Fashion World Mulls Facebook IPO’s Impact

As the social-networking site’s initial public offering takes off today, all eyes are on the future, and Facebook's long-term potential.

with contributions from Vicki M. Young, Erik Maza
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NEW YORK — What does Facebook mean for fashion?

That’s the $104 billion question as the social-networking site’s initial public offering takes off today, priced at $38 a share and potentially raising $16.4 billion — the third largest in financial history. While pundits have spent the last few months poring over the most minute aspects of the Internet phenomenon — including how rich its backers and founders will be after today — the biggest issue is whether Facebook will have the long-term transformative and dominating impact of Google or Amazon — or be more like Yahoo or eBay.

The fashion world, like almost every other industry, is still trying to figure that out. There’s talk surrounding where Facebook will focus its energies with its increased cash flow, ranging from further developments in its open-graph technology to further engagement, to mobile innovations to fuel brand partners’ brick-and-mortar shopping experience, to improving client account management services for companies. Observers also believe Facebook will become more aggressive in pushing its advertising model, stirring even greater competition with traditional media companies.

RELATED STORY: Fashion Brands Ramping Up Facebook Presence >>

At the moment, most brands have simply focused on the race to accumulate the most “likes” on their fan pages and to encourage engagement — even those like Burberry and Sephora that advertise heavily on the site. How quickly Facebook can convince brands it can be more important to them than that will be key to its ongoing growth — especially since it’s now widely accepted that early attempts to encourage e-commerce via Facebook have been a flop.

Maureen Mullen, director of research and advisory at NYU think tank Luxury Lab, or L2, said that the “dirty little secret” industry-wide is that companies have been spending money on advertising on the platform for a while, with Burberry leading that charge. The brand has been an aggressive advertiser on Facebook in the fashion world in the past 24 months, as have Chanel and Gucci. While this has greatly contributed to creating an aspirational aura around the value of Facebook, she thinks it is too early to know exactly how the IPO is going to play out with respect to the fashion and luxury sectors.

“Facebook advertising is most effective for driving behavior within the platform, and specifically how most fashion brands use it successfully is to drive ‘likes’ and to grow the communities on their pages,” Mullen said. “I think that will continue, but the question will be whether it can take those communities one step further and monetize them off the platform. I don’t think in the short term we’ll see massive generating of revenue directly from Facebook advertising or directly on the Facebook platform.”

She doesn’t foresee these brands abandoning Facebook anytime soon, but to guarantee success on the medium going forward, Mullen said it’s going to take the right mix of paid advertising and really strong content to increase engagement on a brand’s open graph.

Facebook, she contends, shouldn’t be held to a school of thought that demands instant return on investment, because if one looks at where most fashion brands advertise — print — it’s not as if those ads generate immediate sales. “[Print ads] generate aspirational values for the brand, awareness, editorial mentions, and for the most part, Facebook should be held to the same measurement,” Mullen said.

Sucharita Mulpuru, online and multichannel retail analyst at Forrester Research, compared Facebook advertising to television in that they’re both entertainment vehicles with a huge reach but not a place where every brand finds value.

“It’s a place where you can discover things you might not have known about otherwise, and reinforce people’s loyalty to existing brands, and that’s why some of the most famous brands in the world all have huge fan bases,” Mulpuru said.

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