As it goes public,Facebook will have to figure out how to stay private
Eight years after it was created in a Harvard dorm,and became the stupendously successful company it is,Facebook has filed for an initial public offering. Its initially aiming for a modest $5 billion,and then hoping for a blockbuster debut in the stock market. What this means is that Facebook is not a secret project any more,its affairs only known to a close circle of early investors and friends now,it will have to expose its workings to prospective investors and the world.
Its regulatory filing with the US Securities and Exchange Commission offered the first official picture of Facebooks current dimensions,its hopes and aspirations. We now know that in 2011,it brought in $3.7 billion in revenue and made an exact $1 billion profit. That seems like a paltry amount,given the mindspace Facebook occupies,but its a reminder that its a fledgling company yet,trying to work out its financial strategy. Advertising makes up most of the revenues,but transactions and fees from third parties like Zynga (which makes FarmVille and CityVille) are increasingly significant to Facebooks model.
The unspoken underside though is that Facebook doesnt offer advertisers much of a return on investment,with its catch-all ads. With 845 million monthly active users,and more than 100 billion friend connections,its privy to a wealth of intimate detail,and yet,it doesnt quite know how to monetise this satisfactorily. To target its ads,it needs to actually exploit the personal data it has but unless it treads very carefully,any such move will cause users to revolt and provoke a privacy backlash from increasingly vigilant regulators. Facebooks future will depend on the finesse with which it can continue this dance.