The relatively poor showing of Facebook’s initial public offering of its shares on the NASDAQ exchange shows that, perhaps, finally, the hype around the social networking site may finally be abating.
As I post this, Facebook shares have closed around $31 after their third day of trading, down from their opening price of $38. And they didn’t do much better on their first two days, having closed on Day 1 at around where they opened.
Does this mean the business world and average folk may finally have acquired a sense of proportion about services like Facebook, or for that matter, companies such as Apple?
Let’s hope so.
You might plausibly argue that Facebook’s failed IPO may have something to do with its inability to figure out how to get users to buy stuff advertised on the site.
That certainly is a problem. I, for one, have never clicked an ad posted on Facebook. And indeed, just before the IPO, General Motors decided to stop advertising on Facebook, after reportedly having spent only $10 million of its $1.8 billion 2011 ad budget on the site. (The automaker did say it would continue to maintain its “free” Facebook page, which reportedly costs it about $30 million a year to operate.)
In essence, GM was saying that Facebook banner ads are about as effective on Facebook as they are anywhere else – which is to say, not very effective.
Facebook may have 900 million users, but it only had revenues of $3.7 billion last year, which pales in comparison to tech behemoths such as Apple, Google or Amazon. So far, it hasn’t figured out how to make piles of money from all the personal information it has about the people who post pictures of their pets and kids online for all their friends and relatives to see.
The IPO was, in effect, a wager on whether it will soon figure out how to do that. Stock buyers appear, in part, to be betting that it won’t.
But focusing on Facebook’s business model may miss a larger point, which is that it’s folly to bet on technology companies in general. Despite claims to the contrary, I’m skeptical that any web-based industry or market has reached maturity yet. Or, to put it another way, in an industry that’s barely 20 years old, it may be foolish to try to predict which companies will become the Web equivalents of General Electric.
After the dot-com boom and bust, and after watching many “iconic” companies rise and fall rather quickly, we may finally have learned that lesson.
That might be the main reason why Facebook’s IPO fizzled.
Investors likely had visions of other tech has-beens dancing in their heads when gauging whether to pour money into Facebook. First and foremost had to have been Myspace, the original social networking megasite, which has shrunk from 100 million users in 2007 (just as Facebook was becoming the next big thing) to roughly 30 million today, and has morphed into a music promotion site.
As well, potential Facebook investors probably looked around and noticed the rise of services such as Twitter, Tumblr and Pinterest and wondered whether they might some day overtake Facebook the way Facebook overtook Myspace.
They also likely recalled the fate of AOL, which at the height of the dot-com boom in the late 1990s effectively took over Time Warner on the strength of its ubiquitous dial-up Internet service. Today, AOL is a shadow of its former self, and the merger with Time Warner is a distant memory.
Or perhaps they were thinking of Sony, which as late as the early 1990s was the world’s leading consumer electronics company. Now, having cut its way to a modest profit in the first quarter of 2012 after four straight years of losses, it has gone from a tech innovator (remember the Sony Walkman and Trinitron TVs?) to just another struggling tech giant.
Contrast Sony’s trajectory with that of Samsung, which in the early 1990s was primarily known outside its home base of South Korea as a fledgling electronics company from an emerging economy that made second-rate products (as was the case with its South Korean rival, Goldstar, or Lucky Goldstar, now known as LG). Today, needless to say, Samsung is a tech juggernaut with its hands in all major segments of the consumer electronics market (as well as shipbuilding, appliances, financial services and other industries).
Here in Canada, we have our own tech flameouts that have been seared into this country’s collective memory.
Chief among them, of course, is Nortel Networks. At its height in 2000, the telecommunications equipment maker had a market capitalization of close to $400 million. Today, it’s bankrupt.
The current faltering Canadian tech star is Research in Motion, which invented the smartphone with its iconic BlackBerry. RIM is currently losing money and market share as its BlackBerry operating system and handsets struggle to stay relevant in a market dominated by Apple’s iPhone and smartphones (made by the likes of Samsung and LG) that run Google’s Android operating system.
The value of RIM’s shares has dropped by more than 70 per cent in the past year, and its market cap has dropped from $78 billion to $6.3 billion in three years.
The company finds itself in a similar position to Finnish cellphone giant Nokia, whose share price has fallen by 90 per cent in the past five years, while its market cap has dropped from $151 billion to $11.8 billion in a mere four.
As I’ve argued before, I think RIM has been hammered enough. Our household is thoroughly enjoying our $200 Playbook tablet, and we’re rooting for a turnaround in Waterloo (although I have an Android smartphone from LG and wouldn’t trade it for all the BlackBerries, or iPhones, in the world).
Even companies such as Apple, with a market capitalization of about $525 billion, can’t afford to be complacent. After all, now that marketing guru and master ideas-stealer Steve Jobs is dead, where will Apple swipe it’s next big product concept from?
Jobs is often credited with inventing many of our now ubiquitous tech innovations, but his real genius was in refining other people’s ideas. The iPod was really just an update of the Walkman. The iPhone took the iPod and married it to the BlackBerry concept. And the iPad was the iPod writ large, with a generous dollop of inspiration likely coming from the fictitious electronic work pads used on the TV show Star Trek: the Next Generation and its various 1990s spinoffs.
But now that both Jobs and Star Trek are dead, what’s next? Maybe new Apple CEO Tim Cook is working on a tricorder, or perhaps a transporter.
Like Apple, Google also can’t simply rest on its laurels. Its search service is still the cash cow that enables it to compete and take risks in all sorts of other markets, but it would be foolish to think that there might not be a company out there that may some day out-Google Google, the way it out-maneuvered Yahoo, AltaVista, Lycos and others in the search market.
All of the aforementioned tech also-rans are mere tips of a much larger iceberg. I haven’t even discussed companies such as Dell, HP, Panasonic, Sharp, Toshiba or JVC, never mind Palm or, one of my youthful faves, Commodore. (I adored my 64.)
So despite it’s success so far, it’s a bit too early to say whether Facebook has real staying power, or whether it’s the next Atari.
And it appears that average investors agree.