Facebook and Zynga have made few friends on Wall Street since going public, and the fallout from their respective missteps and ongoing struggles to monetize has some investors questioning whether mobile social media will ever become a viable business model.
Facebook went public in May, selling 421.2 million shares at $38 each to raise $16 billion, valuing the social network at $104.2 billion, the second largest IPO in U.S. history. The Facebook IPO trailed only Visa, which raised $17.9 billion in 2008, and vaulted the company ahead of General Motors, which generated $15.8 million in late 2010. But the bottom soon fell out: Within three months, Facebook shares were down 47 percent compared to their IPO price, and in its first-ever quarterly earnings report, the company posted net losses of $157 million. Facebook has vowed to right the ship with new and improved mobile services, and in recent months, the firm has rolled out a series of new initiatives including mobile-only Sponsored Stories ads, two-step carrier billing for mobile Web apps, in-app subscriptions, mobile device and OS advertiser targeting options and a mobile gift-giving platform. Along the way it also acquired photo-sharing app Instagram and vilified the HTML5 standard.
More than 1 billion people worldwide now use Facebook actively each month, doubling from 500,000 in July 2010, and more than 600,000 access the platform via mobile device. In addition, mobile services generated 14 percent of Facebook’s advertising revenues during the third quarter. But investors remain lukewarm regarding Facebook’s mobile monetization aspirations, questioning how its advertising efforts will play on devices where the screens are smaller and the user experience is more intimate.
Facebook’s future nevertheless looks positively rosy compared to Zynga. The social gaming company’s stock has been in freefall since its late-2011 IPO, a decline blamed on challenges including algorithmic changes made by Facebook and diminishing mobile traffic for OMGPOP’s Draw Something, which Zynga acquired for about $180 million in March. More than half a dozen senior executives have left Zynga in recent months, and in October, the firm shuttered its Boston studio, reduced staffing levels in its Austin, Texas division and announced plans to sunset 13 games.
Zynga is looking to turn around its business by expanding its mobile horizons, launching its first mobile role-playing games and 3D titles. The company also acquiried November Software in a move to court the ‘midcore’ mobile gaming market between the hardcore and casual segments. Zynga is also moving away from Facebook: Late last month, the two companies renegotiated the terms of their social games publishing partnership, liberating Zynga to expand its products to additional platforms.
What it means: And this should come as NO surprise to anyone in tech!
What worked for social media on the desktop will not work on mobile, necessitating dramatic changes in how these companies do business. Consider Groupon, the social commerce platform that also went public in late 2011 and has seen shares plummet more than 80 percent in the year since. Despite rumors of potential executive changes and speculation that Google may once again target the company for acquisition, Groupon is making positive strides in mobile: As of the third quarter, mobile devices generate about one-third of transactions across its North American digital deals platform, a year-over-year increase of close to 30 percent. Earlier this year, founder and CEO Andrew Mason told investors that the company’s mobile shoppers spend about twice as much as their desktop counterparts.
Groupon is also moving beyond its signature mobile bargains with the introduction of GrouponPayments, a mobile payments processing platform to rival efforts from Square and PayPal. Groupon is additionally rolling out Breadcrumb, a point-of-sale platform enabling restaurants, bars and cafés across the U.S. to run their business via iPad. There’s no guarantee Facebook, Zynga or Groupon will recapture investor confidence again, but it’s clear that mobile will play an enormous role in proving their mettle.
Now this sounds like something we can all be interested in in 2013!