Skip to main content

Was Facebook IPO a bust?

By Steve Blank, Special to CNN
updated 11:55 AM EDT, Wed May 23, 2012
Facebook IPO is announced on a screen outside the NASDAQ stock exchange in Times Square in New York City on May 18.
Facebook IPO is announced on a screen outside the NASDAQ stock exchange in Times Square in New York City on May 18.
STORY HIGHLIGHTS
  • On Tuesday, Facebook's stock has plunged nearly 18% from its IPO price
  • Steve Blank: It's too early to judge Facebook based on its initial performance on the market
  • Despite its IPO process mess, Facebook just needs to prove its long-term worth, he says
  • Blank: Facebook IPO could change the investing culture of Silicon Valley forever

Editor's note: Steve Blank, a former Silicon Valley serial entrepreneur, teaches at Stanford University, Columbia University and the University of California, Berkeley. He is the author of "The Startup Owner's Manual."

(CNN) -- After an astounding debut on Friday, Facebook's shares have tumbled for the most part. Is the most highly anticipated technology IPO in recent years a failure?

It's too early to know.

As we probe every aspect of Facebook's initial public offering, we should remember that the long-term performance of a company or its stock bears virtually no correlation with its first week's or month's market performance. In fact, the early days of Amazon.com's stock chart looked similar to Facebook's. Amazon's stock has done just fine since then.

Steve Blank
Steve Blank

Facebook has smartly capitalized on new market forces on a scale never seen in the history of commerce. But the jury's still out -- and will be out for a while -- on whether Facebook is a "phenom" or a real, growing company.

Facebook and its bankers did their jobs superbly well. They extracted the maximum amount of money possible from Wall Street and Main Street investors, raising $16 billion at eye-popping valuations and making it one of the largest IPOs ever. Some observers wondered, "what's it worth?" while others yammered about the market-cap-per customer calculus, knowing full well that no one really knows what that number is today or in a few years.

MYB: Investigation into Facebook IPO
Steve Case on Facebook IPO
Should you bet on Mark Zuckerberg?

With all the hoopla surrounding Facebook's IPO, is it surprising that something went wrong? Facebook's IPO process is now being scrutinized closely, with regulators looking into impropriety on the part of the banks. There were "leaked" upbeat memos about the company. There were last-minute reductions in revenue forecasts while the bankers were pumping the price higher and higher. Some investors may have had more information than others. There were even technical glitches with NASDAQ's systems that disrupted trading. More "innocent" mistakes than a toddler makes in years.

Maybe the IPO was mishandled. If we had a more functional Securities and Exchange Commission, perhaps it would have made Facebook redo its IPO filing documents, which would have given some investors pause, and might have forced further tuning of a variety of key accounting metrics, all in full public view.

Moving forward, Facebook needs to do one thing right: Mature into a great company that constantly innovates based not on just Mark Zuckerberg's vision alone, but with lots of help, feedback and direction from its nearly 1 billion users. Ask Rupert Murdoch and MySpace about the importance of staying exciting, compelling and relevant to customers. Or Yahoo, or dozens of other companies that were so focused on their quarterly numbers and stock prices that they lost focus of their users and watched them drift away. Was a $38 FB share a great deal? Don't ask me this week -- ask me a year or two from now.

The Facebook IPO is remarkable for another reason, though: It could change the investing culture of Silicon Valley forever.

Startups can now think about a "total available market" in the billions of users (smart phones, tablets, PCs, etc.) and try to reach a customer base that was unimaginable even decades ago. And as more people use their devices/apps 24/7 -- possibly in some sort of social way -- the potential revenue that can be generated would be enormous.

For that reason, investor money is suddenly racing toward social media. Years ago, a great venture capitalist could make a solid return on an investment in about a decade or less. Now, a simple photo-sharing app like Instagram can be valued at $1 billion in less than three years.

But what's great for making tons of money may not be the same as what's great for innovation or for our country. In Silicon Valley, the investor flight to social media marks the beginning of the end of the era of venture capital-backed big ideas in science and technology.

Social media is the pot of gold that everyone wants a piece of right now. Will it change the way people interact? Stay tuned. Will it make the world a better place? Hard to say.

In the meantime, there isn't a whole lot to be learned in Facebook's first week or month of trading. We'll just have to see if this social media giant grows into a solid and profitable company over time.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Steve Blank.

ADVERTISEMENT
Part of complete coverage on
updated 9:27 PM EDT, Mon September 29, 2014
The Occupy Central movement has already achieved much by bringing greater attention to Hong Kong's struggle for democracy, writes William Piekos.
updated 6:09 PM EDT, Sat September 27, 2014
As Prime Minister Narendra Modi visits America, Madeleine Albright says a world roiled by conflict needs these two great democracies to commit to moving their partnership forward
updated 2:02 PM EDT, Mon September 29, 2014
John Sutter: Lake Providence, Louisiana, is the parish seat of the "most unequal place in America." And until somewhat recently, the poor side of town was invisible on Google Street View.
updated 9:11 AM EDT, Mon September 29, 2014
Julian Zelizer says in the run up to the 2016 election the party faces divisions on its approach to the U.S.'s place in the world
updated 10:19 AM EDT, Mon September 29, 2014
Ruben Navarrette says Common Core supporters can't devise a new set of standards and then fail to effectively sell it.
updated 5:45 PM EDT, Mon September 29, 2014
Earlier this month, Kenyans commemorated the heinous attack on the Westgate Mall in Nairobi.
updated 4:57 PM EDT, Mon September 29, 2014
David Wheeler says Colorado students are right to protest curriculum changes that downplays civil disobedience.
updated 9:58 PM EDT, Fri September 26, 2014
Sally Kohn says when people click on hacked celebrity photos or ISIS videos, they are encouraging the bad guys.
updated 7:55 AM EDT, Fri September 26, 2014
Loren Bunche says she walked by a homeless man every day and felt bad about it -- until one day she paused to get to know him
updated 1:41 PM EDT, Fri September 26, 2014
ISIS grabs headlines on social media, but hateful speech is no match for moderate voices, says Nadia Oweidat.
updated 8:33 AM EDT, Mon September 29, 2014
A new report counts jihadists fighting globally. The verdict? The threat isn't that big, says Peter Bergen.
updated 5:37 PM EDT, Tue September 23, 2014
Ebola could become the biggest humanitarian disaster in a generation, writes former British Prime Minister Tony Blair
updated 12:58 PM EDT, Fri September 26, 2014
ISIS has shocked the world. But will releasing videos of executions backfire? Four experts give their take.
updated 10:39 AM EDT, Fri September 26, 2014
Eric Holder kicked off his stormy tenure as attorney general with a challenge to the public that set tone for six turbulent years as top law-enforcement officer.
updated 9:09 AM EDT, Fri September 26, 2014
LZ Granderson says Obama was elected as a war-ending change agent, not a leader who would leave behind for his successor new engagement in Iraq and Syria. Is he as disappointed as the rest of us?
updated 5:10 AM EDT, Wed September 24, 2014
Gayle Lemmon says the question now is how to translate all the high-profile feminizing into real gains for women
updated 3:00 PM EDT, Thu September 25, 2014
John Sutter says the right is often stereotyped on climate change. But with 97% of climate scientists say humans are causing global warming, we all have to get together on this.
updated 8:57 AM EDT, Thu September 25, 2014
Andrew Liepman and Philip Mudd: When we declare that we will defeat ISIS, what do we exactly mean?
updated 4:40 PM EDT, Fri September 26, 2014
Thailand sex trafficking
Human trafficking is a multibillion dollar global industry. To beat it, we need to change mindsets, Cindy McCain says.
updated 6:42 PM EDT, Fri September 26, 2014
The leaders of the GOP conferences say a Republican-led Senate could help solve America's problems.
updated 10:01 AM EDT, Thu September 25, 2014
Nicholas Syrett says Wesleyan University's decision to make fraternities admit women will help curb rape culture.
updated 9:02 AM EDT, Thu September 25, 2014
Mike Downey says New Yorkers may be overdoing it, but baseball will really miss Derek Jeter
updated 8:32 AM EDT, Mon September 29, 2014
Quick: Which U.S. president has authorized wars of various kinds in seven Muslim countries?
updated 2:17 PM EDT, Wed September 24, 2014
Women's issues should be considered front and center when assessing a society's path, says Zainab Salbi
updated 2:05 PM EDT, Tue September 23, 2014
A catastrophe not making headlines like Ebola and ISIS: the astounding rate of child poverty in the world's richest country.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT