Thursday, February 2, 2012

Facebook IPO Benefits More Than Facebook

Following the Facebook filing of an initial public offering of stock, several other social media companies saw their stock bounce.

Primarily the biggest winner was Zynga, after Facebook said in its filing papers to the Security and Exchange Commission that they derive about 12% of their revenue from their partnership with Zynga and that losing that partnership would significantly hurt their platform.

But it wasn't just Facebook tie-in companies that saw renewed interest from investors, however. LinkedIn saw a bounce this morning; Groupon and Pandora also saw slight increases.

Let's face it, everyone has been waiting to see if and when Facebook went public. The biggest reason was due to the fact we all want to know exactly how much money they are making, and more importantly, how they are making it. By revealing this information Facebook can provide solid evidence of a path to profitability for other social networks. It also assures investors that social media companies CAN make a profit by detailing exactly how this is done.

Up until now the revenue factor for most social media companies has been all smoke and mirrors with no clear route or plan available for scrutiny. Everyone has been doing things slightly different so investors were left mostly in the dark. This is not good when you are trying to raise money.

Investors want to know exactly how the sausage is made, what's in it and where that stuff comes from. They need to know these things so they can make an educated estimate of the likelihood of your continued success. They aren't investing in your company for fun or because they HOPE you will make money. They want to research what you are doing and be able to judge whether or not there is a reasonable expectation of success.

The fact is, at this point, what's good for Facebook is good for the entire social media industry. How long this remains a fact, however, is still anyone's guess.

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