Computer Support Blog

Virtually every business journal has weighed in on the decline in Facebook’s stock.  After years of playing coy about it, Facebook had its initial public offering in May at $38 per share.  When the stock fell below $30 on May 29, every pundit in the business world weighed in on the decline.  The prevailing wisdom was that Facebook’s stock was overvalued and investors did not have a good-faith belief in the long-term profitability of the company.  That makes perfect sense from a business perspective.  The problem, however, with that view, is that it completely neglects the consumer perspective and there is an excellent chance that the consumer perspective is what is affecting Facebook’s stock.

Facebook is a social network and, for a long time, it was very, very cool.  Despite Facebook monetizing with advertisements on each page, Facebook managed to retain its popularity and grow.  Part of the way the company managed to keep growing was because Facebook did not promote the advertisement aspect to consumers.  Sure, Facebook wanted to make money – and the ad revenue made is a great deal of money – but for consumers, the site was not about making Facebook money, it was about connecting with friends and family.

The same cannot be said about Facebook’s IPO.  The only purpose of the stock offering is to make money and that might indicate a very sharp split between the consumer mindset and the business view.  Many critics called out Facebook earlier this year when many major sites participated in a blackout as a form of protest against SOPA.  Facebook, critics observed, was not beholden to stockholders and, thus, was free to participate in the protest, much like the independent Wikipedia did.  Facebook declined to participate and many pundits postulated it was because the company was considering its IPO and did not want to isolate potential investors.

In simpler terms, the floundering of Facebook’s stock might be the consumer perspective saying in terms loud enough for big business to hear: Making money off us is not cool!  With the Occupy Wall Street movement getting so much attention last year, one might have thought that was obvious.  The consumer perspective of Facebook, especially as it was originally intended, is that social networking is supposed to be fun.  Facebook is likened to a party that never ends or a club that is never closed.  In that analogy, investors are like people who come in with cameras, start filming, and are creating a service where people pay to watch the party.  The people at that club, naturally feel scrutinized and – more importantly – like they are being used.

Facebook’s stock offering was never going to be dominated by Facebook users, but it was naïve for Facebook to believe that users would not react to their beloved social network being treated like a business.  As users express anxiety, business analysts pick up on that trend.  It is that trend, where consumers are uncomfortable with what the site is becoming, that is generating the business concerns to which investors are responding, deflating the price of Facebook stock.

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