x Abu Dhabi, UAEWednesday 26 July 2017

A difficult market debut for Facebook

In the end, Facebook's first days on the markets somehow turned Mark Zuckerberg's greatest moment into a rare instant of weakness.

Illustration by Sarah Lazarovic for The National
Illustration by Sarah Lazarovic for The National

How does one best describe the hullabaloo that surrounded the initial public offering of Facebook, the social media website that last week completed its journey from the halls of Harvard to the hustle of the trading floor?

Maybe you'd call it the not-so-public-offering, given that the vast majority of shareholders turned out to be institutions rather than individuals? Or you'd describe it as the moment when one of the greatest digital visionaries realised his market value? Or you might believe it marked the point where the world was once again exposed to the folly of profit hunting in the unquantifiable world of virtual businesses?

In the end, Facebook's first days on the markets - which saw its stock slump by 19 per cent in value by midweek - somehow turned Mark Zuckerberg's greatest moment (the one where the website he founded was valued at $100bn and his company bagged an incredible $18bn war chest) into a rare instant of weakness (the one where his website looked fragile for almost the first time). Indeed, that unexpectedly poor opening made both website and man look more fin de siècle than fantastic investment.

Amid the avalanche of coverage that accompanied the share's debut and the carefully scripted public relations campaign that brought us first news of Bono being reputedly propelled to billionaire status and then, unexpectedly, word of Zuckerberg's nuptials, perhaps the most instructive newsline was the one that concerned General Motors' decision to loosen its ties with the social network.

GM has decided to pull its ads from Facebook because, a source at the car maker said, fewer users clicked on these sponsored links than equivalent ad servers on Google. There, in a nutshell, is the impossible problem that Facebook now has to solve: simply, that the site is not Google.

Both social network and search engine may share an aversion to advertisements overpowering the aesthetic, but Google still manages to serve sponsored messages in an area of your screen that catches the eye, while Facebook's side rail space seems, by comparison, far less compelling. Worse still, Facebook barely serves ads to smartphones, where many now use its services.

Furthermore, Google is a place where users want to search for information, while Facebook is where we want to be social - and how often do you want to be bombarded with advertising messages when you're trying to have a chat with someone you haven't seen for 30 years?

But we shouldn't feel too sorry for Zuckerberg: he's about as comfortably off as any twenty-something newlywed could care to be, his website has a big pile of cash and almost a billion registered customers. Most businesses would kill for such problems.

That said, those initial nerves can't help remind one of the dot-com bubble of a dozen years ago.

Back then a clutch of companies were jostling for attention - Yahoo!, Boo and Pets.com to name but a few - and, on one side of the Atlantic at least, LastMinute.com emerged as the banner site of the age.

LastMinute actually sold services to its customers - like hotel bookings, flights, holidays and restaurant reservations - as opposed to being merely a space to commune, and eventually went to market with a stratospheric valuation of £750 million ($1.18bn).

But LastMinute's timing was horrible: the markets crashed days after the float and the site was unable to sustain the hype. LastMinute would later struggle to make any decent returns for its investors and was eventually delisted when it returned to private ownership.

But that fate won't befall the social network, will it? Probably not, although the site must develop new revenue streams or risk a disconnect with its shareholders - and who would want to follow that on Facebook?