Facebook’s IPO: The beginning of the end

The humble tulip contains an important warning for Facebook, fast approaching its IPO—it's not the haters you have to watch out for, but the wide-eyed fanatics.

It is entirely too easy to dismiss Facebook these days. Everybody and their great aunt has a Facebook page, while companies from five employees to 50,000 tell us to "like" them or "join" them in a virtual form of community building. An IPO in the spring of 2012 is expected to value Facebook at around $100 billion, putting the eight-year-old upstart in the same weight class as century-old stalwart General Electric. How, one might ask, can a glorified website be worth as much as the world's biggest conglomerate?

Add in all the "I'm too cool for Facebook — I'm quitting" people and there's a whiff of tall poppy syndrome in the air: Facebook is massive, it's all-pervasive — therefore, the end must be nigh. Yet the intoxicating poppy is the wrong floral metaphor. The more important cautionary tale for Facebook is that of the tulip—it's not the haters you have to watch out for, but the wide-eyed fanatics.

Our understanding of the 17th-century Dutch tulip craze comes from an 1841 book. It describes how an entire nation developed a mania for the tulip trade, pushing the price for 40 bulbs in 1635 to 100,000 florins. (At the time, a ton of butter at cost 100 florins, and the average labourer earned 150 florins a year.) Tulip-mad Dutch citizens were selling or trading their possessions for handfuls of the precious tubers. Then, in early 1637, everything crashed.

How does this relate to Facebook? Well, the received wisdom—from companies and individuals alike—has been that, by hitching your ride to Facebook, you're guaranteed a steady stream of customers and/or friends. But this assumes, like the lustful Dutch did, that what goes up won't come down—or more accurately, that the current growth trajectory will continue unabated. Facebook has long owned the social media space, but it's now competing with the likes of Twitter, LinkedIn and Google+ for eyeballs and ad dollars. Many early adopters have turned their passions elsewhere, leaving their Facebook page to lie fallow—a sort of museum piece for stale photos and videos. Being the category innovator, the once-dominant force, is no guarantee of long-term success: just ask smartphone revolutionary RIM.

Facebook, hard at work developing its own smartphone, is aware of the perils of mere apphood. But unlike, say, Apple or Madonna, it hasn't show the same instinct for reinvention or constant innovation (when was the last time you emailed someone at @facebook.com?) And so, while Facebook may not follow MySpace or Friendster in the path to obscurity, it's not certain to remain the craze it currently is. And that spells peril for a public company. Early investors in a $100-billion company want evidence that management can turn that into a $200-billion company. Then a $300-billion company. That means more ad revenue, more Farmvilles and Mafia Wars—more selling of Great Aunt Norma's personal data to the highest bidder.

Dismissing the 800-pound gorilla might now be impossible, but as the dismal post-IPO performances of LinkedIn and Groupon have shown, no bloom can last forever.