Why Facebook Was Stupid to Go Public
Contrary to what people say, going public is the dumbest thing a hot technology company can do. Facebook will show us why, and not just because their stock has done so badly.
Going public is the official transfer of ownership of a tech startup from people who want to change the world to people who only care about making money.
People buy stock in public companies as investments. There's nothing wrong with this, but it creates pressure on such companies to care more about investors than they do about customers.
I know of no company that has ever become more customer-centric by going public. Many become less so.
In Facebook's case, it has access to immense amounts of personal data. Many people tell Facebook more about their day than they do their spouse.
Such data has to be used to benefit individuals, not just advertisers. But by going public, Facebook is creating a situation in which it has to care more about advertisers than individuals. If you don't believe me, wait a few months. Watch for all sorts of new initiatives that ultimately creep people out.
Our whole venture capital investment model is broken, because it forces so many companies to go public. I understand why this happens - investors want their money back, plus a handsome return - but we need a new system to cope with a new world.
As Michael Hinshaw and I explain in our new book Smart Customers, Stupid Companies, a gaping chasm is opening between customers empowered by smart wireless technologies and companies that are stuck using outdated business practices.
To act smart, a company's interests must be aligned with the interests of its customers. That means, for example, serving your customer base instead of deluging it with ever-more intrusive ads.
Facebook should have remained a world-changing private company, and instead of going public should have tried to become one of the most customer-centric firms on the planet. Instead, it was stupid enough to go public, and that opens up an exciting race to dislodge Facebook from its dominance in social media.
My guess is that within a year, it will be fairly easy to recognize the firm that will out-Facebook Facebook.