Thursday, May 17, 2012

Facebook's PR Challenges After the IPO

For a company as omnipresent and influential as Facebook, it may sound a bit funny to describe its life before its initial public offering of stock (IPO) as “under the radar,” but in a sense it has been.  As the saying goes, you’d have to have lived under a rock not to know what Facebook is and what it does, but IPOs change things for companies in ways many cannot appreciate.

Up until now, Facebook could do what it wanted when it wanted, and so long as it wasn’t afoul of any laws or regulations, could control its own destiny.  If it wanted to invest in something that on the outside may not have made much sense, it could do so.  It could pay its people the way senior management wanted, establish business practices and policies as it saw fit. 

For private companies like Facebook, the marketplace is the great arbiter.  That marketplace tells companies what it likes and what it will tolerate and what it will not. 

IPOs change those dynamics, however.  I’ve heard more than a couple CEOs lament the day they took their companies public, and they longed for the idea of returning to private company status once again. 

There’s some irony in all of this.  Facebook has consistently pushed the envelope of what society accepts as the boundaries of personal privacy.  In fact, this very issue is a critical factor in the success of Facebook’s future as a public company.  But now that Facebook will be publicly traded, its founders will find that its new share owners may not always see things the way the company’s founders do.

The Privacy Issue

Investors are flocking to Facebook to be a part of a company that is at once changing the world and growing.  Currently, it derives the bulk of its revenue from advertising, but that’s not what is of most interest to investors.  They want to know what Facebook is going to do with all that data on those millions of ‘free’ members.  Or more to the point, how the company will make that data accessible to new customers for a profit.

To be sure, I don’t think it’s a stretch to say no company in history has had so much control over the private and personal information of so many.  Ethical issues abound, and to date, Facebook has been tone deaf in many ways.  As a privately held company, the consequences for this attitude were relatively minimal and correcting in mid-stream when the din of complaints rose to a certain level appears to have become standard operating procedure.

So here are the challenges: To please investors and drive its stock price higher and keep it there, the company will have to find ways to turn all of that personal information into usable, marketable data.  Advertising channels alone won’t cut it.  Every three months, Facebook will have to report to shareholders what it’s doing to tap the potential of that data and generate quarterly earnings.  The pressure will be on, and since the company is public, every major decision, and quite a few minor ones, will be under public scrutiny, debated in the business press, on cable TV shows, all over the Internet, and of course by institutional investors and the individual investor market.

Facebook management will have to please an army of people who don’t see social media the way they do.

The common ground for management and investors is profit, and to generate that, the company will have to more directly address a number of issues it either has put off or handled more discreetly.

Number one in that area is the whole category of privacy issues for Facebook users.  There are so many gray areas on what Facebook can and cannot, should or should not do, with all that personal information.  Policies have been established, communicated, changed, communicated, modified and downplayed.   Facebook users have been hit with a deluge of information on these changes, and in quite a few cases, they just weren’t informed, or at least properly informed.

Passive consent is something the company has used to its advantage.  A technical change, a new application or capability was introduced, and if the user didn’t understand the concept of how that works, he or she may not have made the adjustments to the individual privacy settings to prevent problems.

Here are a couple of examples.

Socialcam is an application where people who watch videos on Facebook have a “status update” on what they just watched sent out to their Facebook “friends” automatically.  Millions of socialcam users aren't aware of this until they encounter some awkward moments.  This leads to many embarrassing lessons learned.  Facebook would argue that when you sign up for Socialcam, this is communicated, and it is…sort of.  The problem is that with so many applications and uses for Facebook, the company has to know that most won’t take the time to read the fine print, and they trust that the company won’t violate their relationship.  Even when people make certain Facebook mistakes, they chalk it up to experience and move on.

Then there’s the one that surprised me.  When I signed up for Facebook for my smart phone, I had no idea that Facebook had the technology and the policy in place to actively retrieve all of my personal contact information from my phone and host it on the company’s servers.  While the company says it won’t do anything with that data, it has it and I did not give it specific consent to take it or use it. 

So how can Facebook’s data be mined?  Marketing is a big one, but not far behind are legal uses like criminal investigations, litigation discovery, security clearances, background checks, private investigations, etc.

As a publicly traded company, the balancing act for Facebook will be daunting.  To please investors, it will have to establish a model that continues to find ways to leverage that data to make money without ticking off its users.  The risk for the company is that it could at some point overstep its bounds and users will leave Facebook, taking away the power it has to generate the kind of money investors want.

And all the while, Facebook management will have a whole new layer of overseers, from investors to regulators, watching their every move, and then weighing in.

I wouldn’t fashion myself as qualified to predict any outcomes, but I do know that for whatever pressure Facebook’s senior managers felt to get the company where it is today, they can double it the day after Facebook goes public.

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