Pivots are gut wrenching. The more eyes there are on the company, the tougher they are. Therefore, public-company pivots are usually the most gut wrenching. Many public companies of the past ceased to stay public because their leaders couldn't face the pivot (change is a bitch - who moved my cheese?!), their business radically declined, and they eventually got delisted from NASDAQ or the NYSE.
Two and a half years ago, Facebook went public. Initially, it wasn't pretty. Articles like "7 Reasons Why Facebook IPO Was a Bust" were written. Mark Zuckerberg's roadshow hoodie was mocked (or praised, depending on your point of view). Morgan Stanley's lead tech investment banker, Michael Grimes, was mocked by the media for months. I know Michael and think highly of him, and it was painful for me to see him go through this (note: he and I never discussed it, I just felt empathy). Facebook went public on May 17, 2012 at a price of $38 per share. Just a few months later, on August 26, 2012, you could buy a share of Facebook for $18.06. What happened?
No doubt Facebook was the most overhyped IPO of 2012. However, private-market buyers on exchanges like SecondMarket were paying around $38 per share for Facebook stock before it went public. When we were pricing the IPO for Bazaarvoice, we did so based on demand, which we, Morgan Stanley, and our other bankers assessed based on the "order book" of the funds that lined up to buy our stock as a result of our roadshow. And the demand was high enough for us to price the Bazaarvoice IPO at $12 per share, which was the max end of the range we were allowed without refiling (we had $8-10 per share on the cover of the IPO and the max you can price is 20% above your max range). So if you are Facebook's CEO or CFO, you note what the demand is and you price accordingly. You try your best to leave upside but there are no guarantees of future performance and the risks are tediously detailed in your IPO prospectus. I would argue that Facebook priced their IPO correctly. I would also argue that we did so at Bazaarvoice. If you ever raise money for your company, you know you will do so based on the demand. If you are smart, you will do your best at pricing your round so that there is upside for everyone. But you won't always get it right because tech is very hard to predict and changes much more quickly than most other industries (watch this short clip from a 1994 Steve Jobs interview on his legacy). It is only different in the private market in that it is a private event - only you and your investors choose if you want to disclose the exact price paid for your shares. But, like a public company, your private-market stock price is in fact fluctuating every day based on how your company is performing as well as how the overall US and even world economy is performing. You just don't see it because your stock isn't always being traded. In the public market, your price changes in real-time and everyone sees it, all the daytime.
Why didn't the Facebook stock price stay above $38 then? Because Facebook was caught with one of the most radical platform shifts in the history of tech: the shift to mobile. Look at what has happened over just two and a half years with this chart produced by Business Insider this week, after Facebook reported their earnings:
Since Facebook went public, non-mobile advertising has essentially stayed flat while all of the growth has been in mobile advertising. And look at the shift in users from desktop to mobile since Facebook went public:
This is exactly what the market was terrified of right after Facebook went public, and it was reflected in that low of $18.06 per share. The market saw the stunning, hard shift of users from desktop to mobile and Facebook didn't have a good mobile strategy. They were facing an epic pivot and needed to execute "flawlessly".
So how did Facebook go from $18.06 per share on August 26, 2012 to $75.91 per share as of this weekend. Mark Zuckerberg did something that only the bravest CEOs can pull off. He forced the entire company to hard shift alongside their users (i.e., their customers) and put everyone on "lockdown" to get their mobile strategy right - to make mobile the central focus of Facebook. And, most importantly, it worked - big time. Nearly 70% of Facebook's $3.59 billion of advertising revenue now comes from mobile.
Today, Michael Grimes, Mark Zuckerberg, and CFO David Wehner are victors as a result. And for those who held on to their IPO shares, they are now sitting on a more than 200% gain in just two and half years - a very rich return to say the least.
You may be thinking, "Will Bazaarvoice have the same outcome?" I don't know but Debra and I are bullish on the company overall and remain one of the largest shareholders. Led by Gene Austin today, the culture of Bazaarvoice seems to be as good as it has ever been. I've always loved the natural network effects of the marketplace Bazaarvoice serves, as I recently wrote about in this Lucky7 post. I sleep well at night knowing how much Bazaarvoice has changed the world of global commerce, making it more transparent, effective, and efficient for all parties, from brands, to retailers, to all of us as "consumers".
What I do know is that IPOs aren't easy and public-company pivots are very difficult. Let's look at history for a bit.
Amazon had a wild ride to become the $164 billion (in market cap) juggernaut it is today. Amazon's valuation shot up $25 billion over the past two days as it delivered along-awaited net earnings beat, showing that it can indeed become profitable if it chooses to do so (read this great post by Benedict Evans). Looking back, it was valued at $1.97 per share in April of 1997, rode up to a high of $86.09 just two years later at the height of the bubble, then rapidly fell after the bubble burst and traded in a zone of $10-14 per share for years while analysts proclaimed it would never get profitable and most likely go out of business. As of this weekend, it is worth $354.53 per share.
Salesforce.com, the most valuable SaaS business in history (today valued at $35.6 billion), was mocked by Oracle founder Larry Ellison after it went public. Larry said that SaaS would never take off because of its inferior functionality and enterprise integration options (only to evolve even faster than Oracle in these areas because of SaaS' unique business model ability of developing on a single platform, therefore actually evolving much faster than enterprise software that had to deal with so many disparate platforms and integration partners). Of course, today Oracle, SAP, and other giants buy their way into SaaS as fast as they possibly can because their industry is in fact hard-shifting (but not as fast as Facebook's users hard-shifted from desktop to mobile so there simply isn't the same level of urgency that Zuckerberg had to have). Salesforce.com traded in a range of $4.02 per share to $11.81 per share for its first three years as a public company, only to rise to $18.08 per share and then fall back to $6.65 per share by the time it had been public for five years. As of this weekend, it is valued at $56.45 per share.
In short, all that matters is how a company does long term, whether it is a private or public company. And on that point, again, I feel very good about the management leadership at Bazaarvoice and was happy to see the recent Needham Growth Conference presentation on Jan. 13 (available online). One of the pivots Bazaarvoice made, led by Gene Austin, was to buy FeedMagnet and launch the new Curations solution, as social networks like Facebook, Instagram, and Twitter continue to grow in prominence and users. Another pivot Bazaarvoice made while I was CEO was the tech platform pivot to incorporate responsive design across our solutions so we, like Facebook, could be mobile first, from phones to tablets and screen-sizes of all dimensions versus the fairly static nature of desktop/laptop screen browsers.
Back to Facebook: they should feel very, very good. Mark Zuckerberg led the company through the most epic tech company pivot of this decade and all shareholders and employees are reaping the rewards of his bravery and clarity of his strategy now - assuming they held on to their stock. And Zuckerberg didn't just stop with a radical internal lockdown on focus but also an external one - bravely acquiring Instagram, WhatsApp, and Oculus Rift; with the first two acquisitions behind squarely aligned with the hard-shift to mobile and the latter being an opportunity for Facebook to become the next Microsoft if Oculus actually becomes the next visual computing platform that we all embrace like we embraced Microsoft Windows in the past.
If you are a leader of a startup or an investor in them, I strongly encourage you to watch Mike Maples, Jr.'s presentation on the gut-wrenching - but incredibly necessary - nature of pivots. Mike helped Twitter through their private-company pivot in their earliest days - watch his speech.
Note: I considered making this a longer post and provide a lot of detail on other pivots that I considered epic. Instead, I'll provide you with a short bullet on each one:
-- Google's pivot to compete with Amazon, Alibaba, and other marketplaces with their launch of PLAs (Product Listing Ads), which is already estimated to be an $8 billion business for Google and estimated to grow to a $20-40 billion business the next few years. I considered this pivot because Google wants to remain our one-stop shop - or the entrance to the mall, if you will - instead of us going to Amazon, where around 50% of their business now is marketplace revenue. It is Google's best second-act to date. Google Express is another move to the marketplace strategy, but it is too early to tell how it will perform.
-- Where is the public credit for Jerry Yang purchasing such a large stake in Alibaba while he was in the position to do so at Yahoo? That stake is now worth around $47 billion in cash, which is more than Yahoo's market cap today (valuing Yahoo at less than $0 if you subtract their market cap by the amount of cash they have tied up in their Alibaba stock gain). This is a pivot in the making and we'll see how Marissa Mayer does over the next two to three years. She is clearly on an acquisitive trail but I believe often losing bids to Google and Facebook.
-- What about the US's pivot to shale? This tech pivot has destablized the entire oil industry worldwide. This pivot has radically changed world power structures, with Russia and other oil-economy-dependent countries really struggling and OPEC not so sure what they should do with oil supply/pricing in the face of such a radical tech pivot.
I would love to hear about what you think the best tech company pivot of the decade is in your comments below. And also how you've been able to pivot your company, and how gut wrenching it was to do so. Let's all learn from your experiences.