Despite some ups and downs Wednesday, Facebook's stock closed at $32, a dollar up from where it ended the day Tuesday. But, while the stock seems to be reaching an equilibrium, its rocky IPO has revealed some basic problems that Facebook (FB) -- and, more precisely, Mark Zuckerberg -- will face as they navigate the rocky shoals and treacherous waters of public ownership.
In the frenzied weeks before its IPO, Facebook released a 30-minute "roadshow video," in which Zuckerberg and company discussed their vision of a warm and fuzzy world where sharing is instantaneous and universal. About halfway through, the filmmakers called in Jostein Solheim, the CEO of Ben & Jerry's ice cream, to explain how his company uses the social network to connect with customers: "We really want to have a holistic relationship with our community, with our consumers about values, about great ice cream. So having a platform where we can actually engage in a large-scale conversation, get feedback ... That's what's so powerful about Facebook."
Cuddly relationships with consumers are notoriously hard to quantify, at least in terms of dollars and cents, so Ben & Jerry's global digital marketing manager Katie O'Brien was on hand to explain the company's Facebook's involvement in terms of the bottom line: "For every $1 we spend on Facebook, it returns $3 in incremental sales."
Notably missing from the Ben & Jerry's video segment were Ben Cohen and Jerry Greenfield, the self-described "Vermont hippies" who founded the brand in 1978, and whose faces still appear in much of the company's packaging. The pair was shunted aside in 2000, when their little ice cream company was swallowed by Unilever (UL), a British-Dutch owned multinational.
A Cautionary Tale
Zuckerberg might not have noticed the kerfuffle when Cohen and Greenfield were let out to pasture -- he was only 16, after all -- but he would be wise to read up on the story now. The tale of Ben and Jerry bears a bracing similarity to his own: Like him, the pair was desperate to maintain control of their company against the efforts of stockholders who were only concerned with the short term bottom line.
As with so much of Ben & Jerry's branding, Cohen and Greenfield's first stock offering relied heavily on a sense of community. In 1984, they literally went door-to-door in their home state of Vermont, selling shares in the company for $126 apiece. Ultimately, they sold shares to 1% of all Vermont households, and raised $750,000, which they used to build a new factory. A year later, they offered $5.8 million in shares on Nasdaq, and used the money to expand their distribution and promotions.
The IPO was a mixed blessing. On one hand, the money it generated enabled Ben & Jerry's to become a national brand. Unfortunately, it also laid the groundwork for the company's ultimate sale.
In 2008, Greenfield looked back on the takeover, telling a reporter for The Guardianthat "We didn't want to get bought ... But we were a public company, and the board of directors' primary responsibility is the interest of the shareholders. It was extremely difficult, heart-wrenching. It was a horrible experience for me and I can probably say it was horrible for Ben too."
And the pain didn't end in 2000: In the years since the sale, many of Cohen and Greenfield's ideals have been pushed to the side in favor of more profitable practices. By the terms of the sale, the ice cream company is still legally obligated to donate 7.5% of its profits to charities, but when it comes to what goes inside the Ben & Jerry's cartons, the all-natural, artisanal ice cream that the founders created has been vastly changed. Today, many of the company's flavors contain artificial ingredients, a fact that forced Unilever, in 2010, to remove the "all natural" claim from many of its flavors.
Dark Clouds Ahead?
Admittedly, Zuckerberg is a lot more sophisticated than Cohen and Greenfield were. Because of careful structuring, the young CEO owns 18% of Facebook's stock, but controls 57% of the voting power. In other words, barring extreme circumstances, the reins of the company will be in his hands for as long as he wants to hold them.
But Zuckerberg also has a lot in common with the two ice cream innovators. Like them, he developed and rapidly built up a visionary company that attempted to be a cultural game-changer. And, like them, the creation of a community -- or, rather, communities -- is central to his business plan. However, while Cohen and Greenfield set out to keep their company in the hands of the little guy, Facebook's pitch was tailored to large institutional investors.
This isn't to say that the Facebook IPO hasn't created a community. For better or worse, the stock offering seems to have created drawn together a disparate, outspoken group of people: namely, shareholders who are ready to pillory Zuckerberg and company for the disappointing performance of its stock. In the few short days since the stock offering, two separate groups have come forward to sue the company for allegedly making "misleading," "untrue" and "materially false" statements in its prospectus.
Facebook - A Timeline
What Mark Zuckerberg Can Learn From Ben and Jerry
Oct. 28, 2003: Mark Zuckerberg hacked into restricted areas of Harvard University's computer network to create Facemash, a website that pulled the private dormitory ID photos of students, then asked users to compare the pictures of two random students and chose which one was better looking. For the brief period before university administrators shut it down, it proved quite popular.
January 2004: Zuckerberg began to write the basic software to create a universal Harvard social directory, TheFacebook.
Jan. 11, 2004: Zuckerberg registered thefacebook.com domain. Then, on Feb. 4, TheFacebook launched at Harvard University. Mark Zuckerberg, right, and Dustin Moscovitz, co-founder, left; took a semester off in 2004 to further improve on TheFacebook website.
April 13, 2004: Zuckerberg, Dustin Moskovitz, and Eduardo Saverin formed Thefacebook.com LLC, a partnership.
June 2004: TheFacebook moved it's headquarters to Palo Alto, Calif., and received an investment of $500,000 from Peter Thiel.
June 2004: Thefacebook incorporated into a new company, and Sean Parker, a co-founder of Napster, took the job of president for the growing business.
September 2004: Facebook replaced its "User is..." prompt with a "What's on your mind?" question in the newly designed space for posting and sharing status updates called "The Wall."
September 2004: Harvard students Cameron Winklevoss and Tyler Winklevoss of ConnectU filed a lawsuit against Zuckerberg and other Facebook founders for allegedly stealing their idea for a college social network called HarvardConnection.
July 19, 2005: Then-dominant social networking site MySpace was acquired by News Corp., spurring buzz on the Internet about the possible sale of Facebook to a larger media company.
Aug. 23, 2005: TheFacebook dropped its "The" and became Facebook. Purchase price it paid for the Facebook.com domain name: $200,000.
September 2005: Facebook added networks for high school students. In December 2005, Facebook reached 6 million users.
2005: Artist David Choe began painting murals at the headquarters of Facebook in exchange for company stock. Today, the shares he received are worth an estimated $200 million.
2006: A cash flow statement was leaked showing that Facebook had a net loss of $3.63 million for the 2005 fiscal year.
Sept. 26, 2006: Facebook removed its restrictions and allowed anyone 13 and older with a valid email address to join. A news feed and a mini-feed were introduced, providing easier ways to see what your friends are up to.
May 2007: Facebook Platform launched with 65 developers and more than 85 applications. Third-party developers quickly followed, building applications to integrate with Facebook. Games such as Farmville and Mafia Wars spread rapidly.
July 25, 2007: A federal judge gave twin brothers Cameron (left) and Tyler Winklevoss, founders of ConnectU, and Divya Narendra until Aug. 8 to flesh out the allegations in their lawsuit against Mark Zuckerberg. Those charges included fraud, copyright infringement and misappropriation of trade secrets.
December 2007: Facebook reached 58 million users. With the successful addition of Facebook Platform and video, growth remained strong. Facebook charted a course toward becoming a general portal like AOL; meanwhile, the choice was made not to aim toward being acquired, as MySpace.com, YouTube and so many other tech startups were.
June 2008: Facebook settled two lawsuits, ConnectU vs Facebook, Mark Zuckerberg et al. and intellectual property theft, Wayne Chang et al., over The Winklevoss Chang Group's Social Butterfly project. The settlements effectively had Facebook acquire ConnectU for $20 million in cash and Facebook shares valued at $45 million, based on a $15 billion company valuation.
July 2008: The first Facebook iPhone app was released.
August 2008: News broke that some employees reportedly privately sold their shares to venture capital firms at prices that gave the company an implied valuation of between $3.75 billion and $5 billion.
October 2008: Facebook set up its international headquarters in Dublin, Ireland.
February 2009: The "Like" social plug-in was added, allowing users to follow status conversations without having to say anything. The like button was instantaneously a hit. It's initial purpose has been widely misinterpreted as a positive approval button.
August 2009: Facebook acquired FriendFeed, a real-time news aggregator.
September 2009: Facebook said that its cash flow had turned positive for the first time.
April 2010: Facebook announced the acquisition of photo-sharing service Divvyshot, and introduced Community Pages.
May 31, 2010: Quit Facebook Day was an online event where users vowed that they would quit the social network shortly after widespread criticism was received on the new privacy controls rolled out in mid-May. Zuckerberg publicly admitted the company had "missed the mark." An estimated 33,000 users quit the site.
June 2010: Facebook employees sold some shares on SecondMarket at prices giving the company an implied valuation of $11.5 billion
August 2010: Places launched, allowing users to share information about where they are in the real world, so friends can find each other.
Oct. 1, 2010:The Social Network, a film about the start of Facebook, was released to theaters. The film, directed by David Fincher, was met with widespread critical acclaim and won the Golden Globe and Critics Choice Best Picture for the Year. Mark Zuckerberg stated that the film is an inaccurate account of what happened.
November 2010: Facebook added features to its mobile software for Android devices. The number of users reached just short of 608 million, with mobile traffic increasing.
December 2010: TIME magazine named Facebook founder and CEO Mark Zuckerberg the 2010 TIME Person of the Year.
January 2011: Equity investors put $500 million into Facebook for 1% of the company, placing its implied value at $50 billion.
February 2011: Facebook added 'Civil Union,' and 'Domestic Partnership' to its Relationship Status options.
February 2011: Facebook application and content aggregator Pixable estimated that Facebook would host 100 billion photos by summer 2011.
June 2011: Facebook partnered with Skype to add video calling as well as a new group chat feature.
September 2011: Heroku joined forces with Facebook for application development using the Facebook Platform.
Sept. 22, 2011: Facebook debuted the new Timeline user interface at the F8 Convention.
October 10, 2011: Facebook launched its iPad app.
December 2011: Membership reached 845 million users.
December 2, 2011: New York Mayor Michael Bloomberg (left) Facebook Chief Operating Officer Sheryl Sandberg (center) and Sen. Charles Schumer (D-N.Y.), react during a news conference on the announcement that New York will be the center of Facebook's new engineering technology initiative.
December 22, 2011: Facebook launched the new profile user interface, Facebook Timeline.
January 24, 2012: Facebook announced that "Timeline" would become mandatory for all users.
Feb. 1, 2012: Facebook filed paperwork to go public, seeking to raise $5 billion on Wall Street in the largest flotation ever by an Internet company.
March 6, 2012: Facebook launches Messenger for Windows, which gives users of Windows 7 Facebook services without the need for a web browser.
April 9, 2012: Facebook announced that is will acquire the photo-sharing app Instagram for $1 billion USD.
May 18, 2012: Facebook founder, Chairman and CEO Mark Zuckerberg, center, rings the opening bell of the Nasdaq stock market from Facebook headquarters in Menlo Park, Calif. The social media company priced its IPO on Thursday at $38 per share, and beginning Friday regular investors will have a chance to buy shares.
To add to the fun, there are also claims that main underwriter Morgan Stanley may have insufficiently communicated its estimates about Facebook's earnings potential and that Nasdaq badly mishandled the IPO, costing early investors millions of dollars.
None of these tempests have a direct impact on Zuckerberg's share of the stock or his potential stewardship of Facebook. Still, as recent lawsuits involving Groupon and JP Morgan demonstrate, stockholder lawsuits have become an increasingly popular tool for grabbing power. If recent developments are any indicator, Zuckerberg can look forward to regular struggles with institutional investors whenever Facebook's stock price dips. In other words, while he can hold onto Facebook indefinitely, enough exhausting shareholder attacks might mean that he won't want to.