A Company Grows Up: Facebook Goes Public

The finance world began the day eagerly awaiting Facebook's filing of initial public offering (IPO) paperwork with the Securities and Exchange Commission (SEC).

What is IPO?

When a company files IPO paperwork, it is allowing public investors to buy its stock. This means that Facebook will now be owned, partially, by individuals and companies who invest in it.

Why is Facebook going public?

When a company reaches five hundred investors, it legally has to begin making its financial records available to the SEC, according to Paul Sloan's "Three Reasons Facebook Has to Go Public." For some companies, like Facebook, doing so can be a burden. When a company reaches five hundred investors, it is in its best interest to go public. The investors then take some of the risk and put more money into the company's funds. This allows the company to make changes it may not have been able to make without that extra money.

What does this mean for Facebook users?

According to some, including JD Pangburn, this change means that Facebook will be selling more of its users' information to advertisers. Once Facebook goes public, the company will have to answer to its investors; this is always the case. The company must appease its stockholders, or no one will invest in the company. To do this, Facebook needs to make money, and most of its income comes from advertising. However, Facebook also has an astounding customer base-somewhere near 800 million users. Losing those customers would be crippling, so Facebook also has to avoid angering them. Thus, chances are, customers will not notice extreme or immediate changes.

What does it mean for Facebook?

Well, this question is difficult to answer. For one thing, it depends on whether or not Facebook gets the $5-10 billion in investments the company is seeking, according to Shayndi Raice's article "Facebook Files for IPO." Unfortunately, one downside of going public is that the company loses some of its autonomy. As previously mentioned, Facebook will have to appease its stockholders. It will no longer answer to only its users, so there will be a lot more tension in business decisions. Honestly, it is not possible to make an accurate prediction at this moment. How Facebook will be affected by this depends on the number of investors, what kind of investors, and what the investors' expectations and desires are. In addition, the change may be slight at first but become more pronounced if Facebook decides to sell a larger percentage of its stock.

Sources:
Associated Press "Facebook IPO Could Come with Surprise Twist"
Pangburn, JD "When Facebook Goes Public, Expect Massive Increase in Data-Mining to Beat Google"
Pepitone, Julianne "Facebook Readies for Blockbuster IPO"
Raice, Shayndi "Facebook Files for IPO."
Rushkoff, Douglas "Facebook IPO's Meaning: Zuckerberg Faces Reality"
Sloan, Paul "Three Reasons Facebook Has to Go Public."
Wall Street Journal "Facebook IPO: What to Keep an Eye out for"