All the discussions about Facebook’s IPO center on how a company that already dominates the social mediasphere can continue to dramatically grow even more in the future. The valuation it’s seeking is justified if you believe that what Facebook is now represents a fraction of what it will become.
There is an interesting parallel here to the US athletic shoe industry of a few decades ago. Historically, that industry had a rotating position at #1. Leadership was determined by external trends largely outside of the control of the companies. As changes in tastes, fashion, and fitness changed, so did companies’ fortunes. When basketball shoes were only for basketball players, Converse dominated. When they became a fashion statement, Converse faded. When running was the fitness movement sweeping the nation, Nike came to the fore. When running gave way to aerobics, Reebok was born. Because of that, up until the 1980’s, no company that lost the #1 position ever regained it. In this way, the industry was similar to the social media world. As Friendster gave way to MySpace, which gave way to Facebook, no company ever regained its position after the crowd had moved on to the next thing. They were each the beneficiary and the victim of changing tastes and trends.
In 1983, Nike slipped. They missed some trends, had overextended their product lines, and dropped from the leadership position. Phil Knight came back as CEO and pivoted the company. Over the course of a year and a half, they changed the leadership team, cut costs, streamlined existing products, established new ones, and changed their marketing strategy. Progress was erratic, but by the 1990’s, they had regained the lead spot. For the first time, a company had strategically engineered a return to leadership in that category.
So the question is whether Facebook is a Nike. Can they engineer success in a way that defies the way the industry has behaved until now?
The Ryan Report 