Five things Facebook could buy with its $5 billion IPO kitty
Wednesday, February 8, 2012/
With Facebook’s IPO on the horizon, it’s only natural to start wondering about what the social network giant is going to do next.
The company intends on raising a modest $US5 billion, which isn’t the biggest sum a tech company has raised in the past. But it also has nearly $US3.5 billion cash on hand, giving the social network nearly $US9 billion when the float is done and dusted.
Zuckerberg said in his letter to potential investors the company will continue making great social products and focus on longer-term goals rather than short-term financial solutions, but there’s a lot to be done with that $US8.5 billion.
Facebook needs to expand beyond its current platform if it wants to survive. Here are five things Facebook should look at spending its money on:
Spotify is already tightly integrated into Facebook, it makes sense to complete the transaction. And after all, users have been calling for some form of tie-up with a music service for quite awhile now.
Spotify announced its integration with Facebook last year at a huge company event. Now, it’s one of the most popular apps on the social network with users able to share with each other which songs they’re listening to, albums, and so on.
Acquiring the company would be a costly move but it’d set Facebook up as a major player in web content, not just social networking.
Hulu was up for sale in the second half of 2011 and didn’t end up going anywhere. But the bids ranged from as low as $US500 million to $US2 billion – something Facebook could easily afford.
Consider the numbers. Hulu has 1.5 million paying subscribers now to its Hulu Plus program, with tens of millions of users just enjoying the free product as well. But the best thing is, it’s profitable, and opens up Facebook to deals with a number of major television networks.
Hulu already integrates into Facebook with an app. Buying the company could just sweeten the deal, and would make international expansion for Hulu a little easier.
The only problem is, Hulu is a revenue drainer, needing to send a lot of cash back to networks. But for such a small price, owning such a popular piece of content would help strengthen Facebook’s network outside its own platform.
And, more importantly, it’ll open up viewers for its advertising platform and allow them to experiment with video.
Facebook depends way too much on Zynga to let something happen to it. In fact, in the company’s “risks” section it even said that if something were to happen to the social gaming company, Facebook may see a negative effect.
Facebook earns about 12% of its revenue from the business. Currently, Zynga’s market cap stands at just under $US9 billion, but Facebook doesn’t have to buy the whole thing. Owning a controlling stake would give Facebook more sway in its own future.
However, spending such a huge amount on Zynga could lock Facebook into the social gaming strategy – a downside if the market ever falls away.
A better mobile strategy
Like it or not, Facebook is a mobile technology. It even said in its filing that nearly half of its activity is being recorded through mobile devices now.
The only problem is, most of the mobile experiences Facebook offers are sub-par. The iPad app is well designed but clunky and frustrating to use, while the iPhone app isn’t much better. If that’s the best they can offer, then it’s in trouble, especially with Google+ riding close behind.
Spending a lot of money on developing a mobile infrastructure is a critical move that will keep users coming back again and again, which is what the network needs more than anything.
This will probably never happen. But perhaps it should. Twitter and Facebook aren’t enemies, they’re just used for completely different things. And integrating the two could be one of the best things Facebook ever does.
The user integration could work extremely well, with users able to update their statuses from Twitter and have it show up on Facebook profiles, while tweets could show up within Facebook pages as well.
And with Twitter expanding its own advertising network, Facebook could allow SMEs – its main customers – to advertise on more feeds.
Twitter is expensive, at $US8 billion, but it would be an interesting move, especially as Twitter ramps up its search and mobile functions to compete with Google.