within the Internet. Taking LNKD out to the woodshed is not some crazy, lucid thesis. They have been slowly sneaking into the jobs market for some time now. This little blurb of news went under the radar last fall, maybe because the European sovereign debt crisis was full blown at the time and news outlets had better things to talk about, but partnering with the US Department of Labor to "create a central location for employment services for Facebook users" is a pretty major event! I guess being Obama's right hand man has some perks. My favorite part of the Department of Labor article was that LinkedIn "doesn't see it as a competitive threat". I believe that outlook, in addition to being outright pompous, will be one that ultimately leads to LinkedIn's untimely demise. The numbers seem to agree with this sentiment and tell a story far more compelling than my opinion ever could.
The infographic below, posted on late last year by MBAOnline.com, shows some surprising results when looking at who is currently winning the social media "jobs" race:
From this brief overview, it seems that thus far, Facebook is beating LinkedIn at its very own game. The partnership with the DoL came at the end of last year, so these numbers are most likely unaffected by that catalyst. This suggests an even stronger year for FB in this segment as that relationship begins to play itself out. This once again shows Facebook's ability to leverage its economies of scale, and just how many connections there are to be made when your network population is comprised of nearly a billion people. Nearly twice as many people claim they found a job on Facebook versus LinkedIn. Is that number (18.4m) a smaller percentage of their user base in relation to those (10.2m) who claim they found a job on LinkedIn? Yes, but that should be expected! Jobs are supposed to be LNKD's bread and butter!
Up until now this has been nothing more than a side project for Facebook, who will undoubtedly look to explore new potential revenue streams now that they are a public company looking to please an investor base with already sky-high expectations. Its not just the number of successful job pairings that make such a strong case for Facebook here, they are superior in nearly every other metric: When it came to using the site to look for a job, 50% of "job hunters" headed to Facebook as opposed to 26% for LinkedIn and 25% for Twitter. Of that same demographic, 20% had professional information in their profile as opposed to 15% for LinkedIn. They even boasted a higher success rate in those who received a job referral: 16% for Facebook and only 9% for LinkedIn. The study also sheds some light onto the potential that still exists for a social network to steal market from other traditional methods of employment search. In 2011, 16% of employees claimed they found their job through a social network. This is up from 11% in 2010, and there is no reason to believe that Facebook could not steal another large chunk away from 'Newspaper' (30%) and 'Internet Job Board' (30%) once they begin to make a concerted effort to penetrate this market and go directly head to head with LinkedIn. The collaboration with the US Department of Labor is a positive step in the right direction. I am guessing we will see similar partnerships and collective synergies in the near future.
I see Glassdoor.com as a potential target that Facebook might be able to bring aboard (for the right price) and immediately bolster their ammunition. Glassdoor already uses the Facebook Plug-In, which allows users to log in with their Facebook accounts and grants users access to reviews of companies, salary ranges, and various pros and cons of employment at each company, strait from the mouth of the (anonymous) employees. It makes sense on a number of levels and would fit in perfectly with Facebook's love of "big data". Even if they did not make any notable acquisitions within this space, they are already in the position to send LinkedIn to the wayside just as they did with Myspace. (Ohhhh, social media burn!) At this point it's only a matter of how, not when, Facebook will make their move. If Jeff Weiner and the rest of his team at LNKD continue look at Facebook as a "non-threat", I have a hard time seeing his company survive the next wave of "cuts" set to hit the industry. Zuckerburg is setting himself up to join the likes of Jobs, Gates, and Page on the varsity team, while LinkedIn looks like its ready to ride the pine.
As noted earlier, this analysis is the first in a series of articles in which I explore Facebook's potential to move into various industries and build upon their current business model. This includes, but is not limited to: their march into the enterprise space, e-commerce, and their ability to combine search with content discovery.
The pundits say it's a sure sign of a market top. The market cap is unjustified by both their revenue and earnings. The multiples are simply too rich. Their growth is unsustainable. No one is clicking those damn advertisements! The bears make many compelling points, and very well they may end up being right. However, I believe many of these analyses are being made under the assumption that Facebook is a social network, and in the future it will make all of its money solely on advertising and collecting some of Zynga's scraps. I would like to take a different approach. An investment is a stake in a company's future cash flows, and in order to fully understand the potential of Facebook's future value, we must assess and identify future value drivers that the company can capitalize on. When you look at the "Big 3" tech titans: Apple (AAPL), Microsoft (MSFT), and Google (GOOG) they all shared the ability to innovate and expand on the business models they had when they went public. Thanks to the emergence of venture capital and the popularity of second market exchanges, Facebook has been able to wait much longer than the others before it went public. Thus, at the time it goes public, Facebook will have been a much larger company and under far more scrutiny than any of it's innovative ancestors. For it's implied market cap based on the current financials, it's hard for some to justify the valuation. If from here on out, Facebook's only source of revenue and income will be derived from those little advertisements on the side of the page, I would agree with this sentiment. However, I believe there exists a high probability this will not be the case and this article is the first of a series of many, on what value drivers Facebook will look to exploit as it moves past the advertising revenue model and into the next level of the web.
I must admit, I was only a wee lad when the Dot Com bubble had struck Wall Street back in 1999 and 2000. Thus, my approach in this analysis may seem just as hopeful and naïve as the speculators back then. The horror stories are well documented. However, my take on situation is that back then, the Internet was the Wild West, retail investors were the gold speculators, and the banks and brokers were the guys selling the picks and pans. Things got a little out of control. Can you blame them? The giddiness and excitement over these new companies was still spilling over from back when only a few years prior, Americans were just finding out that the Internet even existed. (Hint: It's not a computer billboard) On behalf of many of those dot com companies, the good intentions were there; they wanted to be successful, but their business models were undeveloped and the firms had yet to really figure out how to make money using this new technology. Even today, web and technology companies are still learning how to extract value out of their business models. Coupons have been around for ages, the Internet has been around for decades, and it was only until recent that a company (GRPN) figured out how to put the two together. (The same cannot be said for their income statement, however.) Yet, we have made great strides in the last ten years and the future is bright. There are a slew of macro trends that support the belief that over the next ten years, the amount of money to be made online will be a great deal higher than the last ten. The question is who will monetize these trends and benefit most from the future growth within the industry? Looking at Facebook today, we see a company that in less than one decade, has grown from a social network for college students into a company that is approaching 800 million users and trying to build the foundation for the next level of the web. Can they fail? Of course they can. Do I expect them to? But not before they go for the throats, and by that I mean market share, of nearly all their competitors.
The first on this list, and perhaps the easiest for Facebook to pick off, would be LinkedIn (LNKD). It makes sense for Facebook, as it would be a valuable first step towards what I think is one of their major long-term goals, which is to make a major move into the enterprise market. If you are looking at the potential to unlock value, corporations and businesses have much deeper pockets than individual consumers do, even if that consumer base is a very large one. By making a noted effort to go after LinkedIn's market share, Zuckerburg and company will begin the first of many steps towards building long-term relationships with businesses as well as their future employees. In addition to opening the door to the enterprise, the online jobs classified market has a great deal of earnings potential on its own. LinkedIn grossed roughly $500 million last year. Monster World Wide (MWW) pulled in a billion. Mark Mahaney of Citigroup has estimated the online jobs recruitment market to be a $3 billion a year industry. This is peanuts in Facebook terms, but I believe it is a market they could conquer with some level of ease and would be another step towards their long-term goal, which I believe is to establish the next level of interaction and experience within the Internet. Taking LNKD out to the woodshed is not some crazy, lucid thesis. They have been slowly sneaking into the jobs market for some time now. This little blurb of news went under the radar last fall, maybe because the European sovereign debt crisis was full blown at the time and news outlets had better things to talk about, but partnering with the US Department of Labor to "create a central location for employment services for Facebook users" is a pretty major event! I guess being Obama's right hand man has some perks. My favorite part of the Department of Labor article was that LinkedIn "doesn't see it as a competitive threat". I believe that outlook, in addition to being outright pompous, will be one that ultimately leads to LinkedIn's untimely demise. The numbers seem to agree with this sentiment and tell a story far more compelling than my opinion ever could.
The infographic below, posted on late last year by MBAOnline.com, shows some surprising results when looking at who is currently winning the social media "jobs" race:
From this brief overview, it seems that thus far, Facebook is beating LinkedIn at its very own game. The partnership with the DoL came at the end of last year, so these numbers are most likely unaffected by that catalyst. This suggests an even stronger year for FB in this segment as that relationship begins to play itself out. This once again shows Facebook's ability to leverage its economies of scale, and just how many connections there are to be made when your network population is comprised of nearly a billion people. Nearly twice as many people claim they found a job on Facebook versus LinkedIn. Is that number (18.4m) a smaller percentage of their user base in relation to those (10.2m) who claim they found a job on LinkedIn? Yes, but that should be expected! Jobs are supposed to be LNKD's bread and butter!
Up until now this has been nothing more than a side project for Facebook, who will undoubtedly look to explore new potential revenue streams now that they are a public company looking to please an investor base with already sky-high expectations. Its not just the number of successful job pairings that make such a strong case for Facebook here, they are superior in nearly every other metric: When it came to using the site to look for a job, 50% of "job hunters" headed to Facebook as opposed to 26% for LinkedIn and 25% for Twitter. Of that same demographic, 20% had professional information in their profile as opposed to 15% for LinkedIn. They even boasted a higher success rate in those who received a job referral: 16% for Facebook and only 9% for LinkedIn. The study also sheds some light onto the potential that still exists for a social network to steal market from other traditional methods of employment search. In 2011, 16% of employees claimed they found their job through a social network. This is up from 11% in 2010, and there is no reason to believe that Facebook could not steal another large chunk away from 'Newspaper' (30%) and 'Internet Job Board' (30%) once they begin to make a concerted effort to penetrate this market and go directly head to head with LinkedIn. The collaboration with the US Department of Labor is a positive step in the right direction. I am guessing we will see similar partnerships and collective synergies in the near future.
I see Glassdoor.com as a potential target that Facebook might be able to bring aboard (for the right price) and immediately bolster their ammunition. Glassdoor already uses the Facebook Plug-In, which allows users to log in with their Facebook accounts and grants users access to reviews of companies, salary ranges, and various pros and cons of employment at each company, strait from the mouth of the (anonymous) employees. It makes sense on a number of levels and would fit in perfectly with Facebook's love of "big data". Even if they did not make any notable acquisitions within this space, they are already in the position to send LinkedIn to the wayside just as they did with Myspace. (Ohhhh, social media burn!) At this point it's only a matter of how, not when, Facebook will make their move. If Jeff Weiner and the rest of his team at LNKD continue look at Facebook as a "non-threat", I have a hard time seeing his company survive the next wave of "cuts" set to hit the industry. Zuckerburg is setting himself up to join the likes of Jobs, Gates, and Page on the varsity team, while LinkedIn looks like its ready to ride the pine.
As noted earlier, this analysis is the first in a series of articles in which I explore Facebook's potential to move into various industries and build upon their current business model. This includes, but is not limited to: their march into the enterprise space, e-commerce, and their ability to combine search with content discovery.
Funds That Own Facebook Stock
It is now much harder for the wealthy to buy shares of Facebook (FB) in private transactions. SharesPost, one of the leading marketplaces for non-publicly traded companies, just announced that the company "will cease facilitating transactions in Facebook stock as of Friday end of day to help ensure the company's orderly transition into the public markets." This was done at the request of Facebook.
Yet, investors both big and small still have an opportunity to acquire shares indirectly, by buying stock in funds that own shares of Facebook. The options are mutual funds, which are priced once a day based on the net asset value, or closed end funds, which trade on exchanges all day long just like a regular stock.
WallStreetNewsNetwork.com has turned up two closed-end funds that own shares of Facebook, on its free list of Facebook Stocks. One of the CEFs is GSV Capital (GSVC), which specializes in investing in venture capital backed private companies. The company name comes from Global Silicon Valley Capital. It owns a fairly diverse portfolio of innovative businesses, such as Bloom Energy, Dropbox, TrueCar, Twitter, and even SharesPost. It also owns a couple companies that have recently gone public, including Zynga (ZNGA) and Groupon (GRPN).
But most important, according to the company's fourth quarter Schedule of Investments as of December 31, 2011, there are 350,000 Class B common shares on the books at a cost of $10,465,981. The holdings represent 14.63% of the company's portfolio.
In the last three months, the GSV share price has risen from around 14 per share to 20 currently, an increase of 42%. Yes GSV has yet moved as much as another CEF that owns Facebook, the Firsthand Technology Value Fund (SVVC - previously), which has increased in price from less than 15 per share to almost 37, a boost of 60%. It actually traded above 40 a few days ago, but had a pullback.
In terms of mutual funds that own Facebook stock, the T. Rowe Price Media & Telecommunications Fund (PRMTX) has approximately 1.2% of its portfolio in Facebook shares, a fairly small percentage compared to the closed-end funds.
To see a list of over 25 of the companies that own Facebook stock, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and updated.
Yet, investors both big and small still have an opportunity to acquire shares indirectly, by buying stock in funds that own shares of Facebook. The options are mutual funds, which are priced once a day based on the net asset value, or closed end funds, which trade on exchanges all day long just like a regular stock.
WallStreetNewsNetwork.com has turned up two closed-end funds that own shares of Facebook, on its free list of Facebook Stocks. One of the CEFs is GSV Capital (GSVC), which specializes in investing in venture capital backed private companies. The company name comes from Global Silicon Valley Capital. It owns a fairly diverse portfolio of innovative businesses, such as Bloom Energy, Dropbox, TrueCar, Twitter, and even SharesPost. It also owns a couple companies that have recently gone public, including Zynga (ZNGA) and Groupon (GRPN).
But most important, according to the company's fourth quarter Schedule of Investments as of December 31, 2011, there are 350,000 Class B common shares on the books at a cost of $10,465,981. The holdings represent 14.63% of the company's portfolio.
In the last three months, the GSV share price has risen from around 14 per share to 20 currently, an increase of 42%. Yes GSV has yet moved as much as another CEF that owns Facebook, the Firsthand Technology Value Fund (SVVC - previously), which has increased in price from less than 15 per share to almost 37, a boost of 60%. It actually traded above 40 a few days ago, but had a pullback.
In terms of mutual funds that own Facebook stock, the T. Rowe Price Media & Telecommunications Fund (PRMTX) has approximately 1.2% of its portfolio in Facebook shares, a fairly small percentage compared to the closed-end funds.
To see a list of over 25 of the companies that own Facebook stock, check out the free list at WallStreetNewsNetwork.com, which can be downloaded, sorted, and updated.
Facebook's $100 Billion Valuation Could Be Cheap If This Change Happens
In order to assess how social media platforms can make money, I highlight advertising, gaming, commerce and apps. With advertising likely to be the biggest contributor to the revenues of social media platforms, I illustrate the nature of hypertargeted advertising, and argue that this means social media -- particularly Facebook (FB) -- could take a much bigger share of total adspend over the next five years. I forecast that social media advertising could reach $38bn by 2017, commanding a 6% share of total advertising spend.
The reality is that social media remains very much in the early stages from a monetisation standpoint. I believe that most social media platforms are, for now, primarily focused on building a large, engaged use-i.e., they are in land grab mode. In fact, Facebook in its S-1 file described that "most advertisers are still learning with the best ways to leverage Facebook to create more valuable ads".
Why? Although barriers to entry are low and switching costs moderate, I believe there are benefits from scale and positive network effects. First, as Metcalfe's law states, the value of a network grows in proportion to the number of connected users. The classic example is the telephone system: if there was only one user of a telephone system, the network is largely useless. However, as the number of users rise, the value of the network similarly grows and becomes self-reinforcing.
Second, for social networks specifically, a larger user base drives other benefits including more user data, which can be utilized to increase engagement. Additionally, in the case of social networks with APIs, a larger user base attracts more third-party developers to create applications, which can also grow engagement and generate more user data. Lots of users and high engagement create opportunities to produce revenues.
Greater revenues, in turn, allow the platform to invest more in new features which can enhance the number of users, the utility of the network, and engagement. All of this creates a virtuous cycle.
The change of print ads to online ads is a major shift that should bring huge investment opportunities and potential winners that currently appear "overvalued." According to FBstocksecrets, one recommended guide for investors interested in this trend, there are 6 Companies that could be the winners and one of them is Facebook. As this website explains, Facebook could see its value doubled if online advertising gets 8% of the whole advertising spent.
To better understand and assess the business opportunity I can draw an analogy with Microsoft's (MSFT) Windows business model. In the traditional PC environment, Microsoft's Windows operating system was the underlying, foundational platform. This platform allowed Microsoft to develop first party applications (such as Office), while other software providers created third party applications. In this case, Microsoft generates revenues from the sale of the OS and first party apps, but not from third party apps.
In contrast, social networks are free to users as are most first party applications, such as the photo, messaging, and groups applications on Facebook, which are core to the platform. But social networks can generate revenues from ancillary streams like advertising. In addition, some platforms such as Facebook can share in revenues with certain third-party application providers
Ultimately, I believe that social media platforms with scale will have multiple opportunities for monetization in a number of categories:
1. Social Gaming one of the first successful categories on social media platforms. Casual gaming is ideal for social media platforms because they can enhance virality and drive user engagement. Social media platforms will monetise this by taking a fee for distribution.
In addition, it can be an opportunity to enable payments and virtual goods. Over 53% of Facebook users play games on the platform. Zynga (ZNGA) is a big winner from this trend, with revenue up 59% YoY to $311.2M. A big part of this comes from Facebook.
2. Commerce on social media platforms will emerge as companies begin to leverage the social graph, i.e., the network of individual relationships between users of the platform. Product recommendations and the opportunity to create a one-to-one dialogue with users who have expressed a 'like' for a brand could help drive conversions. Over time, companies will increasingly sell their products and services directly through the platform. For example, Warner Bros., earlier in 2011, made Batman: The Dark Knight available for streaming on an electronic rental basis via Facebook. Amazon (AMZN) could profit from this shift because it could better understand how different consumer trends emerge and help the site better predict which products to sell. Jeff Bezos explained in a recent conference that social is a big part of Amazon future because it will be essential to maximize user experience. FBstocksecrets explains this trend very well in the chapter 'social ecommerce'.
3. Payments will become a core element of the revenue generation of social media platforms as social commerce and gaming expand on the platform. Facebook has already built a "Credits" system where 10 Facebook credits equate to $1 and these credits can be used to purchase digital goods. For each transaction with Facebook Credits, the platform receives 30%. I note that PayPal and most major credit cards are accepted funding sources for Facebook Credits.
4. Advertising is already a major source of revenue for most social media companies. A large member base combined with user data provides the opportunity for sophisticated targeting. Advertisers can target based on specific interests (explicit graph), inferred interests (implicit graph), and by geography, gender, age and other demographic information. Facebook, as one example, offers "Sponsored Stories," a form of advertising that highlights the activity of a user's friends who interacted with a brand. Twitter also offers Promoted Accounts and Promoted Tweets offerings.
5. Location services could facilitate local offers from social media players. Platforms like Foursquare are paving the way for fully integrated social platforms delivering offers, discounts, and recommendations from the social graph. This plays to one of social media's strengths, which is its strong link to mobile/smart phone usage.
6. Specialized applications and services will also likely emerge that are unique to the characteristics of a platform. A primary example of this revenue opportunity is LinkedIn (LNKD), which is targeting a subscription model for users but also an Enterprise opportunity for job postings, resume submission, and acquiring talent for enterprises.
The reality is that social media remains very much in the early stages from a monetisation standpoint. I believe that most social media platforms are, for now, primarily focused on building a large, engaged use-i.e., they are in land grab mode. In fact, Facebook in its S-1 file described that "most advertisers are still learning with the best ways to leverage Facebook to create more valuable ads".
Why? Although barriers to entry are low and switching costs moderate, I believe there are benefits from scale and positive network effects. First, as Metcalfe's law states, the value of a network grows in proportion to the number of connected users. The classic example is the telephone system: if there was only one user of a telephone system, the network is largely useless. However, as the number of users rise, the value of the network similarly grows and becomes self-reinforcing.
Second, for social networks specifically, a larger user base drives other benefits including more user data, which can be utilized to increase engagement. Additionally, in the case of social networks with APIs, a larger user base attracts more third-party developers to create applications, which can also grow engagement and generate more user data. Lots of users and high engagement create opportunities to produce revenues.
Greater revenues, in turn, allow the platform to invest more in new features which can enhance the number of users, the utility of the network, and engagement. All of this creates a virtuous cycle.
The change of print ads to online ads is a major shift that should bring huge investment opportunities and potential winners that currently appear "overvalued." According to FBstocksecrets, one recommended guide for investors interested in this trend, there are 6 Companies that could be the winners and one of them is Facebook. As this website explains, Facebook could see its value doubled if online advertising gets 8% of the whole advertising spent.
To better understand and assess the business opportunity I can draw an analogy with Microsoft's (MSFT) Windows business model. In the traditional PC environment, Microsoft's Windows operating system was the underlying, foundational platform. This platform allowed Microsoft to develop first party applications (such as Office), while other software providers created third party applications. In this case, Microsoft generates revenues from the sale of the OS and first party apps, but not from third party apps.
In contrast, social networks are free to users as are most first party applications, such as the photo, messaging, and groups applications on Facebook, which are core to the platform. But social networks can generate revenues from ancillary streams like advertising. In addition, some platforms such as Facebook can share in revenues with certain third-party application providers
Ultimately, I believe that social media platforms with scale will have multiple opportunities for monetization in a number of categories:
1. Social Gaming one of the first successful categories on social media platforms. Casual gaming is ideal for social media platforms because they can enhance virality and drive user engagement. Social media platforms will monetise this by taking a fee for distribution.
In addition, it can be an opportunity to enable payments and virtual goods. Over 53% of Facebook users play games on the platform. Zynga (ZNGA) is a big winner from this trend, with revenue up 59% YoY to $311.2M. A big part of this comes from Facebook.
2. Commerce on social media platforms will emerge as companies begin to leverage the social graph, i.e., the network of individual relationships between users of the platform. Product recommendations and the opportunity to create a one-to-one dialogue with users who have expressed a 'like' for a brand could help drive conversions. Over time, companies will increasingly sell their products and services directly through the platform. For example, Warner Bros., earlier in 2011, made Batman: The Dark Knight available for streaming on an electronic rental basis via Facebook. Amazon (AMZN) could profit from this shift because it could better understand how different consumer trends emerge and help the site better predict which products to sell. Jeff Bezos explained in a recent conference that social is a big part of Amazon future because it will be essential to maximize user experience. FBstocksecrets explains this trend very well in the chapter 'social ecommerce'.
3. Payments will become a core element of the revenue generation of social media platforms as social commerce and gaming expand on the platform. Facebook has already built a "Credits" system where 10 Facebook credits equate to $1 and these credits can be used to purchase digital goods. For each transaction with Facebook Credits, the platform receives 30%. I note that PayPal and most major credit cards are accepted funding sources for Facebook Credits.
4. Advertising is already a major source of revenue for most social media companies. A large member base combined with user data provides the opportunity for sophisticated targeting. Advertisers can target based on specific interests (explicit graph), inferred interests (implicit graph), and by geography, gender, age and other demographic information. Facebook, as one example, offers "Sponsored Stories," a form of advertising that highlights the activity of a user's friends who interacted with a brand. Twitter also offers Promoted Accounts and Promoted Tweets offerings.
5. Location services could facilitate local offers from social media players. Platforms like Foursquare are paving the way for fully integrated social platforms delivering offers, discounts, and recommendations from the social graph. This plays to one of social media's strengths, which is its strong link to mobile/smart phone usage.
6. Specialized applications and services will also likely emerge that are unique to the characteristics of a platform. A primary example of this revenue opportunity is LinkedIn (LNKD), which is targeting a subscription model for users but also an Enterprise opportunity for job postings, resume submission, and acquiring talent for enterprises.
Sunday, April 15, 2012
Facebook IPO Could Stand in the Way of Sell-in-May
Facebook's blockbuster initial public offering could be coming at just the right time for markets — when investors are preparing for the seemingly annual ritual to sell in May and go away.
Stocks have been volatile but ultimately have gone nowhere in the past month, following a strong rally off the October lows.
With investor complacency setting in and the time seemingly perfect to book gains and get ready for vacation, the Facebook IPO is considered a primary hope to keep the market from slipping into summer slumber.
"Clearly, it's going to be the biggest IPO in a while, and one of the knocks on this market has been the lack of IPOs," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "It all comes down to a lack of trust and lack of confidence in the market, even though we've had a pretty good rally."
Since the Dow industrials broke through the 13,000 barrier in early March, the market has posted a modest loss as investors have looked for a new catalyst to spur buying.
At the same time, the climate for new offerings has been tepid.
There have been 60 IPOs offered in the US, totaling just shy of $10 billion so far in 2012. That's 12 fewer total deals and a staggering 67 percent drop in total value from the $30.4 billion posted for the same period in 2011, according to Dealogic. Globally, the decline has been comparable.
One bright spot, though, is that technology deals are on par with 2011, giving hope that the sector can provide a rising tide.
"The Facebook IPO potentially could open the door to other IPOs and some more confidence toward the stock market," Detrick says. "In the bigger picture it would be nice to talk about some positives after all the negatives."
The offering is expected to launch in May, generate up to $10 billion and reflect a valuation for the 8-year-old company in the $100 billion range.
Should Facebook meet those gaudy metrics it would be hard to imagine it not boosting the market, particularly the Nasdaq [COMP 3011.33 -44.22 (-1.45%) ] tech gauge where it will be listed. Tech stocks have led the market this year, with the sector up nearly 21 percent on the Standard & Poor's 500 [.SPX 1370.26 -17.31 (-1.25%) ] heading into Friday trading.
"This offers hope that we're going to see more IPOs, especially in social networking. Obviously, investors will be looking beyond Facebook," says Peter Cardillo, chief economic strategist at Rockwell Global Capital in New York. "An increase in IPOs suggests that corporate America is confident in the economic expansion."
To be sure, some worry that the Facebook move may not signal merely a pinnacle in the space's progress but also a top in a potential social networking bubble that ultimately could weigh on the market.
"In hindsight people might look back and say once Facebook became public it was more of an identification of all the social media companies that have come out and are trading at incredible multiples," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "There's a frothiness to the social media side that is going to have its comeuppance soon."
Indeed, LinkedIn — a kind of Facebook for professionals — has seen its shares soar 75 percent just since December, and the company is trading at nearly 900 times earnings. Zynga and Groupon have turned in performances far less stellar.
"One would expect that (the IPO) would be done smartly, efficiently and the IPO itself will go OK," says Rick Bensignor, chief market strategist at Merlin Securities in New York. "Whether that becomes the catalyst for a significantly higher market move, I would tend to think less so — that it becomes the catalyst for where the market would peak."
The IPO's timing, CNBC reported earlier this week, likely will be dependent on the Securities and Exchange Commission's review of the company's $1 billion bid for Instagram, an upstart company with virtually no revenue that developed a photo-sharing application for users.
Once that hurdle is cleared, the market can get ready for what likely will be the largest offering Wall Street has ever seen.
"Hopefully this will get people excited about the market," says Detrick, of Schaeffer's Investment Research. "There's a lot of concern about a selloff in May. That could be the time frame that saves us."
Stocks have been volatile but ultimately have gone nowhere in the past month, following a strong rally off the October lows.
With investor complacency setting in and the time seemingly perfect to book gains and get ready for vacation, the Facebook IPO is considered a primary hope to keep the market from slipping into summer slumber.
"Clearly, it's going to be the biggest IPO in a while, and one of the knocks on this market has been the lack of IPOs," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "It all comes down to a lack of trust and lack of confidence in the market, even though we've had a pretty good rally."
Since the Dow industrials broke through the 13,000 barrier in early March, the market has posted a modest loss as investors have looked for a new catalyst to spur buying.
At the same time, the climate for new offerings has been tepid.
There have been 60 IPOs offered in the US, totaling just shy of $10 billion so far in 2012. That's 12 fewer total deals and a staggering 67 percent drop in total value from the $30.4 billion posted for the same period in 2011, according to Dealogic. Globally, the decline has been comparable.
One bright spot, though, is that technology deals are on par with 2011, giving hope that the sector can provide a rising tide.
"The Facebook IPO potentially could open the door to other IPOs and some more confidence toward the stock market," Detrick says. "In the bigger picture it would be nice to talk about some positives after all the negatives."
The offering is expected to launch in May, generate up to $10 billion and reflect a valuation for the 8-year-old company in the $100 billion range.
Should Facebook meet those gaudy metrics it would be hard to imagine it not boosting the market, particularly the Nasdaq [COMP 3011.33 -44.22 (-1.45%) ] tech gauge where it will be listed. Tech stocks have led the market this year, with the sector up nearly 21 percent on the Standard & Poor's 500 [.SPX 1370.26 -17.31 (-1.25%) ] heading into Friday trading.
"This offers hope that we're going to see more IPOs, especially in social networking. Obviously, investors will be looking beyond Facebook," says Peter Cardillo, chief economic strategist at Rockwell Global Capital in New York. "An increase in IPOs suggests that corporate America is confident in the economic expansion."
To be sure, some worry that the Facebook move may not signal merely a pinnacle in the space's progress but also a top in a potential social networking bubble that ultimately could weigh on the market.
"In hindsight people might look back and say once Facebook became public it was more of an identification of all the social media companies that have come out and are trading at incredible multiples," says Gary Hager, president of Integrated Wealth Management in Edison, N.J. "There's a frothiness to the social media side that is going to have its comeuppance soon."
Indeed, LinkedIn — a kind of Facebook for professionals — has seen its shares soar 75 percent just since December, and the company is trading at nearly 900 times earnings. Zynga and Groupon have turned in performances far less stellar.
"One would expect that (the IPO) would be done smartly, efficiently and the IPO itself will go OK," says Rick Bensignor, chief market strategist at Merlin Securities in New York. "Whether that becomes the catalyst for a significantly higher market move, I would tend to think less so — that it becomes the catalyst for where the market would peak."
The IPO's timing, CNBC reported earlier this week, likely will be dependent on the Securities and Exchange Commission's review of the company's $1 billion bid for Instagram, an upstart company with virtually no revenue that developed a photo-sharing application for users.
Once that hurdle is cleared, the market can get ready for what likely will be the largest offering Wall Street has ever seen.
"Hopefully this will get people excited about the market," says Detrick, of Schaeffer's Investment Research. "There's a lot of concern about a selloff in May. That could be the time frame that saves us."
Facebook IPO: Bubble or Bargain? Success Hinges on Mobile, TV
Job growth and social change are at the core of Facebook’s impending IPO. It’s a heart-warming thought coming from Sheryl Sandberg, Facebook’s COO, over the weekend. In today’s market, IPOs in any industry are questioned as sound investments, and the mere mention of Facebook’s IPO will set off a flurry of discussions and comparisons. While Facebook has set the bar for IPO expectations in the social tech scene, others like Groupon have had a tough time maintaining clout after launching an IPO for fund-raising. For Facebook, a focus on their business model, namely their verticals for future growth, will determine the success of their highly anticipated public offering.
With rumors of an IPO coming as early as this week, Facebook is, for once, making headlines for something other than mandatory profile updates and privacy concerns. While there’s fear an IPO could ruin Facebook’s “startup” appeal and slow down innovation, an initial public offering could raise enough capital for Facebook to more aggressively grow its verticals. Two areas of importance for Facebook moving forward include mobile and social television. It’s part of a larger “connected device” trend that’s delivering content through more channels, and as this space expands, Facebook will need to monetize the social aspects of these channels as well.
Facebook Mobile
Facebook’s mobile strategy has been pretty limited to apps so far, favoring iOS in terms of launch schedules and feature updates. And Facebook’s actual apps center around social interaction and accessing account information, doing little to extend their platform’s ecosystem for Facebook apps, particularly games. This is where Facebook will really need to build out its ecosystem if it hopes to gain ground in the mobile sector, where Google, Apple and even Microsoft are already ahead.
Looking at the latest rumors, Facebook’s plans for mobile include a handset of its own. This isn’t likely the way to win in the mobile arena–there’s enough devices on the market, and plenty of competing operating systems. Even Android is diversifying across niche devices like the Kindle Fire, which has a stripped down version of Google’s mobile OS, adding to the fragmentation woes that plague developers, retailers, carriers and consumers alike.
What Facebook needs is a solid mobile extension of its own platform, that will enable better points of integration for the companies building apps for Facebook’s site and/or mobile marketplaces. Sure, you can tap Facebook contacts for a round of Words with Friends, but this is still a segmented initiative on the part of the game publisher. Unifying a web and mobile presence will be a key software development for Facebook moving forward.
We’re already seeing the necessity of this with Zynga, which is making its appeal to mobile gamers and forced to leave Facebook behind in the process. Increasing gamers on tablets and smartphones in today’s market means diversifying away from the very platform that brought Zynga to the point of success to launch its own IPO, especially with Facebook imposing a 30 percent tax on revenue made on its website. In order to retain the value of its ecosystem, Facebook will have to support the mobile transition for its developer community, and possibly better incorporate its offerings with the mobile market mainstays, like Android and iOS.
Facebook already has a budding relationship with Microsoft, one of its high profile investors, which has already integrated Facbook’s social graph into its search results and facilitated deals like Skype’s video calls on the network. As Microsoft continues to layer up its own platform, tying efforts with Windows 8, Windows Phone and Xbox, Facebook could make room for an easier transition on this front.
Facebook on TV
Facebook is a term associated with nearly all things social, whether online or off. The worldwide network has set national revolutions in motion, held firm as a platform for religious and political debate and enabled a new sense of globalization as far as culture and access are concerned. So when we think of TV’s future as being a social one, it’s hard to avert a discussion about Facebook as well. But even more than mobile, Facebook’s absent from the social TV trend in many regards, though it presents a grand opportunity for extended channel distribution as well.
You don’t have to look further than the first month of 2012 to realize the growing importance of socializing the tube. The Super Bowl is rank with advertisers seeking ways beyond Facebook Pages and tweets to engage viewers, reeling in participation from General Motors, Coca Cola and Shazam. These brands in particular are leveraging mobile devices to send viewers directly to a website where they can gain more information about a product, unlock free content and qualify for prizes. With approximately 60 percent of all Super Bowl viewers expected to be within arm’s reach of a smartphone or tablet, mobility is becoming an important avenue for television to become more interactive and social.
The first week of 2012 also brought a slew of connected device expectations from TV set makers like Sony and LG. Not only are they building out their own integrated system, but many are looking to Google TV as a platform to extend the newest social TV trends. At CES this year we saw the future of TV, and it’s a highly social one, with in-screen chats, recommendations, sharing functions and rewards systems. And Google’s much further ahead on this initiative than Facebook, given its Android platform and default social interactions that are cataloged every time you use a Google-powered app or service. Apple, too, has demonstrated initiative in this space, though its personal media cloud approach is lacking social capabilities.
Leave it to apps, and even cable providers to fill in the missing gaps here. Even Comcast’s jumping on this bandwagon, testing a social TV experience dubbed Xcalibur in Georgia. It involves a recommendation engine and “friend trends” powered by Facebook. Companies like GetGlue have also run with the social TV trend, building insight around marketing trends while rewarding viewers all the while.
Facebook’s ads = social monetization
Beyond merely powering existing gaming and TV efforts, Facebook will namely benefit from these extended channels by finding a way to loop things back into its own ecosystem. Facebook’s true value lies in its ability to access users and their preferences, creating hoards of useful marketing data alongside an audience that can be monetized in a series of socially oriented ways. It’s true that marketing has become very social, but above all, accessibility matters. Facebook’s building a presence in the mobile and TV space, but it hasn’t reached a major point of influence for its own monetization or ad distribution.
There’s a new age dawning for socially driven marketing, and TV is a great way to attract the biggest budgets in media to the socially situated. Social content management provider thismoment recognizes the convergence of connected devices and the future of marketing, a challenge that their new CMO John Bara will take head on. Thismoment is building the technology for big ad shops, simplifying the transition for brands like Coca Cola, and bridging gaps for the likes of Google. This all effectively leverages thismoment’s Digital Engagement Channel, a platform where brands and agencies can create, distribute and optimize branded and UGC content across Facebook, YouTube and beyond.
Facebook’s IPO will create jobs for the company, no doubt. And those jobs will likely further Facebook’s goals around mobile and TV verticals as part of a larger scale approach to new media marketing. Social is one of many considerations encompassed in new media marketing, and Facebook will have to find away to continuously ad value to its social platform amidst the growing network of associated platforms currently overlapping its space.
With rumors of an IPO coming as early as this week, Facebook is, for once, making headlines for something other than mandatory profile updates and privacy concerns. While there’s fear an IPO could ruin Facebook’s “startup” appeal and slow down innovation, an initial public offering could raise enough capital for Facebook to more aggressively grow its verticals. Two areas of importance for Facebook moving forward include mobile and social television. It’s part of a larger “connected device” trend that’s delivering content through more channels, and as this space expands, Facebook will need to monetize the social aspects of these channels as well.
Facebook Mobile
Facebook’s mobile strategy has been pretty limited to apps so far, favoring iOS in terms of launch schedules and feature updates. And Facebook’s actual apps center around social interaction and accessing account information, doing little to extend their platform’s ecosystem for Facebook apps, particularly games. This is where Facebook will really need to build out its ecosystem if it hopes to gain ground in the mobile sector, where Google, Apple and even Microsoft are already ahead.
Looking at the latest rumors, Facebook’s plans for mobile include a handset of its own. This isn’t likely the way to win in the mobile arena–there’s enough devices on the market, and plenty of competing operating systems. Even Android is diversifying across niche devices like the Kindle Fire, which has a stripped down version of Google’s mobile OS, adding to the fragmentation woes that plague developers, retailers, carriers and consumers alike.
What Facebook needs is a solid mobile extension of its own platform, that will enable better points of integration for the companies building apps for Facebook’s site and/or mobile marketplaces. Sure, you can tap Facebook contacts for a round of Words with Friends, but this is still a segmented initiative on the part of the game publisher. Unifying a web and mobile presence will be a key software development for Facebook moving forward.
We’re already seeing the necessity of this with Zynga, which is making its appeal to mobile gamers and forced to leave Facebook behind in the process. Increasing gamers on tablets and smartphones in today’s market means diversifying away from the very platform that brought Zynga to the point of success to launch its own IPO, especially with Facebook imposing a 30 percent tax on revenue made on its website. In order to retain the value of its ecosystem, Facebook will have to support the mobile transition for its developer community, and possibly better incorporate its offerings with the mobile market mainstays, like Android and iOS.
Facebook already has a budding relationship with Microsoft, one of its high profile investors, which has already integrated Facbook’s social graph into its search results and facilitated deals like Skype’s video calls on the network. As Microsoft continues to layer up its own platform, tying efforts with Windows 8, Windows Phone and Xbox, Facebook could make room for an easier transition on this front.
Facebook on TV
Facebook is a term associated with nearly all things social, whether online or off. The worldwide network has set national revolutions in motion, held firm as a platform for religious and political debate and enabled a new sense of globalization as far as culture and access are concerned. So when we think of TV’s future as being a social one, it’s hard to avert a discussion about Facebook as well. But even more than mobile, Facebook’s absent from the social TV trend in many regards, though it presents a grand opportunity for extended channel distribution as well.
You don’t have to look further than the first month of 2012 to realize the growing importance of socializing the tube. The Super Bowl is rank with advertisers seeking ways beyond Facebook Pages and tweets to engage viewers, reeling in participation from General Motors, Coca Cola and Shazam. These brands in particular are leveraging mobile devices to send viewers directly to a website where they can gain more information about a product, unlock free content and qualify for prizes. With approximately 60 percent of all Super Bowl viewers expected to be within arm’s reach of a smartphone or tablet, mobility is becoming an important avenue for television to become more interactive and social.
The first week of 2012 also brought a slew of connected device expectations from TV set makers like Sony and LG. Not only are they building out their own integrated system, but many are looking to Google TV as a platform to extend the newest social TV trends. At CES this year we saw the future of TV, and it’s a highly social one, with in-screen chats, recommendations, sharing functions and rewards systems. And Google’s much further ahead on this initiative than Facebook, given its Android platform and default social interactions that are cataloged every time you use a Google-powered app or service. Apple, too, has demonstrated initiative in this space, though its personal media cloud approach is lacking social capabilities.
Leave it to apps, and even cable providers to fill in the missing gaps here. Even Comcast’s jumping on this bandwagon, testing a social TV experience dubbed Xcalibur in Georgia. It involves a recommendation engine and “friend trends” powered by Facebook. Companies like GetGlue have also run with the social TV trend, building insight around marketing trends while rewarding viewers all the while.
Facebook’s ads = social monetization
Beyond merely powering existing gaming and TV efforts, Facebook will namely benefit from these extended channels by finding a way to loop things back into its own ecosystem. Facebook’s true value lies in its ability to access users and their preferences, creating hoards of useful marketing data alongside an audience that can be monetized in a series of socially oriented ways. It’s true that marketing has become very social, but above all, accessibility matters. Facebook’s building a presence in the mobile and TV space, but it hasn’t reached a major point of influence for its own monetization or ad distribution.
There’s a new age dawning for socially driven marketing, and TV is a great way to attract the biggest budgets in media to the socially situated. Social content management provider thismoment recognizes the convergence of connected devices and the future of marketing, a challenge that their new CMO John Bara will take head on. Thismoment is building the technology for big ad shops, simplifying the transition for brands like Coca Cola, and bridging gaps for the likes of Google. This all effectively leverages thismoment’s Digital Engagement Channel, a platform where brands and agencies can create, distribute and optimize branded and UGC content across Facebook, YouTube and beyond.
Facebook’s IPO will create jobs for the company, no doubt. And those jobs will likely further Facebook’s goals around mobile and TV verticals as part of a larger scale approach to new media marketing. Social is one of many considerations encompassed in new media marketing, and Facebook will have to find away to continuously ad value to its social platform amidst the growing network of associated platforms currently overlapping its space.
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