It has been top news of the week: The Facebook IPO has been a disaster.

Let me take some of key facts and reactions around the Facebook IPO:

o In the five days since the company went public investor anger has been mounting over the deal which was fumbled by its major underwriters and complicated by technical problems at the Nasdaq stock exchange.
o More than half a dozen law firms specialising in investor complaints said today they were launching class-action suits against the social networking giant and its underwriters.
o The company’s share price has slumped 16 per cent below the $US38 listing price.
o Anaystis claim people were looking at Zuckerberg as a leader to give them clarity, answers and comfort.
o Reports emerged today that Morgan Stanley and other major underwriters made around $US100 million by selling their extra allotment of shares to stabilise the share price on the first day of trading.
o Yesterday, Zuckerberg completed the $US1.1 billion transaction of 30.2 million shares that he sold in the company’s IPO, when he sold them for $37.58 a pop.

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I know from my friends that work in the stockmarket that it is still too soon to analyze what has really happened and what is going to be the stockmarket evolution. Moreover, I do not want to enter into the big mismanagement done of T the IPO.

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What I want to focus on is on the potential that Facebook can really have from a Marketing point of view. Potential that leads me to two basic questions:


o What is the Business Model of Facebook?
o Are the new market and technological trends supporting the company growth?

What is the Business Model of Facebook?

In Marketing we tend to put our focus on the segment we are targeting, the positioning we are getting, the sort of Branding to be attained and the Marketing Mix to be implemented. And this is risky, because it can mislead us and make us forget two basic things: The Customer Experience and the Business Model.

The Business Model has to do with how the company is making money, its ability to monetize from the value propostion and customers it has. We have somehow always assumed that a company with a strong value proposition, well-known brand and significant customer base is a cash flow machine that justifies by itself a strong stockmarket value.

However, as the last 15 years have shown, this is far from real. Take for instance MySpace, and Youtube and tell me if they really worth what News Corp and Google paid for them…

And when I think about Facebook and how they monetize, big question marks come to me:

  • Do they really have a well defined and sustainable Business Model?
  • Is it fair, as many analyists do, to compare their advertising potential to the one of Google?
  • What other alternatives on top of advertising do they have for monetizing their value?


Are the new market and technological trends supporting the company growth?

There is a massive hype around social media and Internet. Mobility, data adoption and an increasing need to be everytime and everywhere connected are definitively defining the current Technological and Communications trends.

However, there are also some trends that might not be so benefitial for Facebook:

o Some markets like the US are starting show a stabilization of Facebook new users, which could signal that the social network could be starting to reach maturity or at least decrease its growth. Another explanation is that end users are migrating to other sort of social media like Pinterest…

o The migration from PC to smarphones and tablets is accelerating (as Facebook publicly recognized). This is specially relevant for it affects directly two things:

— The customer experience that the end user is getting from the social network (compare for instance your Facebook experience when you access to Facebook from your PC and your mobile phone).

— The potential advertising alternatives to be used and the power and control Facebook can have over them.

Having said that, let me close this posting with three more questions:

o Is the Business Model from Facebook sutainable in the long term?
o Is the reject from GM to advertise in Facebook an exception or an advance of what is to come?
o And bearing that in mind: What Facebook should do in order to maximize its stockmarket value in the mid and long term?


Whilst we get the responses, I will remain skeptical of the Facebooks´s real value as long as I enview more hype and momentum than basic business layers…



Ignacio Gafo


Sponsorized by:
Volvo - Marketing blog


[…] Este es uno de esos artículos que escribo por impulso, en esta ocasión a raíz de leer el interesante post de ayer de mi buen amigo, el profesor Ignacio Gafo, en su blog de marketing del IE, titulado “What lies behind Facebook´s disastrous IPO?“ […]

Daniel Cuñado May 28, 2012 - 9:29 am

Se trata de un tema apasionante y muy polémico. Quería comentarte tantas cosas que lo he convertido en un post en mi blog: http://danielcunado.wordpress.com/2012/05/28/pensando-diferente-sobre-la-opv-de-facebook/
Enhorabuena como siempre por sacar a la palestra temas tan interesantes. Un abrazo.

andy zarate May 29, 2012 - 10:34 pm
Profesor Gafo May 29, 2012 - 11:33 pm

Interesting article that deepens into the Management done by FB and Investment Banks prior to the IPO. Looks that FB did gave some warnings about monetization capabiities.

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