Saturday, June 04, 2011

To market, to market..and don't dally on the way..!

The longer Facebook delays its IPO, the more it loses.

Without a doubt, Facebook is one of today’s hottest internet properties. It's the second most visited website on the planet with 600 million users – a tenth of the world’s population ! The Wall Street Journal places its market value as high as $100 Billion.

Those figures are probably absurd overestimates, but that's beside the point here. The point is, most of that wealth remains on paper until the company actually goes public. While the company has announced plans to do an IPO, it has also shelved those plans until at least 2012. Why do I believe this is a mistake? Two reasons.

1. Facebook, today’s social networking leader, runs a real risk of turning into a social networking also-ran. Facebook has barely scraped the surface of the humongous beast that social networking is. It’s merely the vanguard of an entire new generation of software tools that’ll have social networking at their core. And these next generation social networking tools will automate entire work processes and personal activities - those breathtaking possibilities are barely a glimmer in the eye for even today's most advanced social networking software makers.

So in the emerging social networking universe, Facebook cannot take its leadership for granted – it can easily be overtaken by hungrier rivals and even relegated to being a marginal player. In a marathon race, the runner who leads after the first few meters has no guarantee of winning (and in fact rarely wins). That’s the stage where the social networking race is at right now.

Admittedly Facebook’s huge 600 million user base will be an asset difficult for other tools to replicate. However, they may not need to – many experts believe that the future of social networking tools is in catering to specialized audiences in focused niches.

(This is why, as I’ve written elsewhere, Google Chairman Eric Schmidt is wrong to believe he has missed the boat on social networking. Agonizing in this manner, reconciling to second-best status and taking a narrow view of social networking as being confined to little more than chatting and sharing photos is only likely to discourage Googlers from pursuing the vast unexplored vistas of social networking I've highlighted in that post. But that’s a separate discussion).

2. The markets may lose their exuberance for internet properties soon. We’re in the midst of a bubble as far as internet IPOs are concerned. As an example, Groupon which has a business model that can at best be described as unproven, has an IPO in the works that values that company at upto $30 billion ! (which makes you wonder if Groupon isn’t going to be the next – a poster child for a burst bubble). Reality should assert itself pretty soon, and by 2012 that bubble may well be past.

And a time when people are mopping up the remnants of a recently-burst bubble would scarcely be opportune for approaching the markets.

* Facebook's ownership wrangles may be part reason for the delayed IPO.

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