Explaining Southern California's economy

Yelp IPO: At least the bankers will make money

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Yelp.com is a crowd-sourced review site.

Yelp, that restaurant-review startup that everyone kinda sorta uses but that no one really feels all that passionate about (it's no Foursquare, it's just always, you know, there) staged a very successful IPO today, with its stock price rapidly rising well above the offer price of $15.

Sounds great, except of course that Yelp hasn't made any money since 2004 and has a business model that entails massive outlays on local ad sales staff to keep the cash coming in. At Business Insider, Henry Blodget is utterly appalled

I'm surprised he didn't address the "low float" and IPO-underpricing questions (he has before, regarding LinkedIn's IPO). Yelp sold a little more than 7 million shares. I don't have the exact number, but if recent history is any indication, this is only about ten percent of the company. 

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Yammer: Nah, let's not do the IPO

Yammer

The enterprise social network that will do anything to avoid an IPO.

With the frenzy surrounding Facebook's impending initial public offering later this year, you'd think that every startup ultimately wants to do that IPO voodoo. Not so. In fact, it's not clear that Facebook even wants to go public. It's just that it has to many private shareholders now that the SEC is kind of forcing it to. San Francisco-based Yammer is a similar if not exactly quite as lucrative story. Yammer is a sort of Twitter for business — an "enterprise social network." And it just secured a new $85 million venture round. Which it's thinking of as a virtual IPO. The best kind, as it means you don't have to do the actual IPO.

Even better, the business is starting to boom. This is from Forbes:

A few years ago many companies were skeptical of enterprise social networking, now it’s become much more common. Now the industry is in a land grab phase, Sacks says. “Five to ten years from now every company will have an internal social network and maybe an external one as well,” he says. “Five years from now not having a social network in a company will be like not having email or phones.”

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Talking Facebook IPO on 'America Now with Andy Dean'

I joined Andy Dean on his radio show, "America Now with Andy Dean," once again for a spirited half hour of discussion and debate about the mighty Facebook IPO filing. We were able to hit the important highlights, and I was glad I could make one of my favorite points about Facebook. And that is: Facebook has built what may be a $100 billion valuation (although it might not go public at quite that high, high level) on what it is essentially the donated labor of 845 million active users.

What does that mean? Simple: You update your status, you post pictures and videos, you play Zynga games, your hit that Like button across the Web — and you do this repeatedly and often, enabling Facebook to capture this activity and sell it to advertisers. No wonder the company has been so reluctant to do an IPO — it's making billions off free content and doesn't need to actually pay the public anything! Unfortunately, the company now has so many private shareholders that the SEC is effectively forcing Facebook to go public (the SEC won't let you amass private shareholders forever).

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Facebook IPO: Three important things from the SEC filing

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

Facebook filed for an IPO with the SEC late today. I've had a chance to review the S1 document, although I didn't really dig deeply into it. That can come later. The CliffNotes version is that there aren't any huge surprises here, as far as Facebook's financials go. There are over 800 million users. The business is all about advertising, the source of almost all of Facebook's revenue. 

So what are the little surprises?

1. Facebook's future hinges on mobile. As plenty of folks have pointed out, pretty much everybody who is going to use Facebook already does — on a computer. This is where the money comes from: advertisers want to reach those people. On mobile devices, by contrast, Facebook doesn't do ads yet. There could be growth here. But mobile could also steal from Facebook's computer-bound business. From the S1:

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Facebook files for IPO, Zuckerberg outlines his vision for 'rewiring' us

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

Facebook waited until the end of the business day in New York to file its S1 papers with the Securities and Exchange Commission — the prelude to what could be the biggest tech IPO of all time later this year. 

But who cares about the money? For Facebook CEO Mark Zuckerberg, who's worth about $25 billion, it's all about togetherness. This is from his letter that accompanied the filing (thanks to Nicholas Carlson and Business Insider for the quick breakdown):

We hope to strengthen how people relate to each other.

Even if our mission sounds big, it starts small — with the relationship between two people.

Personal relationships are the fundamental unit of our society. Relationships are how we discover new ideas, understand our world and ultimately derive long-term happiness.

At Facebook, we build tools to help people connect with the people they want and share what they want, and by doing this we are extending people’s capacity to build and maintain relationships.

People sharing more — even if just with their close friends or families — creates a more open culture and leads to a better understanding of the lives and perspectives of others. We believe that this creates a greater number of stronger relationships between people, and that it helps people get exposed to a greater number of diverse perspectives.

By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date. We also believe that giving people control over what they share is a fundamental principle of this rewiring.

We have already helped more than 800 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.

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