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Tom, the Facebook IPO went about how I predicted it would. I'd been trying to figure out how to short Facebook out of the gate, because it simply seemed obvious that Facebook's business model cannot, in the long run, support even the $38 opening price (and perhaps not even in the short run). Zuckerberg and his cronies made fantastic fortunes on Friday, but many of the small investors who bought in have already lost money.
Facebook makes its money the way Google does: through advertising. Google talks about its various properties as "products," but they're simply vehicles for delivering advertising to consumers. Or, rather, they're vehicles for delivering its real products—consumers—to its real customers—the advertisers.
Facebook makes roughly $4 per year per account holder in advertising revenue. With 901 million active users as of April, that's a pretty penny. But in order to justify the $38 opening price (much less anything higher), Facebook needs to bring in quite a bit more. Just as Google ads have become more obtrusive since its IPO, look for Facebook ads—so far, largely a model of restraint—to become more obnoxious.
Historians of the digital age—assuming anyone bothers to chronicle the digital age—will look back at Facebook's IPO as the day the Facebook fantasy died.
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