Facebook went public last week to much fanfare. Less-welcome news is that the company’s stock has been lagging, with a weak closing last Friday, May 18.
When it comes to scope and sheer volume of users, Facebook is the obvious juggernaut in the room. But as a Wall Street Journal article today suggests, the lukewarm reaction to its IPO could negatively affect other social media companies who might have also been planning their own public offerings. The idea is, if Facebook struggles, why expect other companies to do well?
The WSJ article quotes an IPO author who suggests that Facebook’s struggle could indicate that social media has hit a wall. Carrying capacity has been met, and perhaps the tech industry should move on to something else.
I suspect though that the real culprit here is probably unrealistic expectations. Perhaps the IPO was valued too high, and it had nowhere to go but down or ever-so-slightly up. In that sense, Facebook is simply a victim of its own success, of starry-eyed newcomers who just need to come back down to Earth. There’s talk of a bubble, but the tech press and investors helped create it with sheer hype, only to complain that a bubble exists at all. In economics, expectations are just as crucial as actual events and can even influence those events. If no one bets on social media companies because they don’t believe they’ll flourish, then it’s a self-fulfilling prophecy.
So rather than discourage social media development, perhaps the wiser course would be to continue social media innovation, tempered with more realistic financial goals. The primary focus should always be on providing a worthwhile experience for the user and building quality symbiotic relationships with brands. If social media companies do that, the rest will follow. It’d be tragic if future good ideas were stymied by the Facebook rut — so set it aside and keep on trucking.
And remember that bubbles that are never overblown don’t pop.