Facebook's War Chest Will Be Game Changer
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.
Google(GOOG) , 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 Baidu(BIDU) 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 Groupon(GRPN) and the heavily Facebook-reliant online gaming company Zynga(ZNGA) , say analysts, niche social networking companies such as LinkedIn(LNKD) 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.
Apple(AAPL) , 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.