Dependence on Facebook spreads beyond its users

May 3, 2012

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Dependence on Facebook spreads far and deep. It’s not just social networking junkies that have grown reliant on Mark Zuckerberg’s website creation, which on Thursday filed a new version of the prospectus for its impending initial public offering. Businesses such as online gamer Zynga have been created on its back. Bankers are pegging their careers on floating the firm. And the state of California needs the IPO to help close its yawning budget gap.

It’s not too strong to use the term addiction when talking about the type of relationship many Facebook users have with the site. Everyone has a friend who posts compulsively or has heard someone brag about quitting, only to relapse. The data tell the same story. The average user spends more than six hours a month on the site, according to ComScore.

This interaction has provided fertile soil for others. Big advertisers are shifting their advertising to Facebook, as its ballooning revenue shows. And an ecosystem of other firms has grown up around the social network. Online gaming prodigy Zynga – worth about $6 billion – has been trying to wean itself off Facebook. But it generated 94 percent of its revenue off the site in the fourth quarter of 2011. A slew of smaller firms make apps for users. They get a ready-made audience but cough up a chunk of sales made on the site and are beholden to Facebook’s whims.

Even firms on the other side of the country are relying on Facebook. New stock sales are a lucrative Wall Street niche. True, the social network’s heft means it will pay less than the typical 7 percent underwriting fee. But even a fraction of that is nothing to sniff at when a company is raising $5.7 billion from the sale of new stock at the midpoint of the indicated range, and existing owners are selling almost as much again of their shares. And the prestige of taking Facebook public could pay dividends for years as banks like Morgan Stanley, JPMorgan and Goldman Sachs pitch their services to other companies considering IPOs.

Nobody needs Facebook like California, though. The deal could net the state $2.5 billion in income tax receipts over the next five years, according to Sacramento. That’s enough to make a noticeable dent in its projected $9 billion deficit for this year. Moreover, numerous small businesses have grown up in Facebook’s Silicon Valley shadow. These high-salaried jobs – and the associated taxes – are good news for California’s finances. Facebook’s debut is more than Zuckerberg’s day in the sun.

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