Thanks to Facebook's partnership with controversial startup Loyal3, some 750 million users of the global social network will be able to buy stock "directly" from a corporation's Facebook page. Loyal3 expects Facebook users to invest in products and services they already use and like -- things they "Like."
Investing in what you know, use, and like is nothing new. (See: Loyal3: Twist a Concept & Trademark It.) From the time-tested, globally prevalent format of the cooperative, to the predominantly US-specific financial instrument termed the Employee Stock Ownership Plan, stakeholders today can invest directly in markets, in a structured manner that galvanizes the relationships among investment, contribution, and participation. The reasonable expectation that comes out of this arrangement and benefits all stakeholders is a tangible boost to productivity.
Unlike these traditional forms of consumer and stakeholder direct investment, the Facebook/ Loyal3 stock purchase facility is in fact an indirect purchase of company stock. A hazy clearing process involves a set of unidentified public-market intermediaries. Whether the back-end payment process mandates the use of Facebook's payment facility -- the same one that was recently foisted upon a pre-IPO Zynga -- is unclear. (Facebook has yet to respond to a request for comment.)
Although the current Loyal3 deal has no clearly identifiable correlation with Facebook's earlier foray into what can only be described as a perverted form of IPO-style direct investment (or what is really an exclusionary solicitation conducted outside of public markets), it's possible to observe an emerging pattern.
It's now pretty clear that Facebook has not identified the crucial link between attracting investment and strengthening its core business. To do so would mean recognizing that its core business is nothing but its corral of customers. To say that sustainable value resides in Facebook's ability to influence consumers, spread marketing messages, conduct market research, generate free publicity, and ultimately sell product is correct only to the extent that its customers cooperate.
To influence its customers to cooperate, to give its customers a tangible reason to expend copious amounts of non-paid labor developing Facebook's proprietary mojo, would mean taking out the customer ownership playbook.
So why not a Facebook CSOP (Company Share Option Plan) for Facebook users? What a coup... for Facebook anyway. For users, for investors, it would simply be a fair opportunity to participate.
I agree that the novelty of Facebook is wearing thin. I used to check it everyday but found the ads and abundunt posting that I couldn't care less about to be annoying. I may check the account about once a week now and primarily to see what my kids and their "friends" are up to.
I was going to save these thoughts for the next post, but changed my mind. I was so pleased to see the discussion on what I believe to be a host of important subjects. Many thoughtful comments--I very much appreciate each and every one--and now another comment, as part of more to come:
If Facebook had shared ownership with its users in the same way that it had with Russian investor DST, on a direct public offering type of basis, I think that Facebook could have made itself untouchable. Whether Facebook raises $1.5B from one institutional investor, or $1.5B from 750M users @ $2.00, it's capital.
What is interesting to me is that diversification of invest-ors has some of the same effects as diversification of invest-ment, in that investment risk is mitigated. With more investors rather than fewer, transparency and exposure increases, along with an ability to measure real value and real profits. The CSOP is absolutely tied to the concept, to the reality of profits, and this is one reason why I like it. Great innoculation for bubble-prone markets.
In the Facebook situation, we find one large foreign speculator that will make windfall profits when the floodgates open, and there will be no real-ness about it--no fundamentals, tie to profits, etc. Not a very smart PR move to pad the wallets of who the public perceives to be Russian oligarchs--not one that makes users want to work so hard with the Facebook beta-type system.
It is looking like the young Mr. Z is not making decisions in the vein of managing an ongoing concern; rather, the set-up for speculative profit-taking and EXIT. Have we seen this before????! What is he really thinking?
More questions: will DST have to wait until a public offering to get out, or will they/to what extent can they, as well as Facebook employees, trade shares within a private exchange? How will this pre-trading activity affect the IPO?
Wendy, through IPO face book is planning to share a piece of ownership to public and well wishers. A private - public partnership is always good and can help them to maintain their public presence in a rigid way. At the same time their responsibility and social commitments also increased.
Facebook used to be SO simple, and it has become unnecessarily complicated in my opinion. Part (most) of the reason is that Facebook changes its features all of the time, and well as how it executes them and even where to find them.
It also test markets features and rolls out new ones in ways that are extremely random and alienating to users who believe that they are loyal "core" supporters but find out how very low in the pecking order they really are when they don't get chosen on the first or even second or third wave of a feature roll-out. It's all very "inside baseball" and to what end? Good question...
Consequently, there is a real mismatch brewing between the largest demographic growth segment--users age 40+ and the tech skills needed to really master the site. Correction: Scratch "really master" and substitute "execute basic maneuvers" such as uploading pictures or copying and pasting text.
I think those are the folks who are defecting, and I suspect it isn't out of boredom but rather frustration. Google + isn't going to tempt them because WHY in the world would they want another social network? And I don't think a CSOP is going to tempt them either if my suspicions are correct.
I believe many of the new aspects to facebook are driving people away more than they're causing people to join. It's a social networking site, and that's all it should be. Constantly bombarding their users asking them to pay for something makes it stressful.
The issue is: How does Facebook build a connection with its customers/users so they don't leave en masse as quickly as they joined? With newer options and the tendency to grow bored -- not to mention the fact that Facebook is no longer the cool, hip thing it once was but simply a place for anyone and any advertiser -- use is likely to decline.
If users were owners, through small investments of stock, would they stick with Facebook rather than defect to something new?
I must confess to being a little confused by the premise of this post if I'm understanding it correctly.
It seems to me that the average user of Facebook doesn't really need anything like a CSOP in order to increase his or her value-added in dealing with the site. It's free! What's not to like? No one is making the user do anything (s)he doesn't want to do--buy Farmville tokens, make friends, change any privace settings, click on ads--anything. The user CERTAINLY doesn't have to buy company stock through Loyal3, and DEFINITELY doesn't have to buy Facebook stock when it goes public at an obscene multiple.
There IS a group, however that finds Facebook to be quite an outstanding value, and those are the ADVERTISERS--the PAYING CUSTOMERS. Facebook advertising is a wonderful deal--incredibly demographically targeted, flexible as to budgeting and timing of ads, reasonably good (not as good as Google) in terms of tracking and analytics, and CHEAP, CHEAP, CHEAP! In that sense, it may not be as upscale as LinkedIn, but it has a reach that is second to none. Say you want to advertise to young women who are between the ages of 14-16 who live in Chicago and like Harry Potter, Justin Beiber and small white puppies. Facebook lets you do that, instantly, with a credit card--or now using your Amex points.
Which brings me to Google +... I have high hopes, but so far, get real, people...get real. Do you know who Google +'s top user is? Mark Zuckerberg!
But that's exactly my point. The market already perceives it as "very big." The market perceives it as a $100B company now, although it certainly isn't yet. That means the actually fundamentals of the company need to catch up with sky high expectations.
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The Customer Stock Ownership Plan (CSOP) was the brainchild of Louis Kelso, the inventor of the Employee Stock Ownership Plan (ESOP). But now the term has been co-opted by a company called Loyal3.
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