Facebook’s move toward an IPO

Eden Zoller, Ovum Principal Analyst

UK: Facebook’s goal is to redefine the social media experience by creating an immersive platform that will be the centre of people’s digital lives, making it the dominant platform for rich communications, commercial content and advertising. If you buy into this vision then Facebook’s predicted IPO valuation, which could reach $100 billion, is not altogether unjustified. However, making the vision a reality will be difficult, albeit not impossible.

On the plus side Facebook’s user base continues with its impressive growth trajectory which should comfortably pass the one billion mark this year, with particular opportunities to build the base in emerging markets and to extend its reach via mobile devices.

Facebook is also making money, albeit very modest compared to the likes of Google, and is gaining good traction with advertisers. Moreover the money raised from the IPO will give Facebook more resources to invest in acquisitions, service innovation and advertising analytics.

The challenge, and it is a big one, is whether Facebook can keep its users active and engaged in a context where Google is pushing hard into social media and many home grown social networks are looking to up their game, notably in China. Scale is important but engaged users are the vital if Facebook is to build the critical mass of advertisers and commercial content providers that are central to its future success.

Facebook will probably come out of its IPO with the kind of heady figures being predicted, but it will be under close scrutiny and if it fails to deliver on its promise quickly then its valuation will drop as investors lose confidence in the business model.