What Does Facebook IPO Mean To You?

Gaurav January 30, 2012 0

Well, after much speculation and waiting, Facebook is finally going public. According to the Wall Street Journal, Facebook Inc. could file for an initial public offering (IPO), which would allow equity shares of the company to openly trade on the stock market, as early as this week.

With this announcement, many you of avid Facebook users are thinking one thing… “So what does this mean for me?”

In order to answer that question, it is important to first decipher what happens to a company when they go public.

Facebook will have to prove it is a profitable business. As a part of compliance with the Securities and Exchange Commission (SEC), Facebook would have to disclose and make public all financial information. Therefore, it would behoove Marc Zuckerberg and the Facebook team to run a very profitable business in order to make money for their shareholders. The more money a business makes, the more valuable the shares of the company are.

So far, Facebook has focused on gaining and retaining users and not focusing on being profitable. Although being profitable and having lots of users go hand in hand, as of yet, Facebook has not made very aggressive attempts to make money from its users. In my mind, there are a few ways for Facebook to start making money from its users:

A) Charge users a fee to use the service – this option seems very unlikely given Facebook’s business model of growing and retaining users

B) Display ads on the network – Facebook already displays ads on the network, but the effect has not yet created the profitability Facebook requires

C) Begin to more aggressively sell user data to marketing firms – this seems like a logical next step in Facebook’s evolution. It seems that users are becoming more and more comfortable with displaying personal information on the site, and with Facebook’s ability to recognize and categorize user’s thoughts, it would be a very easy transaction to sell such data to large corporations.

No matter what Facebook tries to do, it will have to show Wall Street that it can be more than just a popular website, but also a profitable company. In this process, Facebook user will be seen more as a $dollar sign and less as an individual.

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