Breakingviews - Facebook’s future could look like Microsoft’s past

Facebook CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters in Palo Alto, California May 26, 2010. REUTERS/Robert Galbraith

NEW YORK (Reuters Breakingviews) - Facebook’s future could look like Microsoft’s past. Tumbling valuations and regulatory attacks crushed the shares of Bill Gates’ software juggernaut nearly two decades ago. Mark Zuckerberg’s $463 billion social network is growing fast. That’s no reason, though, to assume that Facebook will be immune to the same kind of risks.

On Wednesday, Facebook reported a 49 percent increase in revenue in the first three months of this year from a year earlier, notching up $12 billion. That’s almost all advertising sales and puts to rest, for now at least, worries that Madison Avenue was set to shun the social network after a data leak exposed the accounts of more than 87 million members and prompted Zuckerberg to make a rare journey to Washington to testify in front of lawmakers. The company even managed to return to modest growth in daily active members from the United States and Canada.

Advertisers are usually the last to leave the party, however. The challenges Facebook is up against are still intact. Bipartisan committees in Congress could follow their counterparts in Europe, enacting privacy-related or other regulations that could clip Facebook’s growth.

Microsoft may be a helpful proxy. The company behind the Windows operating system had to battle U.S. watchdogs in the late 1990s. It dodged a breakup but the stock took a beating. Throw in the dot-com bust, and the shares lost nearly two-thirds of their value in about a year starting at the end of 1999. Microsoft achieved respectable growth in its top and bottom lines for some 15 years before its stock price regained the old peak.

Facebook shares are already down nearly 20 percent from their February peak. Laws preventing it from collecting user data could dampen advertisers’ enthusiasm. Another factor to consider is a recession, when advertising spending by big brands and small businesses traditionally falls off a cliff. A further slide in tech stocks – and the market as a whole – can’t be ruled out, either. Zuckerberg’s business has the stickiness of a network but lacks the industry-standard demand that kept Microsoft going. Times change, but history can still rhyme.


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