Facebook Post IPO Ammunition

In technology companies, you see a lot of hype pre IPO and even in the first few days of trading, however as time goes by a lot of companies lose the heat and buzz it had in the initial days of trading. We’ve seen Demand Media go as high as 27 and some change to as low as 5 and some change, currently trading around 6 something. Then we’ve seen juggernauts like Zynga who had a struggle out of the gate, but are now doing well- particularly due to Facebook’s S-1 filing stating ~12% of revenues come from Zynga.

This leaves a question, and a huge one at possibly $100B market capitalization; will Facebook be steamy enough for the public market post IPO? My thoughts are yes, it will be- here’s why:

• Facebook might do search
• Facebook might start their own ad network- “FaceSense and FaceWords” if you will.
• Facebook might get into entertainment

These are some thoughts I have and I think Facebook will get aggressive with these after their IPO. Lets take search first. 

Search is huge if it’s done right. That’s why Microsoft has invested billions into Bing and a lot of small startups try to do search. Search is also hard. Why? Because people naturally think Google when they think of search. Microsoft has the money to blow on Bing and so far, it hasn’t turned out all that bad, but you see a lot of startups come and go because search is also costly if you can’t attract and audience. It’s mainly hard for people to make the switch because in order for them to see a real benefit of leaving the big G, the search experience and results have to be more than 10-30% better. However, Facebook would not have this be a huge problem because people naturally spend time on their site for other reasons and there is a white bar just waiting for users to type something into. Currently, FB uses bing for their web results, but having a in house engine could be a huge cash cow, even if the results are not more than 10% better than Google. But those are the nitty gritty details of the outcome, shareholders will just be optimistic off the fact that they are taking a go at search in general because Google has built this huge empire off of it.

If Facebook did an ad network, that would also be a huge cash cow. This would go hand in hand with search. They already sell ads in house for their own inventory, so why not expand it to third party inventory? There’s no reason not to. Google has AdSense and AdWords, and Facebook could definitely take a jab at that business if they wanted to (which I’m pretty sure they will.) Given that Google makes a couple billion a quarter (don’t quote me on the exact number) from AdSense partners, this type of model would boost FB revenues significantly on an annual basis. And getting people to switch wouldn’t be that difficult if they made it lucrative and juicy for publishers, but even beyond- “cooler” with the “Facebook factor.” Instead of traditional ads, Facebook can essentially bring the whole Like system and more to third party ads. If you buy likes within Facebook right now, can you imagine buying likes on keyword specific sites? For example, say you are ShoeDazzle and you are targeting shoe maniacs; imagine the ability to buy new likes through Elle.com or some other fashion site. The problem with internet advertising is that you cannot always get people to convert to a sale, and if they  click and come over to your site and leave without buying, they are gone- forever! Instead, the ability to buy a like and then gradually convert them into a lifelong customer seems more valuable, especially when done outside the Facebook ecosystem on a third party fashion (or whatever else) portal.

Lastly, I think there is some level of expectation for Facebook to get into some kind of content business. Entertainment is huge online, whether it is through Netflix, iTunes, Hulu, etc. But people hate having to maintain multiple accounts on various platforms- it’s just too much work. Since people already spend a boat load of time on FB, If Facebook can figure out how to tie all this together and deliver content through FB accounts they can quite possibly disrupt Hollywood in a positive way. Getting people to rent on the platform through credits would be an ideal play in my mind. Rewarding people with credits initially to rent movies and then letting them pay for credits once they are into the idea of renting movies via Facebook. How much more targeted can it get? I think a reason why Facebook might increase the rate of rentals over sites like YouTube or even iTunes is for the simple fact that users spend more time on site, potentially swaying them to spend more money.

Anyways, these are just some thoughts I have on their future and I could be wrong.