Facebook needs to turn data trove into investor gold
SAN FRANCISCO — Mark Zuckerberg, Facebook’s chief, has managed to amass more information about more people than anyone else in history.
As Facebook turns to Wall Street in the biggest public offering ever by an Internet company, it faces a new, unenviable test: how to keep growing and enriching its hungry new shareholders.
The answer lies in what Facebook will be able to do — and how quickly — with its crown jewel: its status as an online directory for a good chunk of the human race, with the names, photos, tastes and desires of nearly one billion people.
Shares are expected to begin trading as early as this week. Already, lots of investors are scrambling to buy Facebook shares, with giddy hopes that it will become a big moneymaker like Google. In the eight years since it sprang out of a Harvard dorm room, Facebook has amassed users at breakneck speed, kept them glued to the site for longer stretches of time and turned a profit by using their personal information to customize the ads they see.
Whether it can spin that data into enough gold to justify a valuation that the company estimates could be as much as $86 billion remains unclear.
“We know Facebook has an awful lot of data, but what they have not worked out yet is the most effective means of using that data for advertising,” said Catherine Tucker, a professor of marketing at the Sloan School of Management at the Massachusetts Institute of Technology. “They are going to have to experiment a lot more.”
Analysts, investors and company executives can rattle off any number of challenges facing the company. As it works to better match ads to people, it has to avoid violating its users’ perceived sense of privacy or inviting regulatory scrutiny. It needs to find other ways to generate revenue, like allowing people to buy more goods and services with Facebook Credits, a kind of virtual currency. Most urgently it has to make money on mobile devices, the window to Facebook for more and more people.
All the while, its ability to innovate with new features and approaches — to “break things,” in the words of Zuckerberg — may be markedly constrained once it has investors to answer to.
“They are going to have to think about whether they can continue with the motto, ‘Done is better than perfect,’” said Susan Etlinger, an industry analyst at the Altimeter Group.