Danny Sullivan at Search Engine Land (who claims to be on vacation) makes an interesting point about Facebook, and CEO Mark Zuckerberg’s claims that the company isn’t planning to do an IPO any time soon. He may not want to issue shares and file a prospectus, Danny says, but the social-networking site will likely have to start filing financial documents with the SEC soon — at which point it might as well go all the way and get a stock-exchange listing.
As Danny notes, U.S. securities rules require a company to file financial reports with the SEC if it has more than $10-million in assets (gee, does Facebook have that much do you think?) and more than 500 employees who hold stock options. At the moment, Facebook has about 300 employees, most of whom likely have options, and it is growing quickly. This SEC rule also snared Google, which confided in its prospectus that the clause accelerated its IPO offering.
Chad Hurley, the guy with the surfer-dude name and the hottest Internet-media property going — namely YouTube, home of classics such as the Diet Coke and Mentos video — seems to be reading from the standard Web 2.0 (or Bubble 2.0) playbook in his recent media appearances, including his It Girl role at Allen & Co.’s media confab earlier this month and a recent interview with Internet columnist Bambi Francisco of Marketwatch (Chad Hurley, Bambi Francisco — you can’t make this kind of stuff up).
Are you going to sell, Chad? No way — we want to remain independent, we’re trying to build value, long-term vision, etc. etc. (see previous playbook entries under Facebook and Skype); Your company’s value has soared to $1-billion or so, hasn’t it Chad? I don’t really know — we’re focused on long-term value, we don’t think about that kind of thing, etc. etc. But then Chad slipped a little and said he might consider an IPO, and you could almost hear the sharks swarming for the chum in the water, some of them looking to cut Mr. YouTube down to size and some eager to help him
fleece, er… assist the investing public. Would it fly? Some IPOs haven’t done so well (hat tip to Paul Kedrosky for the link)
Meanwhile, competitor Revver — which has a similar setup but takes the additional step of sharing revenue with those who upload videos (which is why the Diet Coke and Mentos boys asked people to upload their clip to Revver rather than YouTube) — has gotten additional financing from the funding arms of cable giant Comcast and Ted Turner’s new-media outfit. Draper Fisher Jurvetson is also a backer of Revver, as is William Randolph Hearst III (who spent some of the family dough during Bubble 1.0 too, by investing in cable-Internet flameout @Home).
Is Chad’s potential IPO a sign of Bubble 2.0? The inimitable Ze Frank has some thoughts.
As more than one person has already pointed out, the much-anticipated — and much delayed, and much criticized — Vonage IPO just keeps setting new records for how screwed up a public share offering can get. In what no doubt seemed like a Web 2.0-type gesture for a tech issue, the company offered its customers stock as part of the IPO, and that has turned into a gigantic boomerang that just clocked Vonage in the back of the skull. Since the stock tanked after it started trading, many of those eager investors are now saying they won’t pay.
Even if my friend Paul Kedrosky is right (which he often is) and the investors who grabbed those shares should have known what they were getting into — since skeptics on the Vonage IPO weren’t exactly difficult to find — the company is still caught between a rock and a hard place, or maybe two rocks and a hard place. It has now said it will reimburse the brokerage firms for any stock that disgruntled Vonage customers (see the Vonage forum here) don’t pay for, but all that’s going to do is piss off the ones who actually paid money for a stock that was tanking.
So then you have a company that is already losing money at a prodigious rate of speed — losing more last year than it made in revenue, which is no mean feat — spending more money to soothe the egos of the customers it convinced to buy shares. The only other option is to sue those customers, and what kind of marketing would that be? It’s a lose-lose-lose proposition, a rare money-losing hat-trick in hockey terms. It’s no wonder that Om thinks it’s a shoe-in for Business 2.0’s 101 dumbest things list. Mike Urlocker, a former tech analyst, has a nice take here.
Vonage now says that it will pursue legal action against those who don’t pay for their stock, but as I pointed out above, that is just one of the three losing options available to the company (the third being to do nothing).
Anyone who has been following the Vonage IPO story – as my friend and conference-organizing colleague Mark Evans has, and as Om Malik has – won’t be surprised that the voice-over-Internet pioneer is rumoured to be shopping itself around. The prospectus for its initial public offering, which was on and then off, then back on again, has been out there for months with little or no interest, or at least not enough to make it happen. That’s not a great sign.
As I’ve mentioned before – and others have too, including Mark and Om – Vonage’s IPO smacked of more than a little desperation to raise some cash while the iron was even slightly warm, and the story at CNN/Money fits with that. Whether an IPO or a takeover, Vonage needs money big-time. Its marketing costs have exploded, thanks in part to those Woo hoo! commercials (which I actually kind of like, if only because I like the song), and it needs a river of cash flow to pay for the expansion it needs to remain relevant.
As Om and others have pointed out, research shows that cable VOIP services are taking share away from standalones such as Vonage – and doing so at an increasing rate. That means the window is rapidly closing, and the risk for Vonage (which was started by VOIP pioneer Jeff Pulver, whose VON Canada I am appearing at next week) is that it could become the next TiVo, a pioneer that winds up winning the early battle but losing the war.
As someone told me once, the pioneers get the arrows and the settlers get the land. Alec Saunders says buying either Vonage itself or the stock would be the “ultimate triumph of greed and stupidity over common sense.” Of course, as we all know, that doesn’t mean it won’t happen 🙂
So VOIP pioneer Vonage has finally pulled the trigger on its much-rumoured IPO, hoping to raise up to $250-million. Over the past year there has been repeated whispering that the company was planning a stock offering – but then the rumours changed their tone, and Vonage was reported to be in talks about being acquired. Then everything went quiet. As Andy Abramson noted almost exactly a year ago, the company has been burning through money at a tremendous rate.
As my Canadian tech-blogging colleague Mark Evans notes in his take on the news the SEC filing from Vonage states the company had revenues of about $174-million (U.S.) in the nine months ended in September, and racked up losses of $189-million or so in that same period . The vast majority of those costs were for marketing, which isn’t surprising given that Vonage has been blanketing the Web and the airwaves over the last year.
Needless to say, that’s not a terribly attractive business model – which implies that founder Jeffrey Citron (who also founded online stock-trading firm Datek Online, which he later sold) – has gotten a little desperate about his ability to cash out his significant investment in the company. And he might be right to feel a little desperate, considering the fact that VOIP from cable companies, Skype and other forces – including a possible Google VOIP offering – is turning up the heat.
According to a recent survey by Sandvine, the share of VOIP minutes that broadband providers control has gone from 18 per cent last year to 53 per cent, while Vonage has 22 per cent. Good luck with that IPO, Vonage. At least Jeff Pulver might get a little something out of it.