Look, I wasn't going to write about Facebook again, but I can't help myself. Three weeks into the company's public life and the IPO is already looking like a disaster. The stock opened at $38, and it's down to $31 or so today. I watched it happen in real time during trading hours and it's been absolutely brutal. Everyone wants to talk about the technical glitches on launch day, the underwriters' calls, whatever. But the real story is way simpler: investors are suddenly, actually, terrified that Facebook doesn't have a business model that works on mobile.
Here's the thing. Zynga went public last year. We all watched that tech IPO story play out. But Zynga's problem was different. Facebook's is scarier because it hits at the company's entire foundation. Zynga's stock had already cratered by the time Facebook priced its own IPO, so this wasn't happening in a vacuum. Wall Street was primed to distrust any big social company's numbers, and Facebook walked right into that mood at the worst possible time.
Ads work on desktops because desktop screens are huge and you've got space. A desktop browser gives you real estate. You can throw a 300-pixel-wide ad sidebar next to your Facebook feed and it doesn't ruin the experience. Well, it does, but only a little. Mobile? Your entire screen is four inches. The ad model breaks. Nobody's figured out how to make mobile advertising work at scale yet. Google hasn't, Apple's definitely not interested, and Facebook sure as hell hasn't.
And here's what's killing me about this situation: Facebook's actual user numbers are fine. Better than fine. But almost half the users—maybe more—are coming from phones and tablets where the company generates basically zero revenue. It's like having a massive audience watching your TV show where those viewers are completely ad-blind. You can't monetize them. Not yet, anyway.
Mark Zuckerberg tried to sound confident in all the IPO interviews. He kept talking about how mobile is important, how they're working on it, all that stuff. But you don't go public at these valuations if you've already solved the hard problem. You go public hoping you'll figure it out before Wall Street notices. And Wall Street noticed immediately.
The Instagram acquisition in April was smart, actually, even though everyone mocked the $1 billion price tag. At least Zuck is thinking about the problem. But buying Instagram doesn't solve Facebook's mobile monetization crisis. It just buys them time and gives them another property to experiment with. The underlying issue is still there: a business that's built for desktop in a world that's rapidly moving to devices where their entire revenue model stops working.
I keep wondering if this is what happens when a company goes from being a thing that engineers run into a thing that capital markets run. The engineering problems are hard but solvable. The business problems are different. They involve real constraints. Investors want certainty and Facebook just gave them the opposite.
The stock'll probably stabilize. Facebook will keep growing. They'll eventually figure out mobile ads. Everyone eventually does. But right now, three weeks in, watching the price action is like watching someone realize mid-sentence that they've built something cool that doesn't actually make money. And that's a hell of a way to start your public company life.
I'll be watching how this plays out. Not because I think Facebook's doomed or anything. But because if they can't solve this, nobody with billions of mobile users can.