Facebook's Success Hinges On How Much More It Can Learn About Us
This week, All Things Considered is hitting refresh on its All Tech Considered segment — taking you into the changing landscape of technology and how it intersects with everyday life. From Silicon Valley to China, we'll feature stories from around the world, stay on top of innovations that matter — and get you the news you need to know. Every Monday, we'll preview the week's big tech stories.
Today, Facebook CEO Mark Zuckerberg turns 28 and gets the ultimate birthday gift: His popular social networking site is expected to go public later this week. The IPO could be valued at nearly $100 billion. Meanwhile, Yahoo, another company that also once had a bright future, continues to undergo upheaval as it struggles to define its mission.
Facebook is expected to start selling stock to the public and begin trading on the Nasdaq Stock Market on Friday. One of the things that are remarkable is how quickly Facebook became so valuable. Can a company started less than a decade ago in a college dorm really be worth that much?
To put this in perspective, when Facebook goes public it will probably be valued at more than Boeing and Ford combined. But Facebook's profits are relatively minuscule.
So to justify its sky-high stock price, Facebook will need to grow like a weed for the next few years. The amount of money it brings in will have to double and then double again for this deal to make sense for long-term investors.
Right now, more than 80 percent of the money Facebook makes comes from advertising. So that piece of its business needs to expand really quickly. But Facebook doesn't want to clutter up its site with too many ads and annoy its users.
Late last week Facebook gave us one hint about where it might be headed. The company has huge amounts of data about each of its users. It knows your likes, your friends — and where you went to school. Right now it uses those data to sell ads aimed at you, but those ads only appear on its own website.
Managing privacy expectations of its users could become a huge problem for Facebook.
The company has a long history of pushing people to share more than they might otherwise be comfortable sharing. And there is no indication that trend will change. But there is always the risk that at some point millions of people will simply say they've had enough and quit the service. So far, that hasn't happened.
But there's also another risk — that regulators either in the United States or in Europe get tough and really start putting strict limits on what Facebook can do.
So Facebook has to walk this line, while at the same time adding members, selling ads and figuring out how to collect even more information about us.
If Facebook doesn't figure all of this out, it will be very bad news for investors.
Investors who buy Facebook this week and plan to own this stock for the long haul are betting on a kind of crazy, almost unprecedented growth. Because without that, Facebook begins to look a lot like another Silicon Valley company — Yahoo.
Right now, Yahoo and Facebook sell just about the same number of ads. They both have audience measure in the hundreds of millions. But Yahoo stock is worth one-fifth of Facebook's projected value.
Yahoo just pushed out its new CEO, Scott Thompson, who was hired less than six months ago.
Thompson got caught lying about his background. In documents filed with the Securities and Exchange Commission and on his bio, he claimed a degree in computer science when in fact his college degree was in accounting.
When the news first broke, Thompson claimed it was a misunderstanding — he had never lied. But the more folks dug into it, the less credible it looked. Then over the weekend, Thompson reportedly told Yahoo's board of directors he had thyroid cancer and stepped down.
Yahoo has had five or six CEOs in the past five years, depending on how you count it. And actually this is bigger than losing another chief executive. A group of activist investors used the controversy to land three seats on Yahoo's board of directors. And in the past this group, Third Point, has pushed to break Yahoo up or sell it.
So this week as Facebook goes public, it's worth remembering that Yahoo was once valued by Wall Street at more than $100 billion too.
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