As talk of the flotation has gathered pace so too has the demand for the shares which has led founder Mark Zuckerberg to increase the price and the volume of shares available for sale. The individual share price is $38 which means that the social network is valued at $104bn. The owners are releasing just under a fifth of the company’s total shares and this is thought to raise in the region of $18bn. In US trading history this initial public offering (IPO) of shares is the third biggest to Visa and General Motors.

Attention grabber

Speculation is rife that once the sale starts the share price will go up as traders vie for a piece of the company. However, the fact remains that the profits concerned are minimal as plans to make the company more profitable are uncertain.

What remains to be seen is whether this entire furor is a clever marketing exercise or if there is genuine worth in investing in the company. What isn’t clear to potential investors is the company’s direction in terms of future profitability. Plans for gaining advertising revenue remain vague and whilst there is clear market potential Facebook hasn’t presented any measurable definitions for its future success and longevity.

Advertising is big business estimated to be around $1tn worldwide with online advertising making up around a 20% share of this so the opportunity is there but it is questionable whether or not advertisers will use Facebook as their first port of call.

Proceed with caution

Market experts are advising caution to potential investors until more is understood about the business itself. This is particularly down to the nature of the shares on offer which mean that new shareholders will have little say in the future of the business as their votes count for only one vote per share as opposed to existing shareholders like Zuckerberg where their one share equates to ten votes.

With Zuckerberg still holding the majority of the cards in terms of 56% voting power critics will argue that this flotation is designed for him to gain yet more publicity and more cash.

The flotation will make him one of the richest men on the planet, as well as making several existing shareholders multi millionaires overnight.

Humble beginnings

There is no denying Facebook’s success so far with 900 million users in eight years – all this from very humble beginnings in a Harvard University dormitory.

It has however faced some bumps in the road surrounding its privacy settings and new timeline layout which makes users and investors skeptical about its worth as an advertising and revenue making platform.

Whatever your business it is important to gain the trust of your clients in order to get them to place orders with you. Trust is synonymous with loyalty and whilst Facebook may have armies of loyal fans who use the site as it was originally intended as a social network it is difficult to see how it will migrate these users to a successful purchasing strategy of its sponsors and advertisers.

The market flotation of Facebook may give the company more kudos in the investment market place but how this will sit with the average user remains to be seen. Most are likely to see themselves as quite detached from the whole stock market issue apart from a few extreme fanatics who want the reputation and knowledge of owning a piece of their beloved site.

Transition viable

Facebook began as a free service to users so it is difficult to see how it will adopt the trappings of a regular target driven business. In a regular business model the product would be first and foremost and the business would centre itself on this. For example an exporter of fruit and vegetables would base its business infrastructure around the product like an establishing an order process, buying business vehicles, developing supplier and stockist relationships and so on.

Whether Zuckerburg ever envisaged that Facebook would become this success early on, only he knows but in order to secure its commercial future post flotation, he and his fellow shareholders need to reassure advertisers and businesses looking to invest that it has a sustainable future beyond the headlines.

Facebook’s click-through rates are pathetic.
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