Facebook's 10 Most Serious Threats, According to Facebook

Predictable threat: People find a better product. Surprising weakness: Zynga accounts for one out of eight dollars of revenue for the (potentially $100 billion!) company.

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Facebook's blockbuster IPO filing includes 50 risks the company perceives to its business and public offering. Here are ten of the most interesting and important threats to the company that could be worth $100 billion, with quotes from Facebook's own S-1 document.

1) People stop using Facebook: Well, this one is obvious. "A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations," Facebook states. Although annual revenue grew 154% between 2009/2010 and 88% between 2010/2011, it relied on user growth that will eventually have to slow due to higher market penetration rates, which is economic-speak for "we're running out of people."

2) Advertisers run away: Again, that's a straightforward concern. But the S-1 doc has some interesting stats, including: "In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue." Facebook finished 2011 with net income of $1 billion. That's impressive for a private company, but Facebook is valued by some at $100 billion. That number suggests many investors have big dreams for the company's ad potential.

3) Facebook runs out of ideas for monetizing the Facebook platform: In their own words: "We currently monetize the Facebook Platform in several ways, including ads on pages generated by apps on Facebook, direct advertising on Facebook purchased by Platform developers to drive traffic to their apps and websites, and fees from our Platform developers' use of our Payments infrastructure to sell virtual and digital goods to users. Apps built by developers of social games, particularly Zynga, are currently responsible for substantially all of our revenue derived from Payments."

4) Foreign "Facebooks" eat Facebook's lunch overseas: With 800 million users, Facebook considers itself one of the largest "nations" in the world. But one size doesn't fit all in social media. Various countries have different leading search engines and social apps that adhere tot the peculiar contours of the local culture. Those cultural differences don't seem to have stopped Facebook's growth, but if foreign social media networks create new features that mesh with large populations and resist acquisition by Facebook, Zuckerberg will have competition. From Facebook:  "We compete ... with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Japan, Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. We would also face competition from companies in China such as Renren, Sina, and Tencent in the event that we are able to access the market in China in the future."

5) Google eats Facebook's lunch: Facebook's biggest threat probably isn't some foreign network like Cyworld that you haven't heard of. It's probably the tech company you've heard of the most: Google. It already dominates search, has hundreds of millions of people signed up on a social media network, and owns a big slice of the smart phone market: "Certain competitors, including Google, could use strong or dominant positions in one or more markets to gain competitive advantage against us in areas where we operate including: by integrating competing social networking platforms or features into products they control such as search engines, web browsers, or mobile device operating systems; by making acquisitions; or by making access to Facebook more difficult."

6) Facebook loses a top lieutenant or hires too many people: "We cannot assure you that we will effectively manage our growth," the IPO states, noting that its workers have grown from from 2,127 at the end of 2010 to 3,200 on December 31, 2011. The document also notes that the departure of COO Sheryl Sandberg could hurt the company's momentum. Sandberg's value to the company is made apparent in her salary: $31 million last year.

7) Facebook's reputation suffers: Facebook's history of privacy concerns is nearly as long as the history of Facebook. After all, this is a company whose business model relies on collecting and selling disaggregated user data to advertisers. Zuckerberg is aware of the risk this poses to both to users and advertisers: "Maintaining and enhancing our brand will depend largely on our ability to continue to provide useful, reliable, trustworthy, and innovative products, which we may not do successfully. We may introduce new products or terms of service that users do not like, which may negatively affect our brand. Additionally, the actions of our Platform developers may affect our brand if users do not have a positive experience using third-party apps and websites integrated with Facebook."

8) Governments pose a problem. Facebook is an international business operating out of countries with varying and fluctuating politics and concepts of privacy and online rights (just look at SOPA). That makes it vulnerable, not only to tax laws, but also to complex regulations evolving simultaneously in more than 100 countries around the world. Changes to such laws "could result in claims, changes to our business practices, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business," Facebook claimed.

9) Zynga goes away: This might have been the most interesting paragraph of the Facebook IPO: "In 2011, Zynga accounted for approximately 12% of our revenue, which amount was comprised of revenue derived from payments processing fees related to Zynga's sales of virtual goods and from direct advertising purchased by Zynga. Additionally, Zynga's apps generate a significant number of pages on which we display ads from other advertisers. If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected."

10) Technology is fickle!: Computer companies aren't like car companies. Dynasties come and go in months or years, rather than decades, and one year's darling is rarely the next decade's dominator. Compare the fortunes of Apple (hot, then dead, then the world's biggest company) and Microsoft (the world's biggest company, then static, then, maybe, hot again). Or just check on up Groupon's recent history.