The Facebook IPO proved once and for all that tech stocks are no longer invincible. If anything, the Facebook IPO proves that professional investors are getting back to company fundamentals when evaluating stock prices. I suspect the only people who lost big on the Facebook IPO are retail investors who are still susceptible to the hype around big name, high tech companies. Personally, I passed this time around. I learned my lesson during the Red Hat IPO. I never did earn my money back on that one. Paul Vigna and Tom Kilgore comment on the Facebook IPO on the Wall Street Journal video blog. They claim the Facebook IPO has a psychological effect on how enthusiastic people are about the company.
The Facebook IPO raises questions about The Next Big Thing
The Facebook IPO stumble has rekindled the usual debate in tech circles about Facebook’s long term viability. A poll commissioned in May by AP and CNBC asked “Do you think Facebook is likely to continue to be a successful company over the long term, or do you think it’s likely to fade away as new things come along?” The survey was among the general population of American adults. The results don’t bode well for Facebook:
Question 10 asked “Do You Think Facebook is likely to continue as a successful company or do you think it’s likely to fade away as new things come along?” Forty six percent of survey respondents think Facebook will fade away as new things come along. Forty three percent think Facebook will be successful over the long term. The margin of error in the poll is +/- 3.9%. Respondents are basically evenly split on the question. The lesson learned from the Facebook IPO is that “big” doesn’t necessarily mean “permanent,” at least in the eyes of the general public.
How will the company get beyond the Facebook IPO to ensure that they don’t go the way of Friendster, MySpace, Ping, The Hub, Orkut? The internet is littered with half-dead, zombiefied services limping along. How will the Facebook IPO enable the company to leverage its “bigness” into a strategic competitive advantage that it can bank on?
OAuth and Facebook’s Long-Term Viability
If I could answer that question, I’d be running a venture capital firm instead of a blog. But I do think there is an aspect of Facebook’s technical plan that is different from all the failed social networking services. There is a Facebook service that gives it hope of long term viability. Facebook acts as an Identity Service Provider on an internet scale. Tens of thousands of small and medium online services rely on Facebook to authenticate end users with their Facebook credentials. In my opinion, that’s their one strategic competitive advantage. People come to Facebook because of the novelty. People come to Facebook because their friends and family are on it. People come to Facebook because it’s a great way to waste a few hours. Every time they go to another web site and login with their Facebook credentials, Facebook becomes a little stickier.
I can foresee the day when users don’t visit their Facebook news feed at all because the buzz and hype have taken them away to waste their free time on some other Next Big Thing. But those same users will still need and use their Facebook credential to login to many of the other sites they use.
How does Facebook stay in business then? Not by figuring out how to monetize the attention that end users pay to their Facebook news feed. Facebook needs to figure out how to monetize its services as an identity provider. Facebook provides a valuable service to all of those small/medium sized sites that outsource end user authentication to Facebook. Many of them will probably pay for it, if the price is right.
One thing’s for sure. Identity management software like IBM’s Federated Identity Manager is going to be a fundamental building block of the internet going forward. Facebook and Twitter seem thoroughly committed to OAuth 2.0. I’ll be watching OAuth to see if future versions provide a standard way to meter and monetize the interaction between the Identity Provider and the Service Provider. In my opinion, that’s the long-term technical factor that can counterbalance the Facebook IPO stumble.