So Facebook's stock has been in free fall since May 18. Everyone's losing their minds about it. But honestly, I think we're all talking about the wrong thing.
The IPO itself wasn't the story. The story is that a company with 900 million people using it every month couldn't convince Wall Street that it actually knows how to make money. And not just make money. Make money from mobile, which is where all those people are.
Let's be clear about what happened. Facebook went public at $38 a share. Two weeks later it's trading closer to $26. That's a 30% drop in two weeks. The SEC investigations are starting. The underwriters are getting subpoenaed. It's a mess. But the real problem isn't Morgan Stanley's technology, or Nasdaq's glitchy servers, or whether Zuckerberg should've worn a suit.
The real problem is that Facebook is printing money on desktop with their ad business, and they're absolutely terrified they won't be able to do it on mobile.
I watched Zuckerberg's earnings call. He kept saying "mobile is important" and "we're focused on mobile." Which is exactly what you say when mobile is not going well. If mobile was printing money, you'd talk about revenue. Instead he talked about engagement metrics. Engagement doesn't pay the bills.
Here's what gets me: there are 425 million people using Facebook on mobile devices. That's probably going to be more than desktop pretty soon. But the ads that work on a desktop news feed—those targeted, attention-grabbing ad blocks—they don't work the same way on a 3.5-inch iPhone screen. And nobody's figured out the magic formula yet. Not Facebook. Not Google, even though they own Android. Not anybody.
Mobile advertising right now is basically a guess wrapped in user data. You can target someone by age, location, interests. Sure. But can you interrupt them with a banner ad on their phone and have them actually care? That's a different story. Smartphones are personal. They're intimate. A mobile ad that sucks isn't just ignored; it feels violating. I swipe it away and feel annoyed. On desktop, I barely notice.
So here's why this matters beyond Facebook's stock price tanking. It matters because we've been building the entire mobile ecosystem on this assumption: if you get the users, the money will follow. Netflix got the users and figured out streaming. Google got the users and monetized search brilliantly. Surely Facebook could do the same with mobile.
Except they can't. Not yet. Not the way we thought.
The other thing that bothers me about all this: the breathless pre-IPO coverage treating $104 billion valuation like it was obvious, like obviously Facebook is worth that much money because, duh, 900 million users. But valuation has to map to earnings somehow. And if you can't make money from the device where your users actually spend their time, that valuation looks real different. It's not the number that's absurd. It's the gap between the valuation and the actual business model that works.
I don't think Facebook's broken. I don't think Zuckerberg's suddenly a bad CEO. Mobile advertising will get figured out. But it's not solved yet, and the IPO just made that painfully obvious to everyone on Earth.
Meanwhile, every startup pitching mobile-first ideas is going to have a harder time raising money for the next six months. Because investors just watched a $104 billion company admit it doesn't have the answer either.