With Facebook’s initial public offering imminent, the company has announced that it is raising the size of its IPO to 421 million shares, a 25 percent increase over what it had originally planned. With shares selling for $38, the social media giant’s offering could be one of the largest ever, far exceeding Google’s among tech companies. With Facebook initially valued at $16 billion, its debut could be larger than that of General Motors and the second-largest in US history.
The move occurs the day after a spot of doubt was cast on Facebook’s future profitability when General Motors announced it was pulling $10 million worth of ads from the company, saying these had too little impact. The Wall Street Journal reports that GM spent about $40 million annually on Facebook, with about a quarter on paid advertising.
Supporters of Facebook are contending that GM ran a poor ad campaign. GM’s rival, Ford, has said that it would continue its current social media strategy involving Facebook and says that “You just can’t buy your way into Facebook. You need to have a credible presence and be doing innovative things.”
But GM’s pulling out its ads has brought to the fore the general issue of advertising on Facebook and not because the loss of revenue hurts Facebook ($10 million less is no great shakes for Zuckerberg & co.). As Larry Dignan writes on CNET, analysts have been scrutinizing Facebook’s business model — and so far, says Dignan, Facebook “hasn’t quite figured out its model yet.”
Even though Facebook knows more about all of us and our likes and preferences than Google, it still relies on display ads, an old business model. Referring to an article on Facebook’s business model by Chris Dixon, co-founder and CEO of Hunch (which eBay has acquired), Dignan explains Google’s business model does a better job at matching up “buying intentions with the user”:
You search for something and Google hits you with a relevant ad. Facebook is like a park. Perhaps you notice an ad or sponsorship, but you’re not at a park to buy anything. You’re there to goof around with your friends. Ads can be annoying.
Eric Clemons, a Wharton operations and information management professor, argues that Facebook’s record-setting IPO is even based “some unknown business model.”
15 percent of the world’s population is a member of Facebook, Paul Sloan notes on CNET: Most internet users are now signed up for Facebook so that frontier is fast closing. Facebook saw a slowdown in its first quarter and has to figure out how to better monetize mobile, an area where it has more users (488 million and growing) than ever, but where it has yet to make any profit. The jury is indeed out whether Facebook will continue to be the internet juggernaut it is now seen as.
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