B2B Tech is hot once again thanks to a string of consumer social IPO losses and B2B successes
In the fickle world of consumer purchasing behavior it is tough to predict what trends will last. Few things seem to be predictable in the market beyond their desire to amass more devices powered by Apple's iOS.
There are spectacular examples of consumer companies which were here today and gone tomorrow – perhaps AOL, Yahoo and MySpace are the best examples of entities that rapidly became irrelevant because consumers moved on.
And while Facebook has done an infinitely better job than MySpace of keeping its social network sticky and relevant, it still has become a textbook definition of investor loss and IPO blowup.
And this gets us back to the business market where there are long-term contracts and revenue is predictable. It is certainly a less viral market but what you lose in free marketing from your community, you make up for with customers who have budgets.
To get a sense of how you can generate a successful social networking IPO consider LinkedIn is trading at above $120 almost three times its IPO price of $45 while Facebook is trading at around $20 less than half of its $45 IPO price. The percentage charts below say it all. LinkedIn’s secret? Appealing to business users.
The chart below shows LinkedIn is up almost 30% since its IPO while Facebook is down greater than 40%. In reality the Linked IPO price was $45 while this chart shows its starting price at $93.09 (click to enlarge)
Recently, while much of the tech and business media was focusing on the negative Zynga and Facebook IPOS a few B2B tech companies had successful IPOs including Palo Alto Networks and Splunk.
As I mentioned at the start of this entry – predictability is important to investors. Sure business spending will decline when there are shocks to the system or economic downturns but a slight drop in earnings seems preferable to business models which are fueled by the hope of consumer stickiness turning into some sort of wealth-creating ad-supported model.
I am not saying the consumer tech IPO is dead mind you and companies like Pandora certainly show this area can yield positive surprises for investors. I am pointing out that investors seem to be waking up to the reality that the B2B space is hot once again and an important place to be.