While the social network’s ad revenue grew 63% year over year in the second quarter, it only added 8 million new users. Interim CEO ...
Nothing received more attention in the Internet world this year than Facebook's IPO.
Nothing received more attention in the Internet world this year than Facebook's IPO. When Facebook went public May 17, the company and private shareholders sold $16 billion in stock, the third-largest IPO in history. In just three months and a blistering summer later, Facebook stock turned decidedly cold and $9 billion in equity vanished. As I write this in late August, Facebook is trading at half its initial offering price of $38.
This wasn't supposed to happen in the second coming of the Internet bubble, and, in fact, Internet stocks as a group have not experienced a bursting bubble. It's the social networks that are tanking. Groupon is more than 75% below its November IPO price. Zynga is down 70% from its December IPO. Yelp, which quickly soared to nearly double its $15 March offering price, settled back to about $21 by mid-August. Even LinkedIn, which triggered the social media stock craze 15 months ago as its stock tripled in value from its offering price, has lately seen some of the froth evaporate.
Tech stock watchers cite a number of factors for this swoon. Facebook's IPO process was flawed, they say. Groupon and Zynga IPOs were overpriced, they say. The number of social networks has grown, making competition tougher.
A more vexing issue may be that social networks rely on web advertising for financial sustenance and they have to compete with Google for ad dollars.
The problem is two-fold. Social networks such as Facebook have a mass audience, but web advertisers increasingly want to reach particular market segments with targeted appeals. The social nets are attempting to segment their audiences, but gathering the information to do that runs into privacy concerns. Second, the purpose of much social media is social communication. Can advertising really work on a platform used to communicate personal information with friends without intruding on the very nature of the experience? The jury is still out.
Compare this to Google, the top web advertising platform and the subject of this month's cover story (page 14). It became the dominant competitor in search by focusing first on meeting the needs of web visitors seeking information and delivering the content most likely to satisfy the searchers. Only then did it focus on selling advertising, and it had the perfect vehicle for it—specialized content delivered to a market segment looking for that very content. So, for example, selling a web ad for a sports car next to the results for a search on "best sports cars" became a license to print money.
Now, however, Google is selling positions that were previously earned based solely on relevance. Now the more the retailer is willing to pay, the higher its product ad is capable of appearing in a relevant search. Who's to say whether this latest iteration of Google search will be a winner? But it strikes me as contrary to the objective search philosophy that turned Google from a proper noun into a verb.
Jack Love, Publisher