Facebook’s IPO - it’s up to you

 

The BBC's Rory Cellan-Jones on what the stock market float means for Facebook and its users

"If you're not paying, you're not the customer, you're the product." This warning to Facebook's 800 million users about the nature of the social network's business model has become something of a cliche. But, as the world awaits the most hotly anticipated IPO since Google, it's clear that what will be on sale is you, the user, and your 800 million friends. (With half of the UK population on Facebook, I'm assuming that you're likely to be a member.)

How much we are deemed to be worth is what will determine the value of the business when the shares are priced. Facebook, like Google, is an advertising business and one that has introduced a radical new way of reaching consumers. With Google it was via our searches, with Facebook it's our likes, dislikes and all the other data that we contribute freely to the site.

Ask anyone about adverts on Facebook and they are likely to tell you that they never notice them, and are sure they have no impact on their purchasing decisions. They are quite likely to say the same about the ads served up by Google, yet the search firm's clients are happily handing over billions of dollars, confident that this is the way to reach their customers

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On a visit to a London digital marketing agency yesterday, I got a glimpse of how powerful a platform Facebook can be for advertisers. I-Spy demonstrated how they could funnel into Facebook's data to target a precise group of people - say, 25-40-year-olds in the Reading area, looking for jobs in the technology sector.

The agency, which used to send nearly all of its clients' marketing budgets in Google's direction, is now putting about 10% on Facebook, and expects that to grow. Jim Brigden, I-Spy's CEO, was enthusiastic about what the social network could offer in terms of targeting, but cautious about whether it would ever be as useful as Google.

He explained that Google delivered customers who were already looking for something, while Facebook might be better for engaging with consumers and letting them know about a brand. "It won't work for everything," he said. "You wouldn't try to sell funerals or financial services." But his clients, from a recruitment agency to the makers of Spam (the real thing, not that stuff in your inbox) were very happy with the results so far.

What we will find out when the IPO papers are filed is just how much revenue this kind of advertising is earning for Facebook, and how rapidly that is growing. Then Wall Street will have to decide how to price the shares. Last week they were trading privately at a valuation of $80bn, and there is talk of the price tag climbing to $100bn or above.

That figure looks ridiculous for a business with much to prove, but optimists will say that there was similar scepticism about Google's IPO in 2004. The search firm went on to show that it was worth a whole lot more than the value at which it floated.

Whatever the price, the Facebook IPO will generate eye-watering sums for investment banks, lawyers, and of course Mark Zuckerberg and other owners of a slice of the business. Then the really difficult bit starts - showing that the Facebook audience really is a valuable resource, willing to be targeted with more and more advertising. In other words, it is up to you and your Facebook friends.

 
Rory Cellan-Jones Article written by Rory Cellan-Jones Rory Cellan-Jones Technology correspondent

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  • rate this
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    Comment number 129.

    As someone who works with data, the last thing I would ever do is hand over my personal details - whether its DoB or what I like or not - to some 3rd party. This is the data age folks, and your details are worth money. I suggest you don't hand it over to FB or any other site under the guise of "social media".

    I should have said that 5 years ago I guess. Oh well, your loss.

  • rate this
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    Comment number 128.

    remind me, how much did Murdoch pay for MySpace ?

    ..and what's it worth now ?

  • rate this
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    Comment number 127.

    Wow, huge numbers, with 845 million users generating 2.7 billion Likes and comments a day, last year alone Facebook made over $3.71 billions!

    Zuckerberg is really a con artist!!
    http://www.vectorash.ro/facebook-secrets-ipo/

  • rate this
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    Comment number 126.

    As the world's biggest mailing list, FB is undoubtedly valuable to advertisers. But I seriously doubt its long term value to investors. When the public move on to something else (as they always do), the advertisers will follow them. But the investors will be left holding worthless stock.

  • rate this
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    Comment number 125.

    @llcoolj40 Simples! Everything you say, every image you post (including face recognition), everytime you are tagged it is profiled and every webpage you visit on the web which has a FB "like" button is recorded by FB. They know an awful lot about millions of people is what makes FB valuable!

    Users have to consider who may get access to that information when the IPO happens.

  • rate this
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    Comment number 124.

    The real potential strength of Facebook is its userbase - it is in effect the most comprehensive person database. With so many apps tailoring the application for use in smartphones and via contact lists it has become a comprehensive identity system.

    Those saying that younger users are undermining its worth are missing the point. They are the future users that will ensure it becomes a standard.

  • rate this
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    Comment number 123.

    Mr Zuckerberg may have set the company up with the best of intentions, but once it floats then it has a corporate duty to make money for the investors, ultimately out of the users. I suspect a few people are going to get mighty rich at the expense of those left holding stock when commercial reality pricks the speculation bubble.

  • rate this
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    Comment number 122.

    I know that Facebook is an ICT company, but really this is more on the business side of things so shouldn't Peston be covering this?

  • rate this
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    Comment number 121.

    I can safely say the adverts have no effect on me because I do not speak Portuguese. They are in Portuguese because I lied about my location (and all other info). This means Facebook data is over-valued by the value price divided by number of users. Just how many users are telling the truth is unknown... but id expect it to fall.

  • rate this
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    Comment number 120.

    Surely this was bound to happen at some point, but I wonder how long it will be before something else comes around that will replace it. Or with the way Intellectual Property laws seem to be heading whether anything will be allowed to replace it - will Facebook become more aggressive in defining it's "boundaries" and defending it's "territory"?

  • rate this
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    Comment number 119.

    Is 100b too much when, as others have stated will happen, Facebook diversifies and comes to compete with the likes of Google and Microsoft. Smart phones, operating systems et al are in the works. No?

  • rate this
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    Comment number 118.

    It is a great opportunity to make some money.

  • rate this
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    Comment number 117.

    Mr. Cellan-Jones, have you come across any similar articles as this? "Facebook IPO Is US Intel Operation?" http://thedailybell.com/3565/Facebook-IPO-Is-US-Intel-Operation
    I always say, follow the money...

  • rate this
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    Comment number 116.

    The danger with this sort of new type of IPO is that, in the event that the initial price is not what the markets expect, the share price will either make some large corporations a lot of money or lose the private investors a lot of money.

    Whatever happens Zuckerberg will be a multi billionaire and the markets and Uncle Sam will be ready for the feeding frenzy

  • rate this
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    Comment number 115.

    Again, I question the real value of Facebook via ads most people ignore - the point alot seemed to miss.

    2011 revenue of US$3.7 billion. Lets be generous and say roughly 50% of that is profit. So an annual profit of US$2 billion. To value that company at US$100 billion is therefore insane. It would take Facebook 25(low)-50(hi) years, JUST TO BUY Facebook.

    A gamble, not an investment. Im out!

  • rate this
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    Comment number 114.

    The instant i see an advertisement on my FB page, I'm gone.

  • rate this
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    Comment number 113.

    "Athame57

    Umm I doubt any dogs are pretending to be human. I'm not sure what point you are trying to make, I quoted the stat because it is a figure stated in the media, I am sure fake accounts are much higher. I guarantee numerous gamers on the site use multiple IDs to create "friends" to up their levels more quickly.

    800 mill is absurd.

  • rate this
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    Comment number 112.

    But, as the world awaits the most hotly anticipated IPO since Google, it's clear that what will be on sale is you, a MALE, and your 800 million friends. (With half of the UK population a MALE, I'm assuming that you're likely to be MALE as well.)

    What a ridiculous statement to make. There is no logic in assuming on a 50/50.

    PS. I am Facebook member.

  • rate this
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    Comment number 111.

    @LLCoolJ40 "How can facebook be worth anything because it doesn't make any money out of me.."

    Facebook makes tonnes of money out of people playing games through its website. The game owners pay facebook loads for the pleasure. It also makes money out of businesses wanting to advertise on its website. The businesses pay loads for the pleasure..

    Not rocket science!

  • rate this
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    Comment number 110.

    @103. Brian M
    38 MINUTES AGO
    'Well the stat came out last week that 14% of "users" are users' pets and ...'
    //////////
    Statistics..trust them only if you fiddled the figures yourself. I've got two accounts there, one is me, one is my dog Yogi. OK..how many dogs are pretending to be human?

 

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