Facebook: The Good, the Bad and the Ugly

Thu, 05/31/2012 - 11:22 -- Bernard Thorpe

The wildly colourful story of Facebook reads like part entrepreneurial wet-dream and part John Grisham novel. From humble beginnings in a Harvard dorm room to a multi-billion dollar botched IPO, Facebook has been sued, loved and conspired against in it's short existence. Whether you are one of the detractors, advocates or just a plain Jane, Facebook is pretty hard to ignore. Below we look at some of the highs, and lows of the firm's last 8 years.

The Good

  • Facebook already has more than 900 million users
  • Facebook has changed the way the world shares and communicates
  • In 2007 the Facebook platform was opened for developers to add to user experience
  • Facebook has started making headway with it's mobile issues via acquisitions of mobile platforms and applications

The fact that Facebook changed the face of social media for millions of people over the world is hard to argue. Although Facebook wasn't the first social network, it's creators capitalised on the innate human need to share in unprecedented ways. The site still continues to innovate and create new and better ways for it's 900 million users to share their life experiences online. To add value to the site they opened up the Facebook developers platform in 2007 at the f8. To date there are over 500,000 apps available for download. The social media platform has also recently acquired the popular photo sharing platform, Instagram and according to some industry experts it is looking at acquiring Opera, the Norweigan based internet browser. These acquisitions are squarely targeted at their problem of monetizing the mobile parts of the business.

The Bad

  • Many privacy issues have been raised in the past, and unless properly managed will continue to dog the company.
  • The company has relatively little in actual earnings to justify one of the biggest IPO's in history
  • The company has been mired in several lawsuits, including the high-profile Winklevoss twins
  • The founders was involved in a Pakistani criminal investigation following an incident on the website in 2010.

Facebook has been a hotbed of privacy issues for some time, and has had too drop some of it's projects because of this. The most notable of these was “Beacon”, a service that sent usage data from external websites to the Facebook newsfeed. The project was shut down in September 2009 after a class-action lawsuit was brought forward by the civic-action group Move-On.org. This wasn't the only time Facebook has been in hot water with the legal system. The company has amongst others been sued by the Winkelvoss twins, consumer watch groups, and more recently by private individuals with regards to their “sponsored stories” advertising system.

To add to the controversy, the founders of Facebook almost found themselves in a Pakistani prison in 2010. The Pakistani police filed a request with Interpol to have the founders, and an anonymous woman named “Andy”, extradited to Pakistan to face the death penalty after a Draw Muhammad page was created on the site.

The Ugly

  • Highly publicised botched IPO offering in May this year.
  • Gross over valuations of the company, including it's downward projection forecasts mid-IPO
  • Class action lawsuits filed in several locations in the US after the IPO
  • Facebook is highly dependant on gaming company Zynga

The biggest hurdle presenting Facebook at present is the murky events before, and following the company's much anticipated IPO this year and the issue of mobile advertising revenue. The issues with the IPO were amongst others an initial offering price of $38, which placed the company in the $100 billion range (Put differently, roughly 90 times the value of the company's 2011 profits).

The deal got even murkier when Facebook's projected earnings were revised downwards mid-IPO by several of the investment firms involved. The information however was only available to selected institutional investors, and were conveyed verbally. This has led to at least 2 class-action lawsuits being filed by irate investors. It was also recently announced that roughly 12% of the company's earnings was derived from the mobile games developer Zynga, which doesn't add much to investor confidence. The share price has already fallen by over 26% since it's listing and hasn't lost much downward pressure yet.

What will happen next in the ever evolving saga of Facebook is anyone's guess. The next couple of months will be interesting as the SEC investigation unfolds, the class-action lawsuits get on the way and the ongoing sustainability questions will be put under pressure.

The value of Facebook advertising will also come under scrutiny, the company will have to work round the clock to increase the low click-through advertising rates and to figure new advertising models for it's online offering.

For the short-term, as long as Facebook maintains the trust of their users, they will have the largest social network in the world to experiment on. Facebook, more than many other companies would do well to remember the advice of Christopher McCandless (Into the Wild) - “Happiness is only real when shared”