Beyond the IPO: Ten Implications of a Public Facebook

By Susan Etlinger, Charlene Li and Rebecca Lieb

The run-up to Facebook’s IPO reminds me a bit of a wedding: everyone’s attention is on the big day (expected to be Friday May 18), without much regard for the weeks, months and years afterward. Charlene Li, Rebecca Lieb, and I sat down to discuss some of the implications of a newly public Facebook: on shareholders, business and Facebook itself. — SE  (Cross-posted from

Whether or not Facebook’s IPO ends up being one of the world’s largest (this Washington Post article places it 6th, between AT&T Wireless and Kraft Foods), it will certainly earn a respectable position in the history of the public markets, a lofty spot for an eight-year-old company in a relatively unproven business.

We identified ten areas where we are watching Facebook closely, as an indication of its success in the future.  We picked these topics because they intrigue us, because they provoke discussion and, ultimately, because we believe they are the issues most central to Facebook’s future.

#1. Leadership

 In a media frenzy in which anything (such as, for example, wearing a hoodie on a road show) can spark a news cycle, it’s to be expected that Mark Zuckerberg would have kept the lowest possible profile during Facebook’s quiet period. But now during the roadshow, on the first day of trading, and afterwards, he’ll need to step out, step up and set the tone for how he will lead this company into its next major phase. Can he pull it off?

The decision Zuckerberg must make, as a CEO who’s famous for his a “go away; we’re working on it” attitude, is whether he will use this milestone as an opportunity to cultivate his newest constituency: investors. As CEO, Zuckerberg needs to be accountable to his shareholders–not to a stock price per se, but to their faith in him. We will start to see clues to this decision during the first earnings call (a trial by fire for any CEO of any newly public company).

Of course, it’s all fun and games until there is a major hit to the stock price.  We know, generally speaking, what the triggers will be: a new, poorly received product, a privacy issue, slowing user growth–the registration statement is full of examples.  When this happens, Zuckerberg will have to demonstrate a completely new level of leadership. He’s chosen his executive team wisely in that both COO Sheryl Sandberg and CFO David Ebersman are strong, respected executives who have been through this process before. And, despite his youth, Zuckerberg has learned from previous missteps like member revolts, privacy, and Beacon.  If you still wonder if Zuckerberg is ready for prime time, imagine how you’d react if a major, highly unflattering motion picture had been made about you while you were still in your twenties. The issue isn’t if he can avoid controversy, but how well he can quell the concerns of skittish investors.

#2. Innovation

 Facebook has a hacker culture; its development mantra, “done is better than perfect,” is at the root of both its growth and its biggest failures. Given the massive number of monthly active users (901 million according to the latest released numbers) the strategy has been to release product to the market and learn as it goes.

But as a public company, Facebook will need to choose whether it will continue to release products the way it has in the past or take a more cautious approach.  How will it behave when it’s not just the pundits on Twitter, but the shareholders who react?

Although they’d hate the comparison, there’s a strong role model in Google, which, even as a public company has managed to maintain its agile development strategy. Granted, there’s always the risk of a Buzz (Google) or Beacon (Facebook), but Facebook has demonstrated considerably more focus from the start than Google.  Furthermore, the company sent a strong signal in its last quarterly statement that it will continue to make investments for long-term growth, even at the cost of short-term profits. It’s setting expectations that it’s investing for the future, not just for the quarter.

#3. Brands

 Will brands buy what Facebook’s selling? Facebook is, after all, a media company, and while it has other sources of income through partnerships, brand dollars are what will ultimately make not only the IPO, but the company itself, succeed or fail. With close to a billion users, Facebook is the biggest media company that’s ever existed, in any medium, ever. Advertisers go where the eyeballs are, which is Facebook’s undisputed advantage. After that, it gets a bit trickier.

Facebook is at the vanguard of developing products that merge and conflate advertising and marketing, that blend content, conversation, paid, earned and owned media with media buys. Advertising is media buying, but those other aspects: owned media (premium brand pages) and earned media (the conversations and comments and interactions brands have with their fans, users and yes, detractors) are part and parcel of what Facebook is working to monetize. It’s still experimental. Brands are still testing the waters and are far from establishing best practices or firm models in a “brand” new environment.

#4. Data

Facebook is also in a position, thanks to its staggering user base, to possess and be able to leverage data on a scale we’ve never before seen. Likes, affinities, social graphs, recent behaviors – it’s all there, together with the basic demographic information. Again, the ability to package, parse, productize, make understandable and actionable this vast quantity of data is as formidable a challenge for Facebook as it will be for the media agencies who buy against these very new models. Facebook’s potential as a marketing data juggernaut is very real, and can potentially take advertising to new levels, if the company succeeds in making that data useful.

#5. Mobile

 Most of the coverage around mobile has been focused on Facebook’s “lousy” mobile applications. But we believe this is a red herring – the core issue revolves around the slow development of mobile advertising and marketing. The S-1 says it best in the section on risks related to advertising:

§  “…increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content…”

But with 85% of revenue coming from advertising as of the end of 2011, the more effective Facebook is at appealing to its mobile users, the more it risks shifting revenues from the Web platform where it can monetize users, to the mobile one where it can’t — at least not immediately.  So the real question becomes how Facebook will balance creating mobile user value against driving shareholder value.

Facebook can’t risk waiting too long before moving aggressively into the mobile space, but also needs to buy time to help mobile advertising develop. Given this significant risk, the purchase of Instagram represents $1B of earnest money that Facebook is focused on the long term.  With the war chest Facebook will have accumulated post-IPO, building a great iPad app and upgrading the smartphone experience is a foregone conclusion. The bigger issue to watch is how well Facebook can develop the mobile advertising market with that experience, in a similar way that it created social media marketing.

#6. Investors

 The first earning call is always rough for a first time CEO, and Facebook will likely not be any exception. But what we are watching closely is if Facebook will develop a different kind of relationship with its shareholders. The company is, at its essence, about sharing: will a newly public Facebook use its own platform to share more information with investors?  Facebook has an unprecedented opportunity to change the way that it handles investor relations. Will it take this opportunity, or will it stick with the tried and true?  We’d love to see Facebook use its own platform as a way to engage with and provide greater transparency to its newest stakeholders: the public markets.

#7. Mergers & Acquisitions

 Thanks to Instagram, every venture-backed start-up has dreams of meeting with Facebook’s M&A team. Will Facebook focus on smaller acquisitions to acquire talent or smart ideas, or will it make major deals to really move the ball forward?

One of the more interesting areas of speculation lately is what would happen if Facebook were to buy Bing from Microsoft. With Google arguably its most formidable competitor, the addition of search would give Facebook advertisers a direct response medium they could not get before on Facebook. Google is, at its essence, a search company that has struggled with social. Facebook is a social company that needs search. A Bing acquisition would up the ante in a significant way between Facebook and Google.

Looks good on paper, but acquiring Bing would also be a huge distraction and a departure from Facebook and Zuckerberg’s legendary ability to focus on social sharing. A more likely scenario is that Facebook and Microsoft continue their long-term strategic partnership, integrating Bing deeply into the Facebook search experience.

Regardless of whether it buys Bing or another organization, few companies do the “merger” part of M&A well. We expect that Facebook will focus on smaller acquisitions that it can absorb and leverage quickly, while any large acquisitions like Instagram will be kept running separately, in much the way that Google ran YouTube as a separate entity for years. Again, a focus on the long term gives Facebook the ability to look at M&A in a very different way than traditional companies who much justify every single penny spent on a company.

#8. Culture

 Facebook is a private company in many respects (one of which is about to change dramatically), but the internal culture has always been very open. It has invested heavily to create this open culture, and it has slowly but surely been reducing the amount of information shared internally in the run-up to the IPO.

This will only increase, as the company will now be beholden to even more securities industry regulations intended to protect investors from selective disclosure. So again the balancing act, this time between employees (and openness) and shareholders (and fiduciary responsibility). Which leads us to…

#9. Talent

 Once it goes public, how will Facebook retain talent, especially top talent?  Expect to see the usual exodus as people wait to vest, then cash out (the Bay Area housing market is already bracing for impact).  But, again like Google, Facebook will retain its cachet for some time to come, and some will be motivated by the opportunity to change the world from within Facebook rather than from without. Where else can you find a platform of 900M people to try out your next great idea?

#10. Privacy

 Zuckerberg has said that increased sharing is core to Facebook’s growth. But with greater sharing also come increased pressures on and threats to user privacy.

Over the past eight years, Facebook has mastered the art of trial and error when it comes to privacy. There have been huge missteps (Beacon), significant improvements (to privacy settings) and escalating tensions as the company has continually pushed its users to share more, and more often, frequently beyond their comfort zones. The company has accumulated a great deal of resilience along the way, and has tried to balance giving people a granular degree of control (at the risk of confusing them) with offering a simplified experience (at the risk of alienating them).

The addition of Timeline, and the emergence of “passive sharing,” raise the bar yet again. A few months ago I installed the Washington Post Social Reader on my Timeline. Now I know that it involves social sharing, but one day when I was in need of a little “mental floss,” I clicked on a story about Snooki’s recent weight loss. I didn’t think anything of it until a bunch of friends and work colleagues started teasing me. There it was, along with comments: “Susan Etlinger read an article: “Snooki Finally Reaches Goal Weight of 98 Pounds – But Has She Gone Too Far?” I was, frankly, mortified. I’d forgotten I was “in public,” and I am someone who is supposed to know better.

Wherever your stance on Facebook’s privacy record, privacy will continue to be a litmus test issue for Facebook. User outrage is one thing; shareholder outrage is quite another. We will watch to see how Facebook balances continued innovation against privacy. Where will Facebook stand when and if privacy issues affect the stock price — will they pull back or forge ahead?

As always, we’d love your thoughts on these issues. What are you watching as Facebook heads into its IPO?



Google Buzz and Kids – Parental Control Nightmare

[Original posted at]

Like many parents, I try to take steps to keep my kids safe online, making sure that they understand not to share personal information online, or even to use their real names. They know how to write appropriate emails, and I constantly monitoring what they do, the emails they send, and most importantly, engaging in a constant dialog with what they are doing online.
But when I logged into my Google Buzz account this evening, I found that my 9 year old daughter had posted the following:

Buzz piggy picture

Pretty innocuous, but it was PUBLIC! I saw it because Buzz conveniently made me a follow of hers. I pride myself on staying ahead of my kids, but this time, my kid got ahead of me. She used Buzz without fully understanding that what she thought was a private conversation with her friends was in fact very much public.

Fortunately, this was her only Buzz posting. But what was most disturbing was looking at her friends’ conversations and realizing that some of them were chatting with complete strangers, and in some cases, sharing personal information like emails. Absolutely terrifying as these are 4th graders who have no clue.

I quickly turned off Google Buzz, (but I didn’t totally disable it, more on that below), dashed off an email to the parents of the friends she had been chatting with inside of Buzz (again, all in public, with their real names), and then finally took a long hard look at the situation.

First, I discovered that buried in Google’s terms of service somewhere is that children under the age of 13 are not allowed to have Gmail accounts. But unlike Facebook, which requires that people enter their birthdates when setting up accounts, Google makes no such attempt to educate people signing up for Gmail that such a provision is in place. As a result, while Google is absolved of responsibility because of the TOS, it could and should do a better job of complying with the Child Online Privacy Protection Act (COPPA). [UPDATE: Google does in fact ask for birthdate when signing up, and sends users who are under 13 to the FTC page about COPPA. Obviously, I violated Google's TOS by putting in MY birthdate and then giving account access to my child.]

Second, I think Google will have a second wave of privacy problems to address in Buzz. The easiest thing to do as a parent is to simply disable Buzz, meaning that the Google profile and all followers are deleted — permanently. But the reality is, my child has actually figured out how to use Buzz and seems to enjoy it – unlike most adult users of Gmail! But managing groups, privacy settings, etc. would be required for her to continue using it and I’m not confident as a parent that she’ll be able to figure all of that out. We’ll give it a try, but unless her friends also keep the conversation private, it will all be for naught.

So while I applaud Google for taking quick steps to manage the privacy backlash on Google Buzz, I think Buzz will bring to the fore the quiet reality that many people have enabled Gmail for their kids (and which Google loves because it ensures a new generation of Google devotees).

Without an overhaul and the addition of true parental controls in Gmail, this will remain a problem for Google, and a potential PR nightmare. Imagine parents (and kids) checking out their Buzz accounts to find that “iorgyinbathrooms” is following them, which is exactly what happened with my child’s account!

Does your child have a Gmail account? If so, have you talked to them about what Google Buzz is and how they should be properly using it? Please take action, which may be as dramatic as completely disabling Buzz on your child’s account. Do this as soon as possible, as I’m concerned that unsavory characters are already exploiting this parental control loophole.

Update Part 1: I received a response from a Google spokesperson, with permission to post it here:

“We designed Buzz to make it easy to have conversations with your friends about the things that interest you. Keeping kids safe online is very important to us. You must have a Google account to use Buzz, and we require all new Google account users to provide birthdates to keep children under 13 from signing up for accounts. Since we launched Buzz, we’ve listened to the feedback from our users and have made many product improvements to address their concerns. It’s still early, and we have a long list of improvements on the way. We look forward to hearing more suggestions and will continue to improve the Buzz experience with user control top of mind. Even as we roll out changes, we think it’s important to remember that there’s no substitute for parental supervision to keep kids safe on the Internet.”

Update Part 2: I had a chance to speak with Scott Rubin, who runs the child safety and public policy program at Google. As a parent of young children himself, Scott understands the need for parents to be able to control what their children see and do online. He pointed out that Google earlier this month enabled Safety Mode on YouTube and that the company continues to develop ways to give people in general better control. Scott acknowledged that things went wrong with Buzz and that some improvements were made quickly, and also that there’s more to come. We also discussed an interesting situation regarding children between 13 and 17 — those are are actually allowed to have Gmail accounts of their own. There are very few controls within the Google universe that give parents control, and Scott expressed an interest in continuing the dialog about what Google can do to ensure child safety.

So if you have suggestions on parental control features you’d like to see Google add, please include them in the comments below.

Update Part 3: As you can see in the comments on the original blog post, I’ve been branded both an irresponsible parent for giving my child access to email and also a responsible one for taking precautions. I’m often asked what I do as a parent so I thought I’d share some details of the madness to my method. First, there is no such thing as perfect, full-proof parental controls for the Internet short of sitting down with them and watching every keystroke. But that’s exactly what my husband and I did, starting early and stressing basic Internet safety such as not downloading files, sharing personal information, learning to exercise judgment online. Over time, we gave our kids more and more freedom to do things on their own, and put in place clear consequences if they broke the rules. Believe me, there have been many mistakes made and a lot of learning along the way! But each time, no major harm was done and they become more aware of all the pitfalls that being online entail.

Email was initially sent from our machines and our accounts with full supervision, then without supervision, and finally they were given their own accounts. But I still get copies of everything that they get, and they are allowed to email only people in their address book that are preapproved. This incident has made me rethink what email service we use for the kids, especially since we’re in violation of the Gmail TOS, and I’ll be looking into other options.

YouTube is accessible only from a public PC in the kitchen, and their PCs are in the family room with screens that I can easily see from the kitchen. We also have K9 monitoring software installed that blocks/allows sites and tracks everything they see and use. But my favorite software is TimesUpKidz, which limits their online time to one highly-anticipated hour a day, and then only during certain times. I love it because it removes my need to constantly tell them to get off the computer!

But more important than any piece of software, the thing that I believe keeps them most safe online is the constant communication and conversation we have together about their online activities. When I talked with my daughter about Buzz this morning, I told her that I saw the post that she wrote, and she readily said that she was looking forward to getting comments on it from her friends. When I told her that the posts were public, she said that she had no idea, and immediately agreed to stop using Buzz. She knows that she isn’t ready for a public presence and the reasons why. Our conversation about Buzz was part of our every day, normal conversation about being safe online, discussed in a relaxed way over breakfast. She and her brother frequently ask about things they hear about from their friends or things that they see online, and my hope is that as they enter the tumultuous teenage years, that we will continue having these conversations (although I think I’m be way to optimistic about that!)

Each family has to decide for themselves what works for their kids, and I understand that some people will disagree with my approach. But it seems to be working for us, and for now, the Google Buzz issue has been resolved. I’m no fool — I know dangerous situations are always lurking around the corner, but I hope that the security controls we’ve put in place plus the ongoing conversations we have will be enough to keep the worst situations from happening.