Engaging users 'vital' for Facebook as Google pushes: report

Peter Dinham
Tuesday, 31 January 2012 18:16

IT Industry - Market

Facebook's goal is to redefine the social media experience by creating an immersive platform that will be the centre of people's digital lives, making it the dominant platform for rich communications, commercial content and advertising. That's the view of one global analyst firm that believes that if the social media giant can achieve its vision then the predictions of an IPO valuation of $100 billion might well be justified.

Respected analyst firm Ovum says the IPO valuation could well reach $100 billion and, if Facebook can create that dominant platform at the expense of other players in the social media space, then the valuation is 'not altogether unjustified.'

However, Ovum says that for Facebook to bring its vision to reality will be difficult, 'albeit not impossible.' And, of course, there's the other giant on the global stage - Google.

Ovum's principal analyst, Eden Zoller, says Facebook's challenge - 'and it is a big one' - is whether Facebook can keep its users 'active and engaged in a context where Google is pushing hard into social media and many home grown social networks are looking to up their game, notably in China.'

Zoller makes the point that, for Facebook, scale is important but he says that engaged users are vital if Facebook is to 'build the critical mass of advertisers and commercial content providers that are central to its future success.' 

'Facebook will probably come out of its IPO with the kind of heady figures being predicted, but it will be under close scrutiny and if it fails to deliver on its promise quickly then its valuation will drop as investors lose confidence in the business model,' Zoller warns.

However, on the plus side for Facebook, Zoller says Facebook's user base continues with its impressive growth trajectory which should 'comfortably pass the one billion mark this year, with particular opportunities to build the base in emerging markets and to extend its reach via mobile devices.'

Zoller says that Facebook is also making money, albeit very modest compared to the likes of Google, and he says the company is gaining good traction with advertisers, and that the money raised from the IPO will give Facebook more resources to invest in acquisitions, service innovation and advertising analytics.