Can Publicly-Traded Social Media Companies Survive?

Was taking Facebook public a good idea? Can social media companies survive on the street?Working for any publicly-traded is a unique experience. During my career, I have worked for a couple of big Fortune 500 telecom companies and the challenge was always working to balance the wants and needs of the customer with the wants and needs of the shareholders.

Like clockwork, we would begin each fiscal year (and each quarter) working on serving the customers. But by the end of the year (and the end of each quarter), there was always a TON of talk about “making our numbers”, “hitting our quarterly goals” and “reporting to the street”.

Essentially, what that meant was the shareholders tended to trump the customers. Bad business, in my opinion, unless the wants/needs of the customers happen to align very closely with the wants/needs of the shareholders.  In the case of telecom, rarely did that match up. Shareholders wanted reduced operating costs to increase their profit and dividend, which meant reducing headcount and automating processes. Customers  wanted better customer service and new, innovative products which usually meant more investment headcount and pilot projects.

Social media companies, like Facebook and Twitter, who choose to trade on the exchanges are going to have to walk a fine line between serving their members and their shareholders.  And no….their shareholders are NOT necessarily their members.  Heck, Bono was a huge pre-IPO investor in Facebook but still isn’t an active participant in the social space.

The reality is those that had connections to the IPO underwriters got first crack at buying shares when the stock went public. This means that fund managers and capital venture firms scooped up the lion’s share of the share leaving a few scraps behind for the consumers, who likely bought at inflated prices.

Was taking Facebook public a good idea for customers or investors?

So, now that Facebook has survived their first year as a publicly-traded company, should they reconsider their decision to go public? With a share price hovering around $45.00 per share, compared to it’s $38 IPO price…they do seem to be making a little traction, but it certainly hasn’t been the blockbuster success they had hoped for.

Contrast Facebook’s waning success in the market with that of LinkedIn. Since their public launch, LinkedIn stock has rose from $45.00 per share to around $100 per share (at the time of this post). Why? What is so different between Facebook’s offering and those of LinkedIn? One simple word.

Alignment.

The reality is LinkedIn has a business mission that is closely aligned with their users.

The mission of LinkedIn is to connect the world’s professionals to enable them to be more productive and successful. To achieve our Mission, we make services available through our website, mobile applications, and developer platform, to help you, your connections, and millions of other professionals meet, exchange ideas, learn, make deals, find opportunities or employees, work, and make decisions in a network of trusted relationships and groups.

As a social network, LinkedIn focuses on the business of business. Creating networking opportunities, offering job postings and offering subscription services that offer value to the business person. In essence, LinkedIn shareholders are also their users. So the alignment between the wants/needs of their shareholders and those of there customers is significantly easier to attain.

Even companies like Yelp have been able to beat their initial offering price by staying aligned withe business of their customers. With an initial price of $15 per share, Yelp is currently trading around the $20 range (I’ll take a 20% increase any day). Yelp is in the business of helping its customers find local services and it has been able to monetize the site by allowing those local businesses to pay for sponsored searches as well as offer Groupon-like deals. Basically, they have aligned their business mission with the needs of their customers.

Facebook, on the other hand, has a customer community who is primarily focused on sharing personal updates with their friends and family. They want to do this in a somewhat secured environment where they can control the privacy of what they share. Facebook investors, however, want to maximize profits by learning everything they can about their members and monetizing that information.

Hmmm….is alignment possible?

Basically, if Facebook sees ad networks as their golden ticket to monetization, they’re sadly mistaken. As more and more advertisements invade the network, users will start to get increasingly frustrated and begin leaving the network. As more users leave the network, Facebook will be put under pressure to reduce operational overhead, resulting in the downward spiral that the Fortune 500 telecoms faced.

Albert Einstein once made the famous statement “Insanity is doing the same thing, over and over again, but expecting different results.” Unless Facebook is able to find alternative revenue streams, their share price might be sitting at $25 – $35/ share (or worse) for a long time. What they need to find is the way to align their business mission with the entertainment and information sharing activities of their users.

So, now the question becomes whether Twitter will follow more in the steps of Facebook or LinkedIn. Will the shareholders rule the future of Twitter? Will that take them down the advertisement-heavy path that Facebook has followed? It remains to be seen.

Just my $.02, here…I’d love to hear what others think about Facebook and Twitter as a publicly traded companies! Feel free to leave a comment with your thoughts or constructive criticism.

Cheers!

–Sean

*Wall Street image courtesy of ToonariPost on Flickr via Creative Commons

Comments And Reactions

  1. Ralph Ott says:

    so far as capitalsystem survives everything will going on since 1924

  2. im not sure if they will, but i mean. maybe!

  3. Interesting read. Thanks for taking time to explaining this.

  4. Nah… I doubt it.

  5. Screw your Founder says:

    Can LOL Publicly LOL Traded LOL still laughing at this, Social Media companies survive? From someone who worked in many startups throughout the years, and a couple PTC’s, I can tell you, that they are in a grey area. WebBased apps are moving at a way to expeditious rate, so much that the eventuality of what I call platform absorption is inevitable. Meaning, that I believe, what you’ll see is the eventuality of large management platforms, like Salesforce, or even MCSFT Windows, just doing what is second nature in tech, and just copying the other guy, and implementing a version of it on their own program. Why compete, or even want to buy LinkedIn, when Salesforce can just make its own version, same with Apple, and MCSFT. I think Salesforce is definitely leading the way in that direction, unfortunately it makes for a completely bloated engine, and way too many functionalitys but if you’re the big guys, why let the little startups gain any foothold? Another answer is that if you are going to be a $125 ticket per share on the stock exchange, and have to hold fiduciary, and responsibly accountable management execution, on top of the very basic customer/user/member support, and answer to your shareholders – if you are LinkedIn, you cannot possibly go forward by offering ZERO customer support, or continuing to hide behind that most irritating and annoying tech nonsense about “were a web company so we prefer if you email us”, in other words, “our company is made up of people too sheltered, pathetically spineless, and virgin fueled insecurity to possibly talk to a eek! another human being.” HOW PATHETIC!! This is why I left this scam of an industry, because its filled with buzz coming from kool-aid drinking losers who would sacrifice their own mothers to the founder if they asked. Their is NO INNOVATION here at all. REAL innovation is in helping humanity solve problems not saturating and invading our lives with flashier web based ways to acquire a frikin email address so your sales department has something to do. And we DON’T NEED ANY MORE WAYS TO COMMUNICATE, or FIND SOMEONE. Thats why they wont survive, because people need cars, they need food, they need clothes, mortgages, financial instruments, water, wood, steel, commodities, and even computers. What they dont need is more ways to waste time, or a million versions of the wheel. Think about it -the startup you work for – the tech company you work for, if the electricity went out tomorrow, would anyone die or lose their money, house, or medicine if LinkedIn was down forever? Uhhhh no. To the men at LinkedIn, be a frikin man, and take pride in your company, and have a customer call department, and not in India. You can have all of our private info, but you cant answer questions I would rather ask a live person? You are the epitome of the scamms and everything wrong in “Silicon Valley” My Dad was a programmer there in the 70s 80s, he met Steve Jobs once. Hes part of the group of people that helped build what you take for granted, and today it looks like Hollywood to him, and I would go further by saying todays tech company’s are the “Extreme Republican versions” of the tech world, as they typically only take what they need, usually in the form of sensitive user info, so that they can market their catchy, flashy POS to some other VC idiot who knows a guy that he can sell this drug to. The RepubTechs never offer ways to, as they love to say “engage”, in any form of communication other than ticket ordering email nonsense, or live chat with “Tom” in Bangladesh. They are usually filled with White guys from back East or the Midwest, are saturated with frat boyish sales-isms, and seem to be afraid of women, as you only find very little women in these tech places, and those that are there, are usually just as lame – the sales-y blonde, who is “killin it” according to her douchy manager, Ted, or the “hot Asian chick” who is going out with Ted, because she knows that is the quickest way to her parents happiness. TECH COMPANIES SUCK. Don’t work for them, at the end of the day, you don’t’ feel like you really did anything to help anyone, just create more problems for someone else trying to integrate your solution so that they can annoy someone else with another way unneeded and irrelevant way to procure a frikin sales order that will be paid sometime in the next quarter, when they are budgeted for it, and when the VP of Budgets gets back from vacation, and then after they finish migrating their systems, and once they’ve moved to their new office, after which, you run out of sucker money(funding), and realize that the most innovative thing you’ve done, is to con someone into wasting millions of dollars on your piece of HTML. Brilliant! I see the MOB in the futures of many founders who failed

  6. Thanks Sean; I think there will always be a ‘latest and greatest’ and consumers are always going to want to talk to their friends for free, unencumbered by ads. Not a realistic expectation but, it is what it is.

  7. It can be it can be not. But in any case very interesing thoughts. It can make you aware of future developments too. Thanks for posting

  8. I understand why they do it (I’ve been working for publicly-traded business for the last 17 years, and I do get the point). But I question the wisdom.

    What eventually happens, is the dilemma that you mention (the opposing pressure of the customers wanting a better product and the shareholders wanting basically a lean money machine) kills you. I can say only one thing: poor employees. They’re in for some reduced lifetime.

  9. Your absolutely correct Sean regarding alignment and how LinkeIn stayed true to your mission statement. FB on the other hand would have never reached 1 billion users had it chartered the same course. So while they’ll experience a delay in moving the needle I do believe with their new advertising models (Graph Search) and the overall increased access to mobile devices, you will see a significant uptick in their stock price before the end of the year. While your cartoon references selling FB, I suggest holding the course for 9-10 more months and then make that decision.

  10. Kathleen Gick says:

    I think these publicly traded companies will survive, but the question for the individuals involved with them has to be at what point is the company no longer serving me but the shareholders. I think at that point many of the individuals who find that the shareholders are the ones served, will leave.

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