“Like” it or not, big changes are coming to Facebook, as the Internet giant revealed plans Wednesday for the most anticipated initial public offering of stock in years.
The ubiquitous social-network site on Wednesday confirmed the Internet’s worst-kept secret, filing with federal regulators for an IPO later this year that is expected to garner at least $5 billion and make Facebook founder Mark Zuckerberg and hundreds of other company employees and early investors very, very rich.
Given the company’s proposed offering sale, Facebook as a whole would be valued at between $75 billion and $100 billion, just eight years after Mr. Zuckerberg and friends first set up the site in his Harvard dorm room. Since then, Facebook has grown into an economic and cultural phenomenon with 845 million users who access the site monthly, and 483 million users who visit it daily.
“Facebook was not originally created to be a company,” Mr. Zuckerberg, who stands to be worth more than $25 billion if the offering goes through, told investors in a letter released Wednesday. “It was built to accomplish a social mission - to make the world more open and connected.”
But whatever the market reception for its stock, Facebook stands to be irrevocably changed as it transitions to a public company, with new pressures and possibilities now facing both the company management and devoted Facebook users.
As a public company, Facebook will face added pressure to seek new ways to make money from its vast user base and consistently increase earnings. That could mean, among other things, more advertising and less privacy controls, while at the same time not turning off longtime users.
“Once you do an IPO, there’s going to be a tremendous amount of pressure to monetize,” said Henry Balanon, a technology professional who co-founded Detroit Labs, which creates iPhone, iPad and Android apps. “So, I think they’ll get more aggressive with their online advertising.”
Mr. Zuckerberg in his IPO letter said the company hoped to hold on to its idealistic roots, but noted, “We’re going public for our employees and our investors.”
“We made a commitment to them when we gave them equity that we’d work hard to make it worth a lot and make it liquid, and this IPO is fulfilling our commitment. As we become a public company, we’re making a similar commitment to our new investors, and we will work just as hard to fulfill it.”
Some analysts predict Facebook will use the cash infusion to help spark a buying spree and may even move to a “tiered” membership, in which users who pay a premium can get extra services or offerings.
Facebook has an unparalleled mine of user information that it uses to personalize ads, according to Daniel Burrus, a technology forecaster who runs Burrus Research. Based on past browsing trends, the site already recognizes what things you or your friends might like and recommends it to you.
“Facebook knows what you like,” Mr. Burrus said. “They know what your friends like. They know what your age is. They know where you hang out. They know all sorts of things about you.”
But the laws governing public companies also mean that investigations of privacy breaches that the company could previously keep under wraps must now be disclosed to the investing public.
Analysts expect the company to step up these efforts. That could include direct-message ads in your inbox, Mr. Balanon said, as well as ads that are posted on your Facebook wall.
Some ads are already starting to pop up in news feeds.
“They are starting to integrate sponsored stories into people’s news feeds,” said Rachael King, a social-media account executive at marketing firm iostudio and president of the District-based Social Media Club. “They’re paying to be in the news feeds. It’s a much more sneaky way of advertising to their fans.”
This is more effective for marketers than the traditional ads on the righthand side of the Facebook page. “We all sort of know to ignore that,” she said.
Facebook is also likely to start pushing mobile ads for users who check the site on their smartphones, Mr. Burrus said.
“They’re going to be looking to mobile, because mobile is the future of computing,” he said. “They’re going to have to start doing more with advertising, because they have to bring in more revenue. They can’t ignore that platform.”
The problem with advertising on smartphone is that the screens are so small - compared with desktops and laptops - that the ads might take up most of the space. “Instead of seeing pictures of you and your friends, you’ll see ads,” Mr. Burrus said.
Some analysts are concerned the pressure will only grow for Facebook to consider selling user information - such as email addresses and phone numbers - to advertisers so they can reach users outside the site.
“If you can trust Facebook to not misuse your information and not sell you out, you’ll stay with Facebook,” Mr. Burrus said. “If in Facebook’s determination to make more money, they start selling your information, they could be in deep trouble.”
Going forward, he warned, Facebook faces a challenge in expanding and transforming the social-media business model if it wants to stay competitive.
Facebook could do just that, he suggested, with a move to 3D. As early as 2013, Facebook applications and games could start employing 3D technology.
“The Internet, the Web, all of that, it’s going to be moving to 3D,” Mr. Burrus said. “So Facebook will be an innovator and get moving on that. I’m sure.”
Author and Internet theorist Douglas Rushkoff said the demands of market capitalism have a way of trimming the sails of even the most free-spirited Web startups.
“The more money a company takes in, the more obligated it becomes to function in accordance with the properties and rules of money,” he wrote in a commentary on CNN.com. “For example, since becoming public, Google has had to prove its devotion to its shareholders’ interests by cutting pet programs, showing earnings growth, and demonstrating focus over big dreams.”
“By all accounts,” he added, Mr. Zuckerberg “was trying to delay this eventuality as long as possible.”
• Tim Devaney can be reached at tdevaney@washingtontimes.com.
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