There is one thing missing in most of the hype over Facebook's massive IPO. Everyone knows the company is popular, with 845 million users, and successful, with a potential valuation of $100 billion dollars. (That's five times the size of Google's 2004 debut.) But what exactly makes Facebook so valuable?
You. Its users. Or more specifically, its users' stuff.
It is hard to measure how much of Facebook's value is derived by harvesting its user base. To be fair, most of its revenue today is from advertising, which is downright old fashioned. Some of the ads are personally targeted, others would presumably sell on any popular website. Another 15 percent of the company's revenue comes from financial payments for gaming and virtual items.
But Facebook's true value is about predicting, not counting. As many stock analysts have noted, today's annual revenues of $3 billion do not come close to justifying the company's valuation. The big money, down the road, will have to come from more aggressively monetizing the Facebook experience on a global basis whether that is browser or mobile based.
So the question is, can Facebook "justify a market capitalization of $100 billion"? If so, how?
In the weeks leading up to the IPO, Facebook and a myriad of pundits identified the challenges it will face around growing its user base of 900 million users, as well as monetizing its user base of over 425 million on mobile.
Facebook understands the need to sustain and continue its exponential revenue growth trajectory and has started to roll out changes to tee up incremental monetization opportunities over the next year(s). For example, Facebook hosted the fMC conference in New York City in February (an event for marketers). This event was focused around adding incremental ad units within the Facebook platform as well as a more integrated advertising experience for brands -- Facebook is focused around stories, not advertising. Most importantly, at fMC Facebook rolled out Sponsored Stories on mobile, which is its current solution to monetizing the rapidly growing user base of mobile newsfeeds on Facebook.
From our perspective, beyond the IPO, this may well be a watershed year for Facebook -- a time when the social network went from being an experimental medium to a medium that appeared on every major marketer's media plan.