Many people are questioning what is going on behind closed doors at Facebook. I touched on several of the burning questions with Facebook last Thursday, but the real question is, “What next?”
Speculation points to the fact that Mr. Yu lost his job because he failed to secure much needed funding during a recent trip to Dubai. The original statement that Facebook wanted a CFO with public company experience was terrible (he came from Yahoo). No one really knows, but it seems like there is a struggle behind the Facebook walls, which I’ll touch on later. The question remains, what does Gideon Yu’s failed Dubai trip mean for Facebook’s finances? Facebook’s rapid user base means that their costs are also rapidly growing, but their revenues are failing to maintain pace. That puts Facebook in quite the financial predicament. They are a private company that needs these private investors to ensure they can maintain the course that they have set. Everyone is anticipating Facebook’s IPO because it would be the most publicized public offering since Google. However, Facebook is nowhere near ready for an IPO. They still have too many questions with their revenue model; an IPO now would be a major financial blow to their stock value.
Facebook’s value has been disputed ever since Microsoft valued Facebook at $15 Billion when they invested $250 million in Facebook in October of 2007 last year. This past year Facebook has had to defend their actual valuation during two separate incidents. The first was their legal settlement with the two founders of ConnectU, the company that claims Mark Zuckerberg stole their code and idea and “created” Facebook. The settlement was divided between stock ($45 Million according to Microsoft’s valuation) and cash ($20 million), which was valued at $65 million. However, the two young men ran into a problem when their legal team stated that the stock was valued at $35.52 a share (Microsoft’s original valuation) and that was the amount they were owed. The real value of the stock’s worth was closer to $8.88 (11 million). Secondly, Facebook attempted to buy the micro-blogging site Twitter just a few weeks ago. The $500 million offer was refused because it was an all stock offer. Even after negotiations Facebook only offered approximately $50-100 million in cash, still a stock heavy offer. Too stock loaded for Twitter founders. Facebook is in tumultuous financial waters, no matter what Marc Andreesen says. Is this a result of their inexperienced CEO?
There are whispers that Mark Zuckerberg needs to resign his duties as CEO. The arguments are that he is too young (24 years old) and inexperienced. They believe there is a reason why 24 year olds are not entrusted with multi-billion dollar companies, no matter their genius. Gideon Yu’s recent ouster reiterated these whispers. There is speculation that Mark Zuckerberg is failing as a leader, and has become paranoid, sending out different memos in hopes of finding a mole. The senior management team is divided, causing for the carousel of executives lately. Five original founders, and Zuckerberg stands alone.
While reading my daily blogs, I see numerous bloggers stating thay they feel Facebook’s dynasty in the social networking realm is crumbling. Like any other dynasty, there is an end. Bloggers are using the demise of Friendster and MySpace as their point of reference. They too were at one point the Facebook of their time. While this seems logical, I defy these arguments. I don’t see a real competitor in Facebook’s rearview mirror right now. They’re still growing, at an astonishing rate of nearly 200% annually. Despite all their problems, Facebook is number one and still growing. The only rising star is Twitter, which despite it’s unreal growth, still just boasts a users base of 14 million, a drop in the bucket to Facebook’s 200 million. Also, they’re two entirely different kinds of social networks. It’s really hard to compare the two. Friendster and MySpace had the same basic platforms as Facebook, but Twitter is a whole different breed of social network. Facebook has firmly established themselves as the giant in social networking, without any real competition. Even tech powerhouse Google attempted to launch their own social network, Orkut. Who has even heard of Orkut (Only Brazilians use it)? I think the only viable competitor in the foreseeable future (next two years) is…MySpace. They too have an established user base, and if they can come up with a few new, distinguishing features, they could revive their brand and really give Facebook a run for their money. [I think if they were to dial down the juvenile intensity of their profile aesthetics and reduce SPAM, that would be a great start. Continue to allow users to personalize their pages, but perhaps a more professional look like Wordpress allows. That way, as original MySpace users get older, and their tastes change, the site would continue to be relevant with its established user base. MySpace could even morph into a hybrid of social networks allowing more original video uploads. As YouTube Hulufies themselves, MySpace could steal a bit of the personal video market share.]
As someone who uses Facebook and other forms of social media both professionally and personally, it’s going to be interesting what the future has in store for Facebook. I think they have some adjustments to make, and they have a cushion of two years to conduct trial and error revenue models. They’re demise isn’t imminent, but their dominance isn’t as guaranteed either. I’ll revisit these two blog posts in six months or so and we’ll see where Facebook stands then.
