Post by Simon Taylor, Associate Director
The Facebook IPO and its implications
The Facebook IPO (initial public offering) fell short of many people’s expectations. The share price of the social media behemoth, which listed on NASDAQ on the 18th of May, was greatly anticipated and the initial hype fuelled a buying frenzy (at least to begin with). Some 82 million shares were traded in the first 30 seconds. Seven minutes after the opening, 110 million shares had traded, with the stock eventually reaching a high of $45 a share within hours. However day one finished flat and the share price has since undergone a steady decline, plummeting to around $27, more than 20% down in less than a fortnight. There are well documented reasons for this, from revenue numbers not being shared with a proportion of investors, to technical problems with the listing itself. The fact that it was over-hyped and over-valued has its own implications, which I’ll come to later. But the emphasis on financial return it exposed (that so many investors thought they were going to be made instantly rich) has revealed that profit return has superseded the desire for tech companies to innovate for positive change. Don’t get me wrong, companies like Facebook, LinkedIn and Twitter have been great at improving people’s connectivity, access to content and information and networking. Zuckerberg and his contemporaries probably had visions of making the world a better place through their sites when they first started them. It’s whether that vision has since been blurred by commercialism and investor greed which is now in question.
Steve Blank, who teaches entrepreneurship at Stanford University, summed it up when he said that the Facebook IPO “will mark the end of Silicon Valley as we know it. The Valley used to fund the best science it could find; now it chases the quickest returns”. The emphasis in Silicon Valley, as well as in technology sectors worldwide, has arguably been far too focused on platforms and not products, software gimmicks, games and apps and not devices or hardware that can meaningfully improve people’s lives (as opposed to filling time in a queue or on a commute).
Investments in clean-tech energy were down 30 per cent in Q1 2012 on the same period a year earlier. Venture capital investments in biotech companies fell even more steeply, down 40 per cent YOY. Investors no longer have the patience for long cycle research project, just the next quick win. Peter Thiel, a contrarian tech investor who made a fortune out of PayPal, recently published an online manifesto with the subtitle: “We wanted flying cars, instead we got 140 characters” – a dig at Twitter. The tech boom, he believes, has delivered plenty of dinky gadgets but no solution to unemployment, no silver bullet for climate change, no answer to global poverty and no cure for cancer.
Curb your enthusiasm
The second big implication of Facebook’s IPO anti-climax is that this might hit the reset button as far as investment hype in tech companies goes, at least for those that focus on platforms and not products. In the medium-term money will probably continue to be thrown at social media and mobile-related start-ups at the expense of genuinely life-changing tech. However, in the short-term, with the Facebook IPO burning the fingers of many investors, some weaker players will get squeezed out. And if the tech bubble is to recover from this recent puncture, and if it’s going to avoid bursting entirely, companies need to keep their commercial aspirations in check, have realistic views of what penetration and ARPU (average revenue per user) they can achieve and, most importantly, focus on technology products and services that answer human needs, not simply follow a fad or chase that elusive quick profit. After all, technology changes, people don’t.