Analyst Roundtable: What Facebook Needs to Do Now

Facebook's (Nasdaq: FB  ) IPO represents the beginning of a new chapter in the business, not the conclusion and cashing out of what ultimately amounts to a very interesting college experiment. Indeed, in the years since its founding in 2004, Facebook has moved past college life and into full-scale adulthood. And now, well armed with billions freshly raised from the investing masses, Facebook looks out to a bright new day in search of its way forward in the rarefied air that is blue-chip status. With questions about its valuation and business model abounding, we looked to several of our longest-tenured tech analysts to find out what they think Facebook should do next.

Anders Bylund:
The road to greatness is littered with failed online empires. Take a good look at the failures and learn from their mistakes:

  • MySpace confused rampant user growth with brand power. The service stopped evolving to meet user needs and is now an embarrassing footnote in digital-business history. Users don't really love you. Loyalty is an illusion. Never rest on your laurels. Always stand ready to change with the times.
  • Netscape broke new ground in browser technology and grabbed a huge market share in the early days of the browser wars. Then Microsoft (Nasdaq: MSFT  ) moved in for the kill, armed with ruthless tactics and superior resources. Now Netscape is a niche product owned by another failed online titan. Don't let the same fate befall Facebook. Watch your back for incoming daggers. You are never too big to fail.
  • Netflix (Nasdaq: NFLX  ) crushed the DVD-rentals market and moved on to owning the digital version instead -- but CEO Reed Hastings moved way too fast and lost a boatload of important customers. That company is still recovering from an otherwise brilliant CEO's overconfident moves. Don't think you know it all. Even if you control 57% of shareholder votes, ruling with an iron fist will bite you at some point.

You have smart advisors. Listen to them.

Tim Beyers:
So many times in its history has Facebook suffered from either bad judgment or bad advice. You probably know the greatest hits:

  • The "Beacon" plug-in presumed users wouldn't mind publishing their purchasing history in a Facebook newsfeed, regardless of whether they were logged into the social network at the time they bought. Users had other ideas.
  • A 2009 change in Facebook's terms claimed permanent dominion -- and unrestricted, royalty-free right to profit from -- any content posted to the network. The implication? Leave Facebook, and your content may or may not leave with you.
  • Finally, there's the specter of a PR smear campaign aiming to position Google (Nasdaq: GOOG  ) as a serial violator of privacy rights, and thereby diminish the importance of Facebook's own gaffes. Two former Silicon Valley journalists orchestrated the campaign.

And that's just a partial list, which leads me to the point of this roundtable. My advice to Mark Zuckerberg is to get comfortable with the transparency that we demand of public companies. Be wide open about your privacy policy and what you intend to do with user data. Be clear on how you negotiate ad contracts and what role personal information plays. If your service is as valuable as we've all come to believe, we'll review the revelations, shrug, and marvel at how lucky we are to have a social network as rich as yours.

Rick Munarriz:
Two words: Don't change. Facebook has grown from zero to 901 million active users in a handful of years with little influence from the outside world. Just as cynical analysts took Zuckerberg to task for wearing hoodies to IPO road-show outings earlier this month or shelling out $1 billion for the revenue-less Instagram without the board's consent last month, the end result is that the same company that could've cost Yahoo! (Nasdaq: YHOO  ) just $1 billion to buy five years ago is now at least a $100 billion company.

There will be pressure to conform and perform. Shareholders will demand quarterly excellence. Facebook will be expected to ramp up its monetization efforts to justify its lofty valuation. There will be groundswell to take on LinkedIn by beefing up its white-collar appeal to improve its revenue per user.  

However, as arrogant as Zuckerberg may seem to be, he's ultimately been rewarded for doing things his way. That can't change. Facebook has grown so popular because he continues to operate the company with the same renegade mindset as if he was still running the whole thing out of his Harvard dorm room.

A lot of that attitude may wear down over time, but Zuckerberg needs to resist conformity every quarterly report along the way.

No matter how you slice it, Facebook clearly has immense potential. However, with that unproven promise comes considerable risk. However, our senior technology analyst has identified another opportunity in social networking that he thinks holds even more promise than Facebook, which he detailed in a brand-new research report. If you want to see which stock he thinks could end up leaving Facebook in the dust, grab your free copy today.

At the time of publication, Fool technology analyst and editor Andrew Tonner held no position in any of the companies mentioned in this article at the time of publication. You can follow Andrew on Twitter at @AndrewTonner. Fool contributor Anders Bylund owns shares of Google and Netflix and has created a bull call spread on Netflix. Fool contributor Rick Munarriz owns shares of Netflix. Fool contributor Tim Beyers owns shares of Google and Netflix. The Motley Fool owns shares of LinkedIn, Netflix, Microsoft, and Google. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, LinkedIn, and Netflix and creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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