Social networks are no longer the new kids on the block. Social interactions are now entrenched in our daily lives which in turn has created platforms upon which global powerhouses can be built. Fiercely competitive, take Facebook as an example. Facebook has moved from an innocent social network serving IVY League university students to offering telecommunications services through messenger calling, becoming a VC of sorts investing in the newest hippest tech like the fantastically named Oculus Rift (acquired for a meagre fee of around $2billion in 2014), making highly tactical acquisitions of rival platforms like instagram and offering e-commerce partnerships with big names of the CMS world, e.g Shopify. What started as an opportunity to connect university students online in a more effective fashion quickly evolved into a company that secured the title of the largest ever IPO for an internet company with an opening value of $104.12 billion. But does going public change social networks? The short answer is yes, but how and why?
IPOs can generate considerable amounts of funds for future development and validate the hard work already put in by the pre-IPO shareholders and founders. However, going public comes with a whole swathe of different responsibilities and pressures which affect a company. The share price becomes an overriding factor and the yardstick against which the company’s performance is measured. A Reuters article discusses how after an IPO, people stop thinking about them as companies and more about an investment or stock price. This is a crucial aspect through which going public can change social networks(and indeed any company) forever.
Suddenly every movement in stock price is a reflection on the success of the business and figures that have this effect are no longer circulated internally, they are public knowledge. Shareholder concerns can be devastating for short term share prices and heads can roll via lack of action and development, you only have to see Twitter’s recent shake up spurred on by Chris Sacca’s diatribe and Dick Costolo stepping down as CEO. Suddenly social networks have a lot more to think about than just creating the best social network for their users.
The irony in the situation is that Mark Zuckerberg, CEO of the largest social network in the world openly stated multiple times in their SEC Registration Letter that Facebook was never actually created with the intention of being a business in the traditional sense. Furthermore, that “we don’t build services to make money; we make money to build better services”. Although the latter may be true as an ethos, it appears to be a lot different in practice. Now that the likes of Facebook and Twitter are public they have to satisfy the voracious desires of their shareholders, of whom many will have bought shares for a return on their investment rather than some fanciful dream of being a small part of something that changes the way in which we interact as a society.
All about the returns
The vast majority of social networks are free for their users, like search engines it is their widespread popularity that fosters opportunities for revenue generation. The crux of the issue is that social networks are so popular because they were built for the user rather than for the shareholders. Going public shifts this focus somewhat. Admittedly the main focus must still remain with the user, but there is now considerable pressure for growth and revenue generation. This is has been very evident with Facebook in the 2+ years since it went public. Large strides have been made to monetise the platform, from games to sponsored posts and readvertising. In fact, as social media marketers we have noticed this push towards advertising on the platform more than most.
Facebook has dramatically decreased the organic reach of brands (even to those following the brand) in an attempt to encourage (*push) companies to spend their budgets advertising content to Facebook users. Whether they have overstepped the mark with advertised content and will lose users due to a lack of ‘social’ content is to be seen. At the moment it is being kept at palatable level but we expect the amount of advertising on the platform to continue increasing over the next couple of years. Zuckerberg and his senior henchmen/women have been very vocal about the fact that they are only displaying ads that add to the user experience. They are also very encouraging advertisers to make full use of the data available to them and to be creative about their content. Nice PR but as a Facebook user I question some of the ads that are displayed to me already!
Change for the good or bad?
Upon initial viewing the outlook is gloomy for social networks that go public. There is intense pressure from shareholders to generate revenue and growth from something that was never originally set up to do so. Furthermore, at the same time there is pressure to continue acquiring and retaining users with your changing product. Facebook’s decision to go public looked to be a disaster immediately following IPO with a plummeting share price and Twitter’s mob like coup and ousting of a CEO that had led the ship for five years does not help to brighten the view. However, whilst WIRED commented that going public can cause management to “focus on short term stock fluctuations at the expense of long term growth”, there are in fact positives that come out of going public.
The added pressure forces social networks to adapt at a heightened rate, seen by the fact that pre-IPO concerns about Facebook’s lack of mobile strategy was rectified within months, resulting in the company generating $375 million in only 3 months, less than a year later. One could also argue that the heavy weighting of video content on Facebook (and auto playing) has improved the platform and may have been spurred on by a requirement to satisfy video marketing revenue requirements. Whether Zuckerberg’s theory of making money to provide better services is working in practice (it is probably a combination of the two), Facebook does appear to be advancing in its quest for world domination. Would this have happened anyway without going public? I suppose we’ll never know, but I highly doubt that they would have adapted for mobile in such a short time without the concerns voiced pre-IPO.
It is also going to be very interesting watching how Twitter pull themselves out of a seemingly large hole of ambiguity to satisfy both users and shareholders over the next few years. Whatever happens with Twitter and Facebook, there is no doubt that going public can have a dramatic effect on how a social network operates, affecting both their short and long term product road maps.