NEW YORK (TheStreet) -- The massive cash war chest that social media phenomenon Facebook will be armed with after its initial public offering is sure to have competitive reverberations throughout the advertising and social media space.
For some companies, an already fierce competitor will be loaded and ready for battle. Others will see a valuable partner whose coattails just got longer.
, for one, seems certain to view Facebook's much strengthened position with displeasure, as the company could potentially deploy much of its new cash trove to ramp up its targeted advertising model, diverting advertising dollars away from the heavily ad-revenue dependent search engine giant.
When Menlo Park, Calif.-based Facebook goes public this year, it could raise up to $10 billion in cash. Right now the social networking giant generates most of its revenue from advertising sales and fees derived from its payments systems.
"Facebook needs to increase ad sales and would be a threat to companies that rely on advertising, such as Google, since more advertising dollars would be committed to Facebook decreasing the amount of advertising dollars available to other companies," says Jeffrey Sica, manager of SICA Wealth Management, whose firm has more than $1 billion in client assets, real estate and private equity holdings under management. "They also need to determine additional ways to reach new users so other social media sites could be affected as they continue to lose users from Facebook."
The increased power that Facebook will have to cultivate its social networking prowess also doesn't bode well for the recently-launched Google Plus social networking site.
"After the IPO, Facebook will be the bellwether company for social media companies," says Alex Ashby, research analyst at Global X Funds, a provider of exchange traded funds, including a social media ETF.
Rival Chinese search engine giant
could also face similar concerns as Google if Facebook is able to penetrate the heavy barriers of foreign entry into the highly-censored Chinese market and tap into its explosive potential.
"Obviously Facebook is in a good position to start expanding there if that environment were to change," says Ashby.
While Facebook is unlikely to create businesses competing with the likes of e-commerce marketplace
and the heavily Facebook-reliant online gaming company
, say analysts, niche social networking companies such as
might face some risks if Facebook tries to ramp up a networking tool focusing on career opportunities within its existing social networking platform.
"Facebook's ability to take those roots in a way to create and leverage different social networks is where these types of companies would feel the most pressure," says Ashby.
, on the other hand, could only benefit from Facebook's success, as more consumers opt to access the social networking site or entertainment based on the Facebook platform through mobile devices such as iPhones and iPads. Really, any company in the mobile space could benefit. Though likely not on a net-net basis on Facebook's growing success, Google could, in this particular case, see benefits for its Android operating system for mobile devices.
"People would want the latest and fastest technology to communicate with friends and to play their favorite games," says Ashby.
Still, from Sica's perspective, the most exciting part about Facebook's success is the ability of "peripheral startups" to leverage off of the Facebook social media platform, allowing for "greater interconnection" between people and businesses. "Venture type companies will be able to plug into that technology and grow their own brands."
Sica says that as the "dominant" force in the social media space, Facebook's ability to impact other companies as it expands will be "immense."
Although he's involved in some of these start-ups and can't comment specifically on who they are, Sica does say that they're involved in media, music and entertainment, and that what he's seen of them so far has been "absolutely incredible."
Some Facebook observers worry that the company has been subjected to the type of hype prevalent in the new media industry.
"Everything is overblown because it's new and sexy, and everyone is tooting the same horn," cautions Karsten Weide, digital media and entertainment program vice president at market intelligence firm IDC.
A "20X valuation for the upcoming IPO is nuts," he asserts. "A valuation of $40 billion to $50 billion instead of $80 billion to $100 billion is more appropriate."
Weide asserts that Facebook's advertising model is essentially display advertising -- a mature market, and not to be compared with Google's pioneering search advertising services -- and that there hasn't been any firm evidence showing that its much raved over social media advantages have actually led to an edge in ad click-through rates. He says there's also little conclusive evidence on the actual value of spreading marketing messages through social groups on Facebook.
The analyst is also worried that consumers will grow tired of being bombarded daily with Facebook's changes -- ranging from its recent timeline features to new alleged privacy violations and more -- and that that could ultimately lead to disenchantment among advertisers.
"There's a lot of bad karma going around," says Weide.
Aware of the risks of being so fundamentally tied to one company, Zynga for one is beginning to wean itself off the Facebook platform, recently creating its own, online Zynga platform for the company's games.
With an already significant $3.9 billion in cash on its balance sheet, Facebook, following the proceeds from its IPO, will have the flexibility to choose from a variety of investment alternatives that comes with excess cash, going beyond short-term fixed income investments.
The company may even explore acquisitions.
"My opinion is Facebook would acquire companies that help them to generate more revenue on their platform, specifically involved in gaming and entertainment," says Sica of SICA Wealth Management.
In fact, "any publicly-traded company that represents a potential revenue stream for Facebook or would increase the amount of users would be a target."
"They will have the flexibility to choose from a wide variety of investment alternatives beyond short-term fixed income," says Jerry Klein, managing director and partner at HighTower's Treasury Partners. "Post IPO, I believe they will be in a position to have that choice."
"Bigger companies are more likely to have investing done in house versus outsourced because they can afford to staff a large treasury department and invest in technology," he adds.
Weide of IDC, who's been skeptical about the Facebook "hype," sees the company deploying its excess cash towards sales expansion abroad, developing engineering talent and for judicious acquisitions, though not at Google's scale. He doesn't see dividends or share buybacks until years down the line.
Sica of SICA Wealth Management says one of the biggest challenges that Facebook will have as a public company is being catapulted into the global spotlight and having to operate with a high degree of transparency. The company is also sure to face high stockholder expectations, and every little disappointment, no matter how small, will be magnified.
"My worry is not the company itself," says Sica. "It's the shareholders and analysts and the Street in general that follow the stock. They should allow time for Facebook to execute before they start making more demand on things like revenue ... other companies have had
a chance to have their ups and downs."
Written by Andrea Tse in New York.
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