Nicholas Goodchild

Historic and Pared Down


15 June 2012 by Nicholas in Current Events

Facebook is having a few problems with their IPO. Initially everything went well, and it rose slightly above its initial offering before falling away. Much in line with what many technology observers had predicted. Then things got a little shaky: it lost value to fall below its initial price as stories emerged about it being overvalued. These stories are now coalescing into investigations and lawsuits.

Facebook’s entire value is its user-base: the belief is that it can monetise by supplying advertising to the great many people who use it on a daily basis. The problem is that they actually haven’t managed to yet and are showing no signs of doing. If they could do it surely, by now, they actually would have. 15% of their income comes from people playing games on the platform, which is a figure that will surely drop like a stone in the post PC age.

Facebook faces a raft of problems that, to many, suggest it has actually peaked. It may grow its userbase, and it is expected to make great inroads in China, the Indian sub continent and South America. But it still has the aforementioned problem of actually monetising any of these users. In addition, it also faces the prospect of more and more of both its existing users and new users accessing facebook through mobile devices rather than computers. As hard as the company finds it to sell advertising it then serves to people who use the site on a computer it has even more with people who use a phone or similar device.

The other issue is that facebook has peaked in the countries in which it already has a foothold. The number of active users in North America is actually declining and the demographic is shifting: people over 65 are now far more likely to be on the site than those aged between 12 and 18. While they may have more disposable income this shows that facebook as a whole is losing its cachet and will face declining usage. Its greatest selling point is now its biggest weakness: we only join facebook when people we know are on it, and if no one we know is on it then it is pointless in going on the site. Worse, if people we know become less active then we too will become less active.

This all adds up to facebook being the latest tech company to flare up and then fade away. As went AOL and Myspace now goes facebook, seemingly. The people who stand to make the most money from it are those that sold the shares, rather than those who bought them.