Now that the oohing and ahhing is over concerning Facebook raising a cool $450 million from Goldman Sachs (and, just for fun, another $50 million from long-time investor Digital Sky Technologies), the rumination has begun. And much of it has had to do not with the business of Facebook itself, but with whether there's something somehow nefarious about the social network's decision not to go public, at least at this time.
It's deep territory. But the Social Media Insider, being a notorious glutton for punishment, just put on her waders and is going in.
The first reason people are tied up in their underwear over this is simple: it doesn't follow the predictable path outline start-ups are supposed to follow, and that's disconcerting. We all like the satisfaction of knowing what happens next. As I was saying in an email conversation with a keynoter at our upcoming Social Media Insider Summit (plug!), we've all bought into the script: company gets several rounds of financing from (usually Silicon Valley-based) VCs, and only brings Goldman Sachs into the room once it's time to find a lead underwriter for the inevitable IPO. This deal, from a purely psychological perspective, makes us all look dumb for speculating about when the IPO is going to happen. It's a big "gotcha!" It makes Google's pledge not to "be evil" -- or to do forecasts -- when it went public look positively amateurish.
The second reason has a little more weight -- and that's that Facebook, even at almost 600 million users, is nonetheless blocking us out. Unless you're one of the relative handful of Goldman clients that received an invitation from the company to buy in, you're, as they say, shit out of luck. A private market for Facebook shares -- above and beyond what was already going on -- only enhances the sense, in the U.S. and elsewhere, that there's the super-rich, and then there's the rest of us.
Federated Media's John Battelle describes this another way: "Facebook is the greatest repository of data about people's intentions, relationships, utterances, and relationships that ever has been created. Period. And a company that owns that much private data should be accountable to the public. The public should be able to review its practices, its financials, and question its intentions."
Maybe its antecedent is the Kremlin? I'm not sure.
But seriously folks, ever since the news broke, here's what I've been wondering: that even if it's true that technology companies must continually evolve, Facebook just isn't quite evolved enough yet -- as a company, rather than a phenomenon -- to become a public company. If you think back to Google's 2004 IPO, at the time, it was on a similar trajectory to Facebook, to the extent you can really compare the two companies.
In the first quarter it reported revenue (Q3 2004), Google made more than $800 million, ending 2004 with more than $3 billion in revenue. Facebook, which allegedly had $2 billion in revenue in 2010, could well see its revenue double, or more during 2011.
But, there's a big difference between the two companies. Google's revenue model, at the time, was pretty well fleshed out, even as, in the intervening years, it's become more of a factor in display and other areas that bring in the bucks. Bid on keyword, buy keyword, rinse, repeat.
But social media advertising -- even with Facebook's current level of success -- isn't fully baked yet. Social ads do work, or advertisers wouldn't be buying them, but Facebook advertising is still not in the same realm as the easy cause/effect of keyword-based advertising. I still feel as though, despite Facebook's success, there are other big shoes to drop with its ad model, not to mention in things like virtual gifting, other forms of social commerce and privacy regulation, all of which could change the trajectory of Facebook as a business. It's still more of a consumer phenomenon than a revenue phenomenon.
The danger, of course, is being forever gun-shy about public scrutiny. For its own sake, and for investors everywhere, Facebook should eventually do the IPO. But its hesitation at this point is understandable. It's building out a whole new category of Internet advertising, and that may not be something that stands up well, at this point, to the kind of scrutiny an IPO would invite.