Wrong Place, Wrong Time

100 days ago Facebook’s IPO fiasco stunned Wall Street and at least some of the world.  We have learned that the IPO price was inflated because Wall Street needed a big winner and some combination of Facebook executives, underwriters and analysts overvalued the stock.  It appears that the overvaluation was complicated by the NASDAQ mishandling of the IPO (NYT).  What is not talked about as frequently, however, were all of the blogs and articles that questioned Facebook’s valuation prior to the IPO.  For example, Steve Henn and Zoe Chace devoted a week of broadcasts (the week leading up to the IPO) exploring Facebook’s value.  One great statistic they provided on May 15, 2012 was the price-to-earnings ratio of Facebook: “At current levels, it would take Facebook 100 years to generate enough profits to pay for itself.”  They then translated that ratio into advertising dollars: “Facebook will need to attract 10 percent of all advertising dollars spent on the planet ‘across all media – print, billboards, radio, television, Internet.’”  It is amazing to think that anyone believed that Facebook by itself could attract this amount of world-wide spending.  Yet, investors were legitimately attracted to Facebook as the marketing platform of the future.  Were those people crazy?  Maybe not.

Rather than dwelling on what has happened, what do we see if we focus on what will happen?  Does Facebook’s failed IPO provide an indicator of the future of social media?  I think that the answer is ‘yes,’ and that the direction it points is in fact to an increase in the use of social media through next generation social media platforms that build on Facebook, Twitter, and Linked In successes.  Earlier this month Bill Lee wrote a purposefully provocative article for the Harvard Business Review Blog entitled “Marketing is Dead”:  “Many people in traditional marketing roles and organizations may not realize they’re operating in a dead paradigm.  But they are.”  Lee justifies this assertion by pointing to studies that indicate that consumers define their own pre-buying research rather than follow marketing cues, and other studies that demonstrate corporate fatigue with paying for marketing campaigns that cannot show clear ROI.  He also cites Facebook’s IPO as an example of a last gasp of traditional marketing.  Lee suggests that companies should realign their efforts, focusing on “community marketing” and Word-of-Mouth efforts through social media.  Peer-to-peer marketing efforts, he asserts, are the ones that may succeed in the future.

Lee’s article is interesting in that it appears to contradict itself:  on the one hand, it calls Facebook a diversion, and, on the other hand, holds out social media as the platform of the future.  In fact, Lee is simply demonstrating the ironic issue with Facebook that helps to explain the problematic IPO.  Think back to the Henn/Chace statistic.  Investors fully expect that 10% of all advertising will and can be controlled by social media.  The problem is that Facebook was the wrong tool at the wrong time.  Traditional marketing structures continue to compete with and coexist with social media.  Social media, likewise, is in its infancy.  Facebook is too big, undifferentiated and unwieldy for business use.  It is too unreliable as a corporation to build much consumer trust.  Finally, it is simply not technologically advanced enough to fully inhabit mobile devices.  As social media communities grow, segment, differentiate themselves, and demand better service from corporations, social media will eclipse traditional media.  The “social capital” that Lee discusses will accumulate around individuals and communities in the social network, and businesses will fully shift their newly reformed marketing efforts to those locations, too.


CNBC Market Alert – Facebook IPO Blame Game.  Retrieved from http://video.cnbc.com/gallery/?video=3000111062

Henn, S. & Chace, Z.  (2012, May 15).  Is Facebook Worth $100 Billion?  NPR Planet Money, Retrieved from http://www.npr.org/blogs/money/2012/05/15/152736516/is-facebook-worth-100-billion

Lee, B. (2012, August 9).  Marketing is Dead.  HBR Blog Network, http://blogs.hbr.org/cs/2012/08/marketing_is_dead.html

Rooney, B. (2012, August 21).  Facebook:  A Desperate Need to Be ‘Liked.’  Huff Post Tech, Retrieved from http://www.huffingtonpost.com/brian-rooney/facebook-stock-price-mobile-app_b_1811548.html

Rusli, E.  (2012, August 22).  Citigroup Assails Nasdaq Over Flawed Facebook I.P.O.  DealB%k, New York Times, Retrieved from http://dealbook.nytimes.com/2012/08/22/citigroup-blasts-nasdaq-over-facebook-i-p-o/