Will Facebook’s IPO give the company the cash it needs to compete with Google and Microsoft?

Credit: Zef Nikolla, Facebook

Like many of you, I followed the buzz around the Facebook IPO on Friday. I was in Vancouver to speak at a couple of industry events, and, while sitting in Caffè Artigiano (my favourite Vancouver coffee shop); I spoke to my financial advisor back in Toronto.

The conversation took me back to Yahoo!’s IPO in 1996. At the time, I didn’t believe what I was hearing about Yahoo!, an unproven company that was going public on the promise of online advertising. Needless to say, I didn’t understand the fundamentals and chose not to buy in. I’ve had a few other moments like that—I didn’t buy Apple stock when the market crashed in 2008 and I wasn’t in on BlackBerry’s initial run—so I wasn’t about to miss this opportunity.

So, I sat wondering what to do about Facebook. Would the stock catapult to more than $80 out of the gate or would it be a flat launch?

Reflecting on the hype that surrounded the IPOs for Yahoo! and Google (and other digital companies like LinkedIn, Groupon and Zynga) raised several red flags—and reminded me of the beginning of the dot-com boom. But I really didn’t want to miss out on the craziness that can occur surrounding a high profile IPO like Facebook.

As I spoke to my advisor, we got to talking about Google. For those in the digital space, Google isn’t just a search engine. It is becoming one of the most integrated, sophisticated learning databases in the world. If you haven’t seen the company’s YouTube video about the Knowledge Graph, it’s pretty impressive. Google is learning from every search a person makes to not only personalize that person’s future searches, but to help improve search overall.

Google’s strategy for the future

Google is in a time of transition and through the integration of its various technology developments and acquisitions, along with the effort being put behind Google+, the company is executing its strategy for the future. Google realizes that to be sustainable, you need to have three things:

  • Critical Mass of Community
  • Integrated Technologies
  • Data Analytics

To sustain its critical mass of community, Google knows it needs to make search more relevant. That’s why having users of Gmail and Google+ is so important to the company. When people sign into their Gmail accounts on Google’s Chrome platform or +1 content they like, the company can track their searches, improve personalization, and deliver more relevant search results.

That search data combined with Google+ profiles is turning Google’s data into a knowledge map that will not only enable Google to use data analytics to identify trends and insights, but will allow the company to provide real-time search results that learn from each user.

Only a few other digital companies currently have the critical mass of community, ability to acquire and integrate technology and data analytics, these include Microsoft, IBM and Apple. But, with Facebook’s IPO on Friday, Mark Zuckerberg now has the funds to start taking on these true behemoths.

Can Facebook compete?

There is no doubt Facebook has the critical mass of users. The social networking site is entrenched in people’s lives. But only time will tell whether Facebook will be able to ensure its relevance against competitors like Google+, Twitter, Pinterest and others yet to have even emerged. I’m pretty confident Facebook isn’t going away any time soon, unless it makes a major mistake in an area that remains the company’s Achilles heel – privacy.

Another issue is the integration of technologies. Well, Facebook just raised $16 billion US. It now has the cash to buy both competitive and complementary technologies and integrate them into its platforms (There are going to be some wealthy technology folks over the next two to three years).

Now we get to the area that I think will be the truly defining element; data analytics and the ability to monetize it. I think Facebook is behind Google on this front, but I’m sure it’s trying to figure out how to use its data beyond just targeted advertising.

The so-called experts are saying the fundamentals are not there to support the stock price. I hear many people saying that it’s a $20 stock. Are they right? Perhaps.

In my 20 years in the digital space, I’ve seen too many well-funded organizations like Yahoo! grow quickly and lose focus or fall behind other new emerging organizations. But at the end of the day, now that the digital space has come of age, the question for Facebook will be whether it can grow and make its business model sustainable like Google, Microsoft and Apple have.

At the moment Facebook has the benefit of almost one billion users, and now $16 billion to invest in order to remain sustainable and deliver shareholder value.

It will be really interesting to watch how the strategies for Google, Microsoft, Apple and now Facebook will unfold in the coming months.

Needless to say, I bought stock in Facebook at $40 (I’m ready to average down my price as it continues to drop) and I also picked up even more shares in Google.