The Facebook IPO – What It Means & What’s Next
By Rico Cruz - on 28 May 2012, 5:02pm

The House Always Wins

When Facebook bought Instagram last month for US$1 Billion, it seemed like a lot of money to pay for a company that doesn’t have an actual revenue stream. Now that amount looks like chump change next to the US$16 Billion that Facebook was able to raise in its recent initial public offering, a company with a similarly shady business model. What does their IPO mean exactly? More importantly, what does it mean for the future of the world’s biggest social network?

Facebook CEO Mark Zuckerberg on the day of his company's listing on the NASDAQ (Source - DigitalTrends)

First of all, it means that, despite the global financial meltdown of 2008, Wall Street greed is alive and kicking. One of the first reactions to Facebook’s listing on the NASDAQ was a class-action lawsuit against the company and Morgan Stanley, one of the the investment banks that underwrote the IPO, for withholding crucial information to the general public.

A few days before the listing, Facebook informed Morgan Stanley that they weren’t going to make as much money from mobile advertising sales as they thought they would. Morgan Stanley then passed on this information to a select few investors, who promptly dumped the stock soon after it began trading, sending its price plummeting well below the IPO price of US$38 per share. Those whom Morgan Stanley decided not to inform, lost a lot of money, while everyone else, including Morgan Stanley itself through underwriting fees, made millions.

Investment banks like Morgan Stanley chose to disclose important pre-IPO information to a select number of clients, which lead others to lose a lot of money on Facebook's IPO. (Source - avidlawblog)

An investigation is supposedly forthcoming, that will delve deeper into the IPO debacle, but Morgan Stanley’s actions are completely legal, and apparently, part of their standard operating procedure.

What To Do With The Money

From a purely capitalistic standpoint, Facebook’s controversial IPO did exactly what it was supposed to: raise fresh funds for the company to use for its expansion. Obviously, their US$1 Billion investment in Instagram has been covered, so what exactly are they going to spend the remaining US$15 Billion on? It’s barely been a month since the IPO and there have already been a couple of new developments that hint at Facebook’s future.

Answering The Mobile Question

As mentioned earlier, the crucial bit of information about Facebook’s financial performance that the investment banks decided to keep to themselves was their lack of revenue from mobile. When you logon to your Facebook account on your desktop or notebook, you’ll notice that there are a lot of ads on the right, which is where Facebook makes most of its money. However, if you look at the Facebook apps on smartphones and tablets, there are none at all. With more and more Facebook users going mobile, that means less eyes on paid advertising, which means less revenue for Facebook.

Every time you use Facebook on your mobile device, the company loses out on advertising revenue. (Source - iPhoneSavior)

Thing is, putting advertisements on the Facebook mobile app would be much more annoying for users because they would take up more screen space than on the desktop version, which could seriously turn a lot of users off. This forces Facebook to find other ways to make inroads in the mobile space.

Instagram being one of the most popular mobile apps on the planet, was an obvious acquisition that would help do that, but the release of the Facebook Camera app, which apes Instragram in many ways, isn’t as clear a move. In any case, it provides them with another platform for user engagement.

Facebook is rumored to be acquiring Opera. (Source - Ubergizmo)

Then there is talk of another acquisition: Opera. While not too many people use the desktop version, it is pretty prevalent on mobile devices. A Facebook browser could allow users to share content with their friends while browsing via in-app plugins. Another report says that Facebook has recruited ex-iPhone engineers in a bid to develop a “Facebook phone.”

Remember when we all thought the HTC ChaCha was the official Facebook phone? Well, that might still happen. (Source - HTC)

While those last two are still wild rumors, a couple, more realistic advertising services are already being tested, which avoid pesky banners. One is sponsored links, similar to those found on rival social networking site Twitter, that show up in your main news feed, while the other is an option for Facebook to “highlight” your post for a small fee, making it more visible to your contacts and others whom you wish for it to be seen.

Change Is What Keeps Us Coming Back

More than any other big move that Facebook has made over its short history, none has inspired more moans and loathing than its IPO. Being a publicly-traded company changes a lot of things, and Facebook is going to change along with it - big changes, thanks to their new billions. Sure, a lot of people will complain, but the fact is, it’s those changes that keep the site dynamic and interesting. Of course, if you’re fed up with all of it, you could just deactivate your account, but would be a lot more difficult than you think.

Rico Cruz

Rico Cruz / Staff Writer

Rico is the newest member of the HardwareZone team, having joined in June 2011, lured by his love of all things technology. He has been an avid follower of technology news since his high school days and is therefore no stranger to technology trends, past and present.