Facebook’s Achilles Heel – Mobile
There’s been a lot of talk the last few days about Facebook’s IPO. Thousands of online, broadcast and print stories have been written about the size of the IPO, the value of the company and how much money the individuals on the Facebook team will make. Mark Zuckerberg’s take is estimated at $21 to $28 BILLION! We’ve also learned that 845 Million Facebook users worldwide equates to one in every eight people on the planet – in just seven years!
Hidden away in all the press is an intriguing blog post by Chris Taylor published on Mashable. As Chris points out, when a company goes public, the SEC requires a lot of information that must be made public. This amounts to “full disclosure” of the risk factors that could negatively impact the business to anyone contemplating purchasing the company’s stock. Facebook listed 35 vulnerabilities. This number is actually not a lot. Recent digital IPOs saw Zynga list 44, LinkedIn had 42 and Groupon a whopping 55.
These risk factors include such things as the amount of stock owned by Mark Zuckerberg (28% of the company and 56% of the voting stock), which concentrates power and control of the company in one person. Others include potential bugs in the intricate software, possible security breaches and the fact that Facebook does not own its own all of its servers.
But one in particular that caught my eye is listed at #3. The fact that Facebook’s mobile platform doesn’t show ads!
Last year, Facebook generated $3.7 Billion in revenue, mostly from ads (although 12% of their total revenue came from social gaming company Zynga – another risk factor, by the way). Of that $3.7 Billion in revenue, Facebook took $1 Billion to the bottom line. That equates to a profit margin of slightly more than 27%. So, 88% of their revenue came from ads – BUT, these ads don’t display on mobile platforms!
Couple this with the fact that we are rapidly becoming a mobile world, and that last year, there was more Internet access through mobil apps than search or clicking on links and you can see that Facebook could be looking down the barrel of a very big gun. If more and more Facbook access is by mobile, that means the fewer and fewer ads are going to be seen by Facebook users. Since ad pricing is based on people accessing the ads, fewer people seeing them = fewer people accessing them = less revenue.
If I were Mark Zuckerberg, or one of the honchos at Facebook, this is the one that would keep me up at night!