Facebook and Its Management Challenge

September 5, 2012

In New York, I answered questions about the Facebook IPO. A week before the much ballyhooed event, some Wall Street mavens wanted information, including the insights of an ageing goose in Harrod’s Creek, Kentucky.

I made three points:

First, Facebook would not go away, but our research indicated that buying Facebook was more prudent after the IPO and the almost inevitable fall in the share price. The hype about the social media revolution was fascinating, particularly to those who know little about the revolution’s fatigue factor.

Second, Facebook had to find a way to monetize its traffic. The ad thing echoes Google, so ads got the focus. However, to make ads work, Facebook had to do some work with search, tagging content, and then integrating search ads with other types of ads. Facebook has allowed some third parties to index the Facebook content, but on the whole, those systems are not widely used and the content presented is often fragmentary and confusing.

Third, Facebook has to kick the “we are Googley” style of management. Google-style management works because Google has tons of cash sloshing around. Outside of Google, Google-style management can be a problem. Example: AOL. Facebook has some management challenges. You can read about one in “David Ebersman, the Man behind Facebook’s IPO Debacle.” I don’t think Mr. Ebersman is the management problem. I think he is an executive who has the dubious honor of getting hooked to the problem. There are lots of Googlers at Facebook, including Sheryl Sandberg, among others.

In an IPO, there is no single person who is responsible. There is a herd of people, and they stampede. A running cow does not do too much thinking in my experience. The write up says:

Mr. Ebersman’s name, however, is mentioned only occasionally, usually in passing and typically only among Silicon Valley’s cognoscenti. And yet if there is one single individual more responsible than any other for the staggering mispricing of Facebook’s I.P.O., it is Mr. Ebersman. He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34. He — almost alone — pushed to flood the market with 25 percent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company’s strategy will lift the stock price any time soon. At a time when investors are looking for some semblance of accountability on Wall Street and in corporate America, it is remarkable that nobody — no bankers, no one at Nasdaq, no one at Facebook — has been fired for botching the offering.

A scapegoat satisfies a human’s need for a fall guy. However, the responsibility of the Facebook IPO rests on the shoulders of many folks. The problem may be growing worse after a summer of inaction. The next four months will be fascinating to watch from my intellectual hollow in rural Kentucky.

Stephen E Arnold, September 4, 2012

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