It’s official. The very public social network Facebook is really going public. But what does that mean to Facebook users? Will the company now be under even more pressure to sell your information? Will the next few weeks bring a glut of changes to the site? And what does the company have to be “quiet” about during its mandatory “quiet period” after it files with the SEC?
Given all the confusion over Facebook’s features, privacy configurations, and data-collection practices in the past, users could be rightly confused about whether and how Facebook’s IPO could affect them. As a publicly traded company, Facebook could face more pressure than ever to turn an increasingly bigger profit quarter upon quarter, whether through changes to the site that keep it profitable, more partnerships, and acquisitions.
Will Users See Any Immediate Changes?
Business expert James Lenz, associate director of the El Paso Finance Center at the Jones Graduate School of Business at Rice University, explained via email what changes users might see to this end after the company goes public.
“Ultimately, the two drivers for Facebook’s sales are traffic and ‘stickiness,'” he wrote. “As you suggested, I would imagine that Facebook would seek both the partnership and acquisition avenues to accomplish these goals. For example, Zynga and Facebook already have a symbiotic relationship. With an audience of 800 million people, companies will be clamoring to reach that base, and on the other side, if a company can provide good content, then Facebook will want to promote it.”
Yesterday’s filing revealed that Zynga made up 12 percent of Facebook’s 2011 revenue.
But, Lenz added, “I do not anticipate any drastic changes for Facebook users. Facebook has a good thing going. However, the stakes will continually become higher as stock price pressures mount.”
He also noted that Facebook wants to keep the users it has.
“Relationships take time to build, but can quickly be destroyed. There have been recent cases where a company has tried to increase profits by trying to monetize its clients further, and the plan backfired,” Netflix being a prime example, he said.
What Can Still Happen During the Quiet Period
On the legal side of things, Facebook also faces a “quiet period” after it files with the SEC. During the quiet period, companies can participate in “ordinary course business communications,” explained Michael Littenberg, partner in the business transactions group at the law firm Schulte Roth & Zabel LLP, but they cannot “engage in communication that promotes the stock or hypes the offering.”
For an online social network that makes its money and increases its value based on how users interact with it, I wondered if Facebook faced any gray areas in what it can and cannot say or do during the quiet period. “A company can continue to roll out changes to users, and make changes to product functionality” Littenberg said by phone. Since Facebook’s engagement with users would be considered customary actions based on Facebook’s history, the site can still make changes to features, such as rolling out Facebook Timeline, during the quiet period.
But there have been blurred lines in the past with Internet companies, Littenberg said. “One of the issues we saw with Internet companies in the first boom was that they would roll out splashy Web sites before the offering, and the SEC would be concerned that it was trying to hype the offering.”
“The famous one that was viewed as potentially hyping an offering was the interview the Google guys gave to Playboy” in 2004, the same year Google went public,” He said. “[Google was] getting every bit as much publicity then and what the SEC made them do was incorporate the interview into the SEC registration statement.” In other words, the SEC decided that the interview was conditioning the market for offering, so Google had to include it in its prospectus.
What’s Next for Facebook?
Littenberg also shared his thoughts on whether users could expect to see more acquisitions, partnerships, and changes as a result of the pressure to increase its profits. “It could be any or all of those things to continue to enhance shareholder value,” he said, “but it’s unlikely that their business will continue to be static.” He pointed to Google as an example: “When Google went public, they were pretty much just a search engine company, but now, they’ve expanded into other things,” from its own social network, to telephony with Google Voice, to dozens of other services and divisions.
Facebook won’t be traded on the stock market just yet; the company still faces several weeks of preparation. In the meantime, users should (as always) make sure their privacy and permission settings are adjusted the way they want them, and look for tips and advice on managing their social network account on PCMag.
For more, see Facebook By the Numbers: Steady Growth, Big Profits and What Facebook Fears
Copyright © 2010 Ziff Davis Publishing Holdings Inc.
source: What Does a Facebook IPO Mean for Users?