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, 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.
So, now that Facebook has (barely) survived their first quarter as a publicly-traded company, should they reconsider their decision to go public? With a share price hovering around $25.00 per share, compared to it’s $38 IPO price…someone ought to be questioning the move.
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.
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/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.
Just my $.02, here…I’d love to hear what others think about Facebook as a publicly traded company! Feel free to leave a comment with your thoughts or constructive criticism.
*Wall Street image courtesy of ToonariPost on Flickr via Creative Commons