Home > 2012 > Personal Finance

Facebook: Chronicle of an IPO Foretold

Advertiser Disclosure Comments 1 Comment

For anyone who plays the stock market — and I confess I do from time to time — the drama that unfolded over the past couple of weeks surrounding the Facebook IPO reminded me of the “give them bread and circuses philosophy” of the Roman Empire, except this time the Empire kept the bread. The whole thing is so, well…Facebook.

We should have seen it coming.

Facebook’s approach to its IPO was consistent with the way it has handled the personal data of its users since the site launched. In both cases, it seems the company’s leadership has pushed forward policies that are disproportionally focused on their personal enrichment at the expense of everyone else.

Let’s start with the IPO. Just days before Facebook went public — the third largest IPO in American history — they did that for which they are famous: Changing the rules of the game after everyone else has been on the field for several quarters. The company informed the Securities and Exchange Commission that it would release 25 percent more stock than originally planned. It also announced a price of $38 a share, which exceeded the initial estimated range of $28 to $34.

This maneuver put Facebook’s total value at $96 billion, a whopping 107 times more than the company’s 2011 earnings, and in the process they violated a fundamental principal of the IPO world. In setting the price of a new issue, historically companies have allowed folks some room to make a profit.

By early this week the stock was trading under $26 per share, some 32 percent below its original sale price. CEO Zuckerberg, meanwhile, did just fine. It’s estimated that the IPO made him a billionaire nearly 20 times over, but his fast money antics depleted the company of a kind of value it can never hope to recover.

Plus, if the company’s history with our personal information is any indication, we could be in store for a bumpy ride.

Facebook’s value proposition of connecting people and helping them stay in touch provides a target-rich environment for the mining and marketing of personal data. It’s a very powerful advertising platform.

By tracking a user’s every move, Facebook was able to get into people’s heads, and began a marketing revolution that was once unimaginable. You complain to your friends about an old gas grill and bingo! You’re served an ad for Weber grills. You “like” an article, product or service and suddenly your friends (and a host of advertisers) get the message. You are the target, customer, reviewer, endorser and/or marketer in just a few short posts. There’s nothing inherently evil about this. Lots of companies do it, and many consumers appreciate the deals they receive as a result.

There are those who feel that Facebook goes too far, however.

Late last year, the Federal Trade Commission accused Facebook of gathering more data about users than folks wanted to give or believed they were giving. According to the FTC’s summary of its investigation, the site took data that some users designated as private, including their list of friends and data they intended to be shared only with friends, and made it available to app makers and the general public.

Further, the FTC said that Facebook let advertisers gather personally identifiable information about its users, even after claiming for years that it did no such thing, when in fact the company gave apps makers access to nearly all of users’ personal data, including information the apps didn’t actually need to function.

In a blog post, Mr. Zuckerberg responded to the FTC order by saying the company had made “a bunch of mistakes,” and detailed improvements that Facebook already had made to its privacy protections. But were these really unintentional goofs? Or were they the logical result of a corporate culture built on the hacker’s delight of sucking up everything that is not locked down? (A banner on a building on Facebook’s new 57-acre campus in Menlo Park, Calif., calls it “The Hacker Company.”)

Privacy advocates were unconvinced and it seems the government wasn’t terribly impressed, either. As part of the settlement, the FTC required Facebook to submit to regular audits of how it collects and shares data for the next 20 years. Last time I checked, that’s a generation (how appropriate).

Facebook has made some positive moves to help users protect their privacy and identities. Last August, the company gave users more power to restrict who can view their photos, comments and status updates. This April, Facebook expanded its Download Your Information feature, which allows users to view what types of information Facebook is gathering about them. These decisions prove that when it wants to, Facebook knows how to give users the privacy and transparency they demand.

I would argue that the company must go much farther.

In the world of data, Facebook must do a better job helping consumers understand how the website collects personal data; what the company, its advertisers and partners do with all that data; and what users can do if they decide they no longer want to participate.

Mr. Zuckerberg has made his billions. An avowed workaholic, he must now set about the hard work of changing Facebook’s culture. Grabbing every byte of data and every nickel of value may work fine when you’re a young and arrogant startup, but in Facebook’s first two weeks as a publicly-traded company, its braggadocio and “he who makes the gold, rules” attitude has cost it billions of dollars in lost value. If users and shareholders continue to lose trust, even bigger financial damage could ensue.

As always, Facebook has promised to change. I hope Zuck and friends follow through on that promise. The company must learn to treat other people, their money and their data, with respect. Just because you can do something doesn’t mean you should do it. As both an investor (I bought it at $27) and a person concerned with privacy, I hope Facebook learns this lesson quickly.

Image: GOIABA – Johannes Fuchs, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • http://fitnessgazette.net Chris Butterworth

    I’m an avid user of facebook, but I’ve never been a big fan of the company and the way they do things. Making privacy settings difficult to find &/or understand. Changing the home screen setup, usually in an effort to better serve up ads. Making importing, exporting, and archiving difficult or impossible.

    I’d love to see facebook get negative publicity, and ultimately either change a great deal or go the way of myspace. I find Google + a much better experience – easier to navigate, find old content, manage photos & video.. But until everybody else is over there, it’s not as social.

    If one bar is serving an awesome happy hour, but all your friends are at the dive bar across the street, which one will you go to if you want to be social with your friends?

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team