Guest Column: Why Facebook’s IPO doesn’t spell disaster

Facebook’s new revenue model has the potential to grow further & since it constantly innovates, we can safely say it will sustain, says Deepan Parameswar of Kreata

e4m by Deepan Parameswar
Published: Jun 26, 2012 8:05 PM  | 5 min read
Guest Column: Why Facebook’s IPO doesn’t spell disaster

The hype around Facebook’s Initial Public Offer started a year ago. It was then touted as the event that would change the way people would look at social media and elevate the status of Facebook from being a social networking site to an ideal business model. A year down the line, after the first Facebook IPO, the same stock gurus who prophesied glory are now preaching negativity.

What is surprising is that none of these gurus had predicted the birth of this phenomenon. The mass popularity that social networking is witnessing today was unforeseen. Now, when you look back, Facebook seems to have entered our lives from out of the blue! There it was, one fine day, in our mailbox waiting in the form of a friend request sent from a smart early-mover friend. We hit the accept button, created a profile and the rest as they say, is history.

It would be unfair to judge Facebook’s credibility as a business model by the temporary setbacks it has faced in the IPO. Facebook has been a phenomenon since its inception. And we can assume that it will remain so provided it continues its quest for innovation. The value of Facebook (as a brand that has touched lives) is more valuable than its stock price.

Going by the flak Facebook’s IPO has drawn, one would think that Facebook is a failure as a business model, which is obviously wrong. The success of a business depends on various factors. A business can be called successful only if:

• It addresses the needs of the people: Just when you think that the social network has reached its limit, it rolls out a new feature. Earlier, it was used to find friends and stay connected. Now, one can do so much more. We play games, try out applications, stay updated on current affairs and what not! Facebook has transformed the way people interact with each other. The fact that it is the most popular website, second only to Google, definitely says something about it. As for brands, interacting with them has become easier, customer issues are being addressed faster, product updates reach the TGA quicker and there’s direct interaction between the brand and its customers.

• People interact with it frequently: Facebook’s figures speak for itself. With more than 901 million active users, out of which 488 million users access it through mobile devices, Facebook offers endless possibility of virality. This is where your customers, existing and potential are. More than 300 million photos are uploaded to Facebook everyday, and it had 125 billion ‘friend connections’ and 3.2 billion ‘likes’ and comments as of March 2012. One just has to log onto a personal Facebook account to get an idea of the kind of interaction taking place. For all those who blame Facebook for the communication gap it’s causing in real life, the practice of liking, commenting and sharing could be a model to emulate from!

• It innovates constantly: Facebook’s ability to introduce innovations deserves praise. The best example is Timeline. Timeline went into mandatory mode for brands on 30th March. In a short span of two months, Timeline has seen several innovative changes in its posting, advertising and admin options. Facebook’s innovation graph has always been on the rise and towards the right. Let’s admit it, it is a rare feat!

• It makes money: Facebook has an excellent advertising revenue model in place. Apart from Self Serve and Engagement Ads, there’s Promote and Credits, all paid features. Facebook’s revenue has taken a giant leap from being estimated at 150 million dollars in 2007 to generating 3.711 billion dollars in 2011. As per reports, the company earned 1.058 billion dollars in the first quarter of 2012. Facebook is also planning to introduce new premium paid features such as Highlight which allows normal users to pay $2 for promoting status updates. LinkedIn and Zynga have already proved that the practice of charging users for premium tools is a good revenue model. The good news is that Facebook will not be charging for any of its existing tools, the charges apply only for new features.

An evaluation of the above-mentioned points confirms Facebook as a successful business enterprise. The new revenue model it has introduced proves that it has the potential to grow further. At the core of it, Facebook nurtures human relationships. And anything that fosters relationships is of great value. Since it constantly innovates too, we can safely say that it will sustain. After the IPO, Facebook has more to live up to, but then it has always maintained an admirable record in exceeding expectations.

Finally, like all those marketing textbooks tell us, a business needs luck to succeed. I believe Mark Zuckerberg has it enough. Who else became so rich and famous from a college hostel idea and had even a movie made on him?

The author is Executive Director, Kreata Global Digital Media Services

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