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Robert Whent Headshot

Facebook's IPO -- Can We Learn From Past Mistakes?

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As we all eagerly await Facebook's Initial Public Offering (IPO), I can't help but to think that history is going to repeat itself. Anyone that saw the movie The Social Network knows that Facebook was started as an impromptu Internet dating site by Mark Zuckerberg -- a 22-year-old university student. I find it ironic that Mark, who really didn't have many social skills, has built the biggest social meeting place on the Web and is now going to take it public so it can better battle the Google Empire. Like Google, it's all about advertising to the end users -- us! A big problem of course is their privacy policy which basically says they own everything you put on their site and can do whatever they want with it. But I digress -- that's a whole other matter.

Going public and raising a boat load of cash doesn't guarantee success. One of the biggest failures in the initial dot-com era was Pets.com. This flame-out was one of four online pet stores that popped up in the late '90s. They made a name for themselves through a witty advertising campaign that featured a stoner-dude sock puppet and the slogan, "Pets.com. Because pets can't drive." The sock puppet was so popular it was turned into a balloon for the 1999 Macy's Thanksgiving Day Parade. Ignoring that fact that pet supplies in general weren't very internet friendly (think about the shipping costs of a 50-pound bag of puppy chow) they had their IPO in 2000 and raised over $82 million with a share price of $14. Even that amount of money couldn't make the business model work and the shares sank to a low of 22 cents and the company folded completely after only nine months.

Along the same lines as Pets.com was Webvan.com. Webvan was launched in several major U.S. cities in 1997 as a grocery delivery service. In 1999, Webvan went public and raised $375 million in the process. Even with this huge amount of public money, and another incredible $1 billion dollars from private investment firms, the infrastructure required to deliver Fruit Loops to your door in "30 minutes or less" added $27 to every order for processing and delivery. Not a great business model -- Webvan declared bankruptcy in 2001, a mere 18 months after their IPO.

Myspace is another example of how to lose a bunch of money. They didn't go public, but News Corp. and Rupert Murdoch you may remember bought Myspace for $580 million in 2005. It all went downhill from there. First of all, users were bombarded with irrelevant ads that were quite annoying. They also ran out of their innovation mojo and focused on the almighty dollar. Myspace was sold last year for $35 million (still a fair bit of coin) to -- believe it or not -- Justin Timberlake and some partners. The onetime boy-band phenom will actually have an office at Myspace and a staff of six to try and rebuild the brand. Good Luck!

There are many other examples, but I think you get my point. Facebook could be valued as high as $100 billion and I think it will have a tough time proving shareholder value as time goes on. They really can't get too many more users so it will all be about selling more to the users they have. Mark was in university when News Corp bought Myspace. Let's hope he did his homework.

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