Facebook is a Ponzi Scheme(blog.jperla.com)
blog.jperla.com
Facebook is a Ponzi Scheme
http://blog.jperla.com/facebook-is-a-ponzi-scheme-0
29 comments
The analogy to a Ponzi scheme is actually pretty good: at a certain level a Ponzi scheme is any business that lives entirely off a positive and growing first derivative while heading faster and faster toward a certain death.
If eventually (though I'd personally find it extremely surprising) Facebook doesn't manage to find a sustainable and highly profitable business model, that description would have been accurate.
Still waiting for data from the OP though :-)
If eventually (though I'd personally find it extremely surprising) Facebook doesn't manage to find a sustainable and highly profitable business model, that description would have been accurate.
Still waiting for data from the OP though :-)
Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme. I know this is just semantics, but the whole premise of the article is flawed... facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode.
Now if we're saying that they need their advertising revenues to grow so that they can maintain growth -- well that's the same dynamic of almost every company.
Now if we're saying that they need their advertising revenues to grow so that they can maintain growth -- well that's the same dynamic of almost every company.
Actually I think he is saying that they need their advertising revenues to grow in order to maintain perceived momentum in advertisers' minds, in order to have revenue at all. So it's more drastic than what you describe, assuming of course that the OP is right and that retention of FB advertisers is null (which I'd love to see data about).
> Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme
Not the author, but I've addressed that elsewhere. Anyone who has used Facebook knows that Facebook doesn't solicit money from it's users or return money to it's user. This is hence clearly an analogy, no more than if I said Facebook was crap, a black hole, a dinosaur, or anything else.
> facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode.
I believe the article is saying that Facebook needs each successive generation of users to be bigger than the previous, which is indeed what causes ponzi schemes to implode.
Not the author, but I've addressed that elsewhere. Anyone who has used Facebook knows that Facebook doesn't solicit money from it's users or return money to it's user. This is hence clearly an analogy, no more than if I said Facebook was crap, a black hole, a dinosaur, or anything else.
> facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode.
I believe the article is saying that Facebook needs each successive generation of users to be bigger than the previous, which is indeed what causes ponzi schemes to implode.
[deleted]
I guess I can see too how using the 'Ponzi scheme' word is not warranted, as it makes it sound illegal.
No, it's actually really horrible. In a Ponzi scheme you:
1. Fraudulently promise returns. 2. Payout imaginary returns with other people's money.
>at a certain level a Ponzi scheme is any business that lives entirely off a positive and growing first derivative while heading faster and faster toward a certain death.
This is really silly because you don't even specify what quantity you are taking a derivative of.
Ponzi schemes are a certain type of fraud. There are many kinds of fraud. Amazingly, the author never asserts any sort of fraud.
I think you and the author of the blog post are thinking:
"Ponzi schemes are bad and I don't like facebook so they are kinda similar."
Anything substantive you'd like to add, or would you like to concede that absurd contrarian claims usually just confuse and waste everyones time?
1. Fraudulently promise returns. 2. Payout imaginary returns with other people's money.
>at a certain level a Ponzi scheme is any business that lives entirely off a positive and growing first derivative while heading faster and faster toward a certain death.
This is really silly because you don't even specify what quantity you are taking a derivative of.
Ponzi schemes are a certain type of fraud. There are many kinds of fraud. Amazingly, the author never asserts any sort of fraud.
I think you and the author of the blog post are thinking:
"Ponzi schemes are bad and I don't like facebook so they are kinda similar."
Anything substantive you'd like to add, or would you like to concede that absurd contrarian claims usually just confuse and waste everyones time?
Woo. Let's chill out a bit.
1. I actually do like Facebook, and am very impressed by what they are pulling off.
2. I learned about Ponzi schemes a while back in macro theory class, before they were mainstream and irremediably tainted by the vileness of Bernie Madoff. The story of Ponzi himself -- as I remember our macro professor telling it five years ago -- is pretty 'funny', or at least provided welcome distraction between two utility maximization derivations in econ class; he's supposed to have been a 16th century Venitian who ended up in the Venice lagoon once the bankers he was pulling his cash from realized what happened. I didn't think of it as a crime. All this to say that I never implied nor intended to imply that Facebook was committing any sort of fraud, immoral behavior or else.
3. What I mean by this derivative thing is quite simple -- imagine the movie Speed with a bomb that explodes, not when the speed goes under X mph, but when the bus's acceleration goes below X mph/h, forcing the bus to keep on accelerating, driving faster and faster and faster. Eventually you'll hit the physical speed limit of the bus, acceleration will converge to zero, and the bus will explode. That's a very silly metaphor for what I was trying to explain - being that, if indeed FB had to rely on an ever growing in-flow of first time ad buyers to keep the lights up, they are would be in as desperate a situation as was Mr Ponzi in 16th century Venice.
Just to cool everyone's mind -- I really don't think this will happen. The team is least extremely smart to have gotten where they are, and I trust Facebook to eventually find as ridiculously profitable a business model as AdSense, with high probability. As a user I do hope it will respect my privacy, and as an entrepreneur I do hope it will allow some cool new distribution models.
1. I actually do like Facebook, and am very impressed by what they are pulling off.
2. I learned about Ponzi schemes a while back in macro theory class, before they were mainstream and irremediably tainted by the vileness of Bernie Madoff. The story of Ponzi himself -- as I remember our macro professor telling it five years ago -- is pretty 'funny', or at least provided welcome distraction between two utility maximization derivations in econ class; he's supposed to have been a 16th century Venitian who ended up in the Venice lagoon once the bankers he was pulling his cash from realized what happened. I didn't think of it as a crime. All this to say that I never implied nor intended to imply that Facebook was committing any sort of fraud, immoral behavior or else.
3. What I mean by this derivative thing is quite simple -- imagine the movie Speed with a bomb that explodes, not when the speed goes under X mph, but when the bus's acceleration goes below X mph/h, forcing the bus to keep on accelerating, driving faster and faster and faster. Eventually you'll hit the physical speed limit of the bus, acceleration will converge to zero, and the bus will explode. That's a very silly metaphor for what I was trying to explain - being that, if indeed FB had to rely on an ever growing in-flow of first time ad buyers to keep the lights up, they are would be in as desperate a situation as was Mr Ponzi in 16th century Venice.
Just to cool everyone's mind -- I really don't think this will happen. The team is least extremely smart to have gotten where they are, and I trust Facebook to eventually find as ridiculously profitable a business model as AdSense, with high probability. As a user I do hope it will respect my privacy, and as an entrepreneur I do hope it will allow some cool new distribution models.
You have Charles Ponzi's history mostly wrong. See http://en.wikipedia.org/wiki/Charles_Ponzi for a more accurate version.
There's some oddities in the WP timeline. Nov 1, 1920 goes to jail. Spends 3.5 years in jail. Released and then "almost immediately" indicted by the state. Challenges indictment, it goes to Supreme Court, settled on Mar 27, 1922. How could he spend 3.5 years in jail between those dates when there aren't 3.5 years between those dates?
Now that you've uncovered these irregularities, we can blow this Wikipedia scandal wide open!
"Mostly??"
The story claimed Venetian which implies Italian. He was actually born about 70 miles away, but that was still in Italy. And he swindled lots of people.
That is why I said "mostly".
That is why I said "mostly".
Yes, it's actually totally wrong. If you read carefully though, I'm not reporting Ponzi's story as it happened, but as I heard it for the first time from an econ professor, which may or may not have been pulling our legs.
Ha! I knew something was fishy in that econ class. :)
Thanks a lot though. This is far more sinister than I suspected.
I don't know if you are trolling or just extremely happy to be alive, with possible assistance from certain chemicals (not something I condemn in all cases). However, please try to be coherent.
>irremediably tainted by the vileness of Bernie Madoff.
???
>irremediably tainted by the vileness of Bernie Madoff.
???
Happy to be alive, no assistance. What don't you find coherent in my post?
>irremediably tainted by the vileness of Bernie Madoff. My point here is that, while Ponzi schemes used to be a mostly overlooked white collar crime and a curiosity for the students of economics, they now have come to light in a very public manner and came to personify all the excesses of Wall Street pre-2008.
>irremediably tainted by the vileness of Bernie Madoff. My point here is that, while Ponzi schemes used to be a mostly overlooked white collar crime and a curiosity for the students of economics, they now have come to light in a very public manner and came to personify all the excesses of Wall Street pre-2008.
It's difficult to not interpret you as saying that Ponzi schemes are kind of charming, and Bernie Madoff gave them a bad rep.
Ponzi schemes are devastating and destroys economies. When Albania was first liberalized after Hoxha, half the population got frauded and the economy folded. The population threw over the government and it became a failed state.
Similar events unfolded in Russia and many other former Soviet states, after their economies opened up - although with less devastating consequences.
In Haiti, it's estimated that 60% of the GDP was swindled from the people in one of the poorest societies on earth.
In the Philippines, there have been a number of Ponzi schemes during the 00s.
There is nothing charming or clever about it, at all.
Ponzi schemes are devastating and destroys economies. When Albania was first liberalized after Hoxha, half the population got frauded and the economy folded. The population threw over the government and it became a failed state.
Similar events unfolded in Russia and many other former Soviet states, after their economies opened up - although with less devastating consequences.
In Haiti, it's estimated that 60% of the GDP was swindled from the people in one of the poorest societies on earth.
In the Philippines, there have been a number of Ponzi schemes during the 00s.
There is nothing charming or clever about it, at all.
Got it, and yes you're right. Ponzi schemes are devastating, and I see how my post could be misinterpreted. My bad, really.
To clear things up regarding Facebook and the original link as well, I should explain that I have a really hard time believing what the original poster says about their ads. It might very well be that a lot of people fail to use them in a meaningful way because they haven't thought through what makes Facebook advertisement unique. I am certain that a sizeable fraction of the ad market can and will exploit them, and especially the infinitely granular targeting.
My experience as a user is a bit mixed (lots of crap and/or scam, and thankfully less and less social games silliness as I've downvoted it), but I've seem true gems too (job ads targeting my university + degree + class, pretty neat! -- or a nice ad campaign by Hulu in its early days that targeted a show I had just listed as one of my interests). All in all, the future of FB is pretty bright in my book.
Edit: Also, I should point out that I do not think at all that Facebook's business has anything fraudulent, improper or immoral. My original post (second from the top) was just trying to explain why someone who held the post's author's views on FB ads could believe the company was fundamentally instable and depended on perpetual growth for survival. I personally don't agree with this view, and think they'll be just fine -- and apparently I'm not alone: http://techcrunch.com/2010/01/20/facebook-valued-at-14-billi...
To clear things up regarding Facebook and the original link as well, I should explain that I have a really hard time believing what the original poster says about their ads. It might very well be that a lot of people fail to use them in a meaningful way because they haven't thought through what makes Facebook advertisement unique. I am certain that a sizeable fraction of the ad market can and will exploit them, and especially the infinitely granular targeting.
My experience as a user is a bit mixed (lots of crap and/or scam, and thankfully less and less social games silliness as I've downvoted it), but I've seem true gems too (job ads targeting my university + degree + class, pretty neat! -- or a nice ad campaign by Hulu in its early days that targeted a show I had just listed as one of my interests). All in all, the future of FB is pretty bright in my book.
Edit: Also, I should point out that I do not think at all that Facebook's business has anything fraudulent, improper or immoral. My original post (second from the top) was just trying to explain why someone who held the post's author's views on FB ads could believe the company was fundamentally instable and depended on perpetual growth for survival. I personally don't agree with this view, and think they'll be just fine -- and apparently I'm not alone: http://techcrunch.com/2010/01/20/facebook-valued-at-14-billi...
Several things. You ramble on about an insane version of the origins of the term Ponzi scheme. I asked what quantity you were taking a quantity of, you explain that in fact you meant to allude to Speed. You could have said revenue or costumers buying adds (which you eventually do).
You imagine that Ponzi schemes are only of interest to econ students, but as the other poster said many people have been taken by the schemes and it is in no ones interest to have that happen.
You imagine that Ponzi schemes are only of interest to econ students, but as the other poster said many people have been taken by the schemes and it is in no ones interest to have that happen.
I upvoted you because the post you were responding to was truly bananas and I'm not sure why you were getting down voted.
Hi Dantheman, you are right. It's not a perfect analogy. There's not really any closer analogy, though. I state this later in the post, if you read through the whole thing (including saying "like a Ponzi scheme"):
"Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it's not quite entirely a ponzi scheme, but there is no closer idea). It's possible that they do not even realize that they are like a Ponzi scheme."
Moreover, I recognize that Facebook isn't necessarily doing this on purpose (whereas in a real ponzi scheme a competent accountant has to scheme willfully).
Nevertheless, I hope you agree that the positive feedback, the bubble effects, and the deceptive illusion of growth all have analogs to Facebook (if you assume the premise, of course).
I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. The metaphor is better than the simile.
My main motivation was to make people think about the reality of Facebooks revenue. It may be less solid than social proof makes it seem.
"Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it's not quite entirely a ponzi scheme, but there is no closer idea). It's possible that they do not even realize that they are like a Ponzi scheme."
Moreover, I recognize that Facebook isn't necessarily doing this on purpose (whereas in a real ponzi scheme a competent accountant has to scheme willfully).
Nevertheless, I hope you agree that the positive feedback, the bubble effects, and the deceptive illusion of growth all have analogs to Facebook (if you assume the premise, of course).
I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. The metaphor is better than the simile.
My main motivation was to make people think about the reality of Facebooks revenue. It may be less solid than social proof makes it seem.
I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that.
Yes, describing things in an overheated, sensationalistic way has a more powerful effect than describing them in an accurate way. Congratulations on figuring that out.
By the way, referring to a business as a Ponzi scheme is prima facie defamatory. I don't think you have much to worry about, since I doubt Facebook will bother to sue you on the basis of a blog post, but you might write differently if you were more conscious of the fact that you're accusing someone of a crime.
Yes, describing things in an overheated, sensationalistic way has a more powerful effect than describing them in an accurate way. Congratulations on figuring that out.
By the way, referring to a business as a Ponzi scheme is prima facie defamatory. I don't think you have much to worry about, since I doubt Facebook will bother to sue you on the basis of a blog post, but you might write differently if you were more conscious of the fact that you're accusing someone of a crime.
I think it's pretty clear to anyone who merely reads the title and has some understanding of what Facebook is that the author isn't saying Facebook is literally a ponzi scheme, any more so than I would if I said 'Lotus Notes is a dinosaur'.
Everyone who uses Facebook knows it doesn't solicit, or give, money to/from its audience. There is zero question that Facebook is literally a ponzi scheme any more than it is literally a piece of shit.
The amount of comments here who say that the analogy is libel and which attack the author on this without responding to the points made saddens me.
I doubt Facebook, even if they didn't like the article, would wish to draw attention to the analogy contained therein.
Everyone who uses Facebook knows it doesn't solicit, or give, money to/from its audience. There is zero question that Facebook is literally a ponzi scheme any more than it is literally a piece of shit.
The amount of comments here who say that the analogy is libel and which attack the author on this without responding to the points made saddens me.
I doubt Facebook, even if they didn't like the article, would wish to draw attention to the analogy contained therein.
I use Facebook, and I did in fact assume from the headline that the author was going to argue that it is a Ponzi scheme. It didn't seem like one to me, but one reason I read articles on HN is to be informed or persuaded of things I didn't initially believe.
By the way, I never called the author's accusation libelous. I called it defamatory, which it clearly is.
By the way, I never called the author's accusation libelous. I called it defamatory, which it clearly is.
shrug So you know FB doesn't solicit funds or provide them, but you expected proof that FB was literally a ponzi scheme in the article?
Libel is written defamation, as opposed to slander which is for transitory statements.
I disagree that it's clearly defamation.
Libel is written defamation, as opposed to slander which is for transitory statements.
I disagree that it's clearly defamation.
So you know FB doesn't solicit funds or provide them
Facebook does, in fact, solicit funds -- from advertisers, and from users who want to send virtual gifts to their friends.
but you expected proof that FB was literally a ponzi scheme in the article?
No, I expected some argument to that effect.
Libel is written defamation, as opposed to slander which is for transitory statements.
No, defamation is one of the conditions for libel, but there are others: falsity and malicious intent being the most important.
I disagree that it's clearly defamation.
Allegations of criminal conduct are among the clearest categories of defamation.
Shrug indeed.
Facebook does, in fact, solicit funds -- from advertisers, and from users who want to send virtual gifts to their friends.
but you expected proof that FB was literally a ponzi scheme in the article?
No, I expected some argument to that effect.
Libel is written defamation, as opposed to slander which is for transitory statements.
No, defamation is one of the conditions for libel, but there are others: falsity and malicious intent being the most important.
I disagree that it's clearly defamation.
Allegations of criminal conduct are among the clearest categories of defamation.
Shrug indeed.
Me> Everyone who uses Facebook knows it doesn't solicit, or give, money to/from its audience. There is zero question that Facebook is literally a ponzi scheme any more than it is literally a piece of shit.
Me again> So you know FB doesn't solicit funds or provide them?
You> Facebook does, in fact, solicit funds -- from advertisers...
You're not listening to me. So I won't listen to you.
Me again> So you know FB doesn't solicit funds or provide them?
You> Facebook does, in fact, solicit funds -- from advertisers...
You're not listening to me. So I won't listen to you.
I assume you're implying that I missed the words "to/from its audience" in your comment. But when I read the headline "Facebook is a Ponzi scheme," why would I assume the author was claiming that the audience, rather than advertisers, were the victims of the Ponzi scheme?
What's more, I wrote that Facebook solicits funds "from advertisers, and from users who want to send virtual gifts to their friends." You chose to leave that last part out.
It's up to you whether you listen to me or not.
What's more, I wrote that Facebook solicits funds "from advertisers, and from users who want to send virtual gifts to their friends." You chose to leave that last part out.
It's up to you whether you listen to me or not.
You don't understand Facebook's revenue at all, which is why you think that. App developers spend hundreds of millions per year promoting games. They aren't making the big money from businesses that lose a couple grand and then find out it's unprofitable. They're making their money from Zynga.
That's sustainable. Facebook is probably going to make their own payment platform mandatory for apps, and they rake 30%. They could quite easily grow to a couple billion in revenue if nobody new ever advertised there again.
Also, local advertising does much better there than most stuff. Better than on Google in some instances.
That's sustainable. Facebook is probably going to make their own payment platform mandatory for apps, and they rake 30%. They could quite easily grow to a couple billion in revenue if nobody new ever advertised there again.
Also, local advertising does much better there than most stuff. Better than on Google in some instances.
Local is a very interesting avenue for revenue growth. I'm very curious to see how location will play out on Facebook, especially with regards to Foursquare.
If you think FB ads suck and provide no return, fine, say so. I mostly agree. But you shouldn't go around accusing people of criminal activity on the grounds that you couldn't come up with a better analogy and your post wouldn't be as effective.
[deleted]
>(in this sense it's not quite entirely a ponzi scheme, but there is no closer idea)
Why not just say, "I'm super ignorant. Sorry about this post."
A lot of companies have made statements that in retrospect, and maybe even at the time, can be seen as pure hubris.
You could say something cliched like, facebook: web bubble 2.0. Another cliche, facebook management: irrationally exuberant?
Or you could reference companies that failed: facebook: the Global Crossing of our social network.
There are a great number of ways for a company to fail. Many of them do not involve being a fraudulent investment scheme.
Why not just say, "I'm super ignorant. Sorry about this post."
A lot of companies have made statements that in retrospect, and maybe even at the time, can be seen as pure hubris.
You could say something cliched like, facebook: web bubble 2.0. Another cliche, facebook management: irrationally exuberant?
Or you could reference companies that failed: facebook: the Global Crossing of our social network.
There are a great number of ways for a company to fail. Many of them do not involve being a fraudulent investment scheme.
I think the author at least has a point, but I totally disagree with his use of the word 'ponzi' here. It looks like yet another cheap attempt to make something look horribly bad by just tacking on a term that is hated/disliked widely.
[deleted]
Hilariously he has a link to his own blog post accurately describing ponzi schemes. My guess is he was just baiting.
http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/
Chris Dixon posted on this recently:
Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything.
...
The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline. Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook. Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products. Expect the online Starbucks of the future to have a lot more – and more effective – ads.
The problem, of course, is that nobody knows how, but we expect someone to figure it out eventually.
So here's a fun question to overcome your status quo bias. What if brand advertising is an artifact of one-to-many communications tech, and can't work in a many-to-many environment?
Chris Dixon posted on this recently:
Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything.
...
The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline. Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook. Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products. Expect the online Starbucks of the future to have a lot more – and more effective – ads.
The problem, of course, is that nobody knows how, but we expect someone to figure it out eventually.
So here's a fun question to overcome your status quo bias. What if brand advertising is an artifact of one-to-many communications tech, and can't work in a many-to-many environment?
I suspect online advertising is undervalued precisely because it can be measured. I further suspect that "brand advertising" is a scam for all but the largest advertisers.
"Half the money I spend on advertising is wasted; the trouble is I don't know which half."
– John Wanamaker
– John Wanamaker
The largest advertisers became the largest because they spend a lot on brand advertising. So perhaps it's true that you have to spend a lot to make brand advertising effective, but it's not a "scam" in any conventional sense of the word. It is what it is.
If we're going to sling arrows at online advertising, I think we have to start with the fact that there are a lot more publishers than there were back in the day, and virtually all of them have an undifferentiated audience of "eyeballs". It's still possible to get high CPM rates, as long as you've got a targeted audience and a sales team.
If we're going to sling arrows at online advertising, I think we have to start with the fact that there are a lot more publishers than there were back in the day, and virtually all of them have an undifferentiated audience of "eyeballs". It's still possible to get high CPM rates, as long as you've got a targeted audience and a sales team.
The largest advertisers became the largest because they spend a lot on brand advertising.
[citation needed]
A famous quotation about the effectiveness of advertising, by a business person "considered by some to be the father of modern advertising."
http://en.wikipedia.org/wiki/John_Wanamaker
"Half the money I spend on advertising is wasted; the trouble is I don't know which half."
[citation needed]
A famous quotation about the effectiveness of advertising, by a business person "considered by some to be the father of modern advertising."
http://en.wikipedia.org/wiki/John_Wanamaker
"Half the money I spend on advertising is wasted; the trouble is I don't know which half."
That (sort of) substantiates the parent post's claim. If only 50% of your advertising money is effective, then spending more will still be more effective, no?
If half is surely wasted, it still remains to be shown that the other half provides a good return on investment.
You're making an assumption of corporate stupidity that I find to be highly unlikely. Large companies do not become large companies by tossing hundreds of millions of dollars down dark wells without analysis.
I'm making the assumption that Coke and Nike, et al. are smart enough to have at least rudimentary knowledge of the effectiveness of their brand advertising. Is this an assumption? Yes. Is it a more reasonable assumption, a priori, than the alternative? I think so.
I'm making the assumption that Coke and Nike, et al. are smart enough to have at least rudimentary knowledge of the effectiveness of their brand advertising. Is this an assumption? Yes. Is it a more reasonable assumption, a priori, than the alternative? I think so.
Exactly correct.
My recollection is that Max Levchin presented his vision for Slide under these exact terms about two years ago. Interestingly enough, Lance Tokuda, who had launched RockYou with an analog vision, publicly buried the potential for brand advertisement last summer (in comparison with virtual goods). I imagine it's a reflection of the time it takes to ramp up sales accounts with large consumer products corporations.
There also was some great data on the wide disconnect between attention market share and ad spend market share of the net in the last Meeker report: http://www.readwriteweb.com/archives/mary_meekers_internet_t...
There also was some great data on the wide disconnect between attention market share and ad spend market share of the net in the last Meeker report: http://www.readwriteweb.com/archives/mary_meekers_internet_t...
Still, I wouldn't mind to be in Starbucks or Facebook's shoes, financially.
You're aware Starbucks have shut down a lot of their operations recently?
Heard something, but I don't think their problem is customers hanging out at the store and not buying anything. They simply built too many branches, would be my guess. Also not sure how much it hurts Starbucks if a branch shuts down.
I worked on Facebook ads for the past year so I know that some of the claims in this article are just wrong, but I think the average reader can figure that out for themselves.
> People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google.
All true, all what Facebook tells its advertisers. www.facebook.com/ads
> They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs.
Because advertising on Facebook is not typically about buying something, it is often difficult to measure direct ROI in $. In this, it is like the majority of all advertising.
> ...Facebook ads are worthless. Everyone I've talked to who has actually bought Facebook ads knows this
Have you talked to Zynga? They make Facebook games. It is speculated they are making $300M+ a year. You can see their ads all the time on Facebook. Either they are incredibly incompetent, or FB Ads delivers positive ROI for them. Search google for "zynga revenue estimate".
> People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google.
All true, all what Facebook tells its advertisers. www.facebook.com/ads
> They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs.
Because advertising on Facebook is not typically about buying something, it is often difficult to measure direct ROI in $. In this, it is like the majority of all advertising.
> ...Facebook ads are worthless. Everyone I've talked to who has actually bought Facebook ads knows this
Have you talked to Zynga? They make Facebook games. It is speculated they are making $300M+ a year. You can see their ads all the time on Facebook. Either they are incredibly incompetent, or FB Ads delivers positive ROI for them. Search google for "zynga revenue estimate".
I always hear Zynga mentioned as the success story for Facebook Ads. If you had to name an example other than Zynga, who would it be?
As a PM at a company that uses Facebook ads extensively to attract users, I can tell you with absolute certainty that Facebook ads are worth it and the author of the article doesn't know what he's talking about. At all. End of the story.
That's not quite what I was asking. I generally believe that Facebook ads can be successful. I'm curious about what companies are effectively using them now at a large scale.
I also suspect that the effectiveness of Facebook ads has a lot to do with the nature of the product/service being advertised, and the ad itself (just like any advertising).
Your comment applies your specific experience (unknown to me) as evidence for an absurdly general statement ("Facebook ads are worth it") and an ad hominem attack on the author of the article. Classy.
I also suspect that the effectiveness of Facebook ads has a lot to do with the nature of the product/service being advertised, and the ad itself (just like any advertising).
Your comment applies your specific experience (unknown to me) as evidence for an absurdly general statement ("Facebook ads are worth it") and an ad hominem attack on the author of the article. Classy.
In one of your other HN comments you say:
> Klicknation Inc, for which I am a product manager, is hiring.
>Our flagship product is Superhero City, a Facebook game. You may wonder if a Facebook game can support a whole (small) company, and my answer would be a resounding 'yes'.
So the (non-quantitative) data described by most of the posters here seems to say that there is one type of ad that does seem worthwhile of FB: those advertising FB games (e.g., Zynga, and your Klicknation games).
Of interest would be: who has found FB ads useful for non-FB-dependent products/services?
> Klicknation Inc, for which I am a product manager, is hiring.
>Our flagship product is Superhero City, a Facebook game. You may wonder if a Facebook game can support a whole (small) company, and my answer would be a resounding 'yes'.
So the (non-quantitative) data described by most of the posters here seems to say that there is one type of ad that does seem worthwhile of FB: those advertising FB games (e.g., Zynga, and your Klicknation games).
Of interest would be: who has found FB ads useful for non-FB-dependent products/services?
Groupon and other deal-a-day coupon sites spend tons of money on Facebook ads.
Since Greg (hi Greg!) works at Facebook, it'd be a gross breach of trust for him to reveal who Facebook's ad clients are. Zynga is a well-known example, often mentioned because they spend a ridiculous amount of cash on FB ads.
Since Greg (hi Greg!) works at Facebook, it'd be a gross breach of trust for him to reveal who Facebook's ad clients are. Zynga is a well-known example, often mentioned because they spend a ridiculous amount of cash on FB ads.
When I get on Google and search, typically there are a few ads keyed to my search. These ads are selling real products, often the exact product I'm looking for, from legitimate and well-established companies.
When I get on Facebook, my sidebar is filled with ads. I would estimate 50% of them are scams. About 25% are for Facebook games, which I am not interested in. The remaining 25% are legitimate ads which are rarely targeted toward something I want, but even when they are, I won't click on them because of the 50% of ads that are scams.
When I get on Facebook, my sidebar is filled with ads. I would estimate 50% of them are scams. About 25% are for Facebook games, which I am not interested in. The remaining 25% are legitimate ads which are rarely targeted toward something I want, but even when they are, I won't click on them because of the 50% of ads that are scams.
This is the interest v. intent paradigm.
Listing 'photography' as an interest on a social network and typing it into google with the intent to research, purchase, learn, etc., represent fundamentally different mindsets.
Listing 'photography' as an interest on a social network and typing it into google with the intent to research, purchase, learn, etc., represent fundamentally different mindsets.
Facebook seems to overwhelmingly treat their users as just "metrics" instead of individuals.
Their short term revenue has been supported by:
a) Small businesses - like this story mentions - buying into an ad platform that performs on the low end of AdSense.
b) CPA scammers pumping rebill offers and breaking through FaceBooks meager ad-clearance department to get anything they can on there.
c) Sketchy fly-by-night dating sites & apps that take advantage of lonely hearts.
d) 25 - 35% of the ads are simply facebook app makers, who in turn sell users "credits" in a model more akin to selling addictive narcotics to addicts than anything else.
That's all bad enough, but the complete disregard for user privacy through their continued "opt-out" policy is out of control.
Through each update of Facebook we've seen bolder and bolder violations of user data , and I think that will ultimately be Facebook's undoing once people recognize just how much your typical advertiser can uncover with your profile.
References:
Zynga - http://www.businessinsider.com/gossip-2009-11
Zoosk - http://manybodytheory.com/777/ive-spent-over-5-million-dolla...
Their short term revenue has been supported by:
a) Small businesses - like this story mentions - buying into an ad platform that performs on the low end of AdSense.
b) CPA scammers pumping rebill offers and breaking through FaceBooks meager ad-clearance department to get anything they can on there.
c) Sketchy fly-by-night dating sites & apps that take advantage of lonely hearts.
d) 25 - 35% of the ads are simply facebook app makers, who in turn sell users "credits" in a model more akin to selling addictive narcotics to addicts than anything else.
That's all bad enough, but the complete disregard for user privacy through their continued "opt-out" policy is out of control.
Through each update of Facebook we've seen bolder and bolder violations of user data , and I think that will ultimately be Facebook's undoing once people recognize just how much your typical advertiser can uncover with your profile.
References:
Zynga - http://www.businessinsider.com/gossip-2009-11
Zoosk - http://manybodytheory.com/777/ive-spent-over-5-million-dolla...
low end of AdSense.
I'd be freaking ecstatic if my Facebook campaign had performed on the low end of my AdSense performances. Instead, I ended up paying about $50 for each signup to my free trial of a $30 product.
I'd be freaking ecstatic if my Facebook campaign had performed on the low end of my AdSense performances. Instead, I ended up paying about $50 for each signup to my free trial of a $30 product.
Some data instead of "I have a friend who..." anecdotal evidence would be nice. The author doesn't make a very strong claim as to why facebook ads don't work which is the whole premise of the article.
I lightly approve of anecdotal posts like these. Facebook controls all of the data needed to make informed decisions, and they're not going to share if the OP's claims are accurate. Lots of bad press about CPM and cost/click will force Facebook to publish data proving the worth of getting Facebook ads that transcend the 'case study' nonsense. If they continually ignore lots of bad press, that's a big tell that the only party that benefits is Facebook, even though it's not a smoking gun.
I've taken this approach with PayPal. I'd use them for person-to-person finances, but I've heard so many small-business horror stories that I'd invest the time to make a merchant account if I made a startup. It's not exactly scientific, but PayPal's not exactly flooding the market with data either
I've taken this approach with PayPal. I'd use them for person-to-person finances, but I've heard so many small-business horror stories that I'd invest the time to make a merchant account if I made a startup. It's not exactly scientific, but PayPal's not exactly flooding the market with data either
I agree for the most part. The only problem I see in this post is that it mentions one specific form of ad (and one example) and then vaguely expands it to cover all forms.
It should be immediately obvious that the specific example mentioned is going to have a very poor ROI. Who sells on Facebook?
It should be immediately obvious that the specific example mentioned is going to have a very poor ROI. Who sells on Facebook?
Excellent point.
Skepticism is always healthy, but being more skeptical of some than of others is the same as being biased.
The comments I saw about Facebook's big plan came in two flavors. Some said "Facebook is getting creepy. I want my privacy." The rest said "this will be awesome, you'll see."
This guy is saying, "yeah, but will they be able to execute?" You don't need data to ask that question, and we all need to know the answer.
The comments I saw about Facebook's big plan came in two flavors. Some said "Facebook is getting creepy. I want my privacy." The rest said "this will be awesome, you'll see."
This guy is saying, "yeah, but will they be able to execute?" You don't need data to ask that question, and we all need to know the answer.
It's possible that they do not even realize that they are like a Ponzi scheme. That's right, they may not even realize that their ad platform is completely useless because they always get new clients signing up and giving up their offering to the god of web 2.0 hype. They may be blind, as I used to be. They may be truly surprised when the supply of suckers runs dry.
And does this guy really think that Facebook is incapable or unwilling of running projections on a key revenue indicator like their ad buys? An intern with a spreadsheet would be able to look at their internal data and realize that all their ad buyers are falling off a ledge and never returning.
And does this guy really think that Facebook is incapable or unwilling of running projections on a key revenue indicator like their ad buys? An intern with a spreadsheet would be able to look at their internal data and realize that all their ad buyers are falling off a ledge and never returning.
> Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them.
Somewhat damning, if true... Has anyone here had a different experience?
Somewhat damning, if true... Has anyone here had a different experience?
Yes, I have had people click on FB ads. It's not clear to me if they are more effective than alternative ads, but people are clicking on them. The ads are not traditional, though.
I have an ad campaign running now on Facebook encouraging people to go to http://join.marrow.org/gosusan . ("My sister has cancer. Help her and people like her beat it by donating your bone marrow! Click here to sign up!" )
Short answer is I've yielded 6 people signed up out of ads from Facebook, Myspace, and others. The signups could be improved, but it looks like at least one of these methods is recruiting donors.
Overall Facebook campaign since 9 March 2010:
4,801,855 impressions 803 clicks CTR 0.017% Average CPC $0.99 Spend $796.99
My banner ads on MySpace ("A CANCER KILLA IS YOU! My sister has cancer. Help her or someone like her kill it by donating bone marrow. Click this ad to get started!") overall have these numbers:
973,774 impressions 452 clicks CTR 0.05% Average CPC $0.45 Spend $203.00
At first blush MySpace looks like a better deal (compare the CTR). The thing is, for targeted geographies, I am seeing a lot more clicks, faster, from Facebook than from MySpace. That is, while the clicks from Myspace are cheaper, I'm seeing fewer of them.
My most recent campaign is targeted to south Ohio and south-east Ohio. (Turns out this is where a lot of people with similar heredity as me and my sister live. Therefore I expect these people to be more likely to have a matching bone marrow type). The Facebook ad for this geography has yielded 95 clicks in the last two days. The MySpace ad has yielded 10 clicks.
I have an ad campaign running now on Facebook encouraging people to go to http://join.marrow.org/gosusan . ("My sister has cancer. Help her and people like her beat it by donating your bone marrow! Click here to sign up!" )
Short answer is I've yielded 6 people signed up out of ads from Facebook, Myspace, and others. The signups could be improved, but it looks like at least one of these methods is recruiting donors.
Overall Facebook campaign since 9 March 2010:
4,801,855 impressions 803 clicks CTR 0.017% Average CPC $0.99 Spend $796.99
My banner ads on MySpace ("A CANCER KILLA IS YOU! My sister has cancer. Help her or someone like her kill it by donating bone marrow. Click this ad to get started!") overall have these numbers:
973,774 impressions 452 clicks CTR 0.05% Average CPC $0.45 Spend $203.00
At first blush MySpace looks like a better deal (compare the CTR). The thing is, for targeted geographies, I am seeing a lot more clicks, faster, from Facebook than from MySpace. That is, while the clicks from Myspace are cheaper, I'm seeing fewer of them.
My most recent campaign is targeted to south Ohio and south-east Ohio. (Turns out this is where a lot of people with similar heredity as me and my sister live. Therefore I expect these people to be more likely to have a matching bone marrow type). The Facebook ad for this geography has yielded 95 clicks in the last two days. The MySpace ad has yielded 10 clicks.
Maybe I'm outdated - but I find it disturbing that such a cause should be promoted in such a way.
Serious?! I thought it was real good out-of-the-box thinking.
Serious. It is good out-of-the-box, but that's not the point.
What I find disturbing is that the burden of enlisting potential donors falls on the shoulders of those in need and that they are forced to use such inefficient mechanism. Sorry if it wasn't clear.
What I find disturbing is that the burden of enlisting potential donors falls on the shoulders of those in need and that they are forced to use such inefficient mechanism. Sorry if it wasn't clear.
My apologies for not being clear: Facebook ads is far from the only method in use for enlisting potential donors. Furthermore, families in need typically do not need to do anything because of the resources available. In my case I choose to do more because I am fortunate enough to be able to do so.
In the United States, the Be The Match Registry, operated by the National Marrow Donor Program, employs full time recruiters to encourage people to sign up for the registry. One of those recruiters, Magda Silva, has been tireless in her efforts to find new donors for my sister and others. For example she organizes marrow drives on at least a weekly basis where people can sign up to have their tissue type tested. Immediately after hearing about my sister, she worked to set up a drive a Noisebridge, a San Francisco hacker space.
In addition, transplant centers, such as the one at the Seattle Cancer Care Alliance where my sister is being treated, have resources to find potential donors. For example, because our family has significant Hungarian background, the transplant center is reaching out to the Hungarian national donor program. These searches are targeted for the patient in need and carried out by doctors who are intimately familiar with the search process.
These efforts are amazing and have paid off for thousands of people in need, including my sister. The Be The Match registry is a nonprofit, supported by generous donations. The transplant center is supported by health insurance and also by generous donations. Neither my sister nor I have been required to do anything special to find donors with these resources.
Indeed, after I began the ad campaign, the transplant center found a partial match for my sister. My family and I are so grateful that someone decided to voluntarily donate their marrow for a complete stranger. We are also grateful to the registry and our transplant center for all their work that made this possible. (What's more, someone even donated cord blood that matches her, which is another, more experimental alternative.) Thank you, whoever you are!
So why bother with online ads at all?
0) When I started, I didn't know if we had a match. I could do something by using these ads, and I was sure it would not duplicate existing efforts (see below). I am lucky enough that I can afford it.
1) Targeting for my sister's marrow type. The existing recruiting is by necessity broad-based, trying to bring in as many donors as possible from as broad a spectrum of people as possible. To the extent there is targeting, there is an emphasis on bringing in minorities because they are critically under represented in the registry. If you are African American and need a marrow transplant, you are likely in serious trouble.
In contrast, I can target ads to geographies which are most likely to have people matching my sister's tissue type. For example, there are many people of Hungarian descent in Ohio, our family has a heavy concentration of Hungarians, so I can target ads there.
2) Potential to scale up. Despite the best efforts of the registry and transplant centers since 1988, only 7MM people total are signed up in the U.S. registry. The in-person drives I mentioned above typically bring in between 30 to 200 people per drive. Roughly 12K sign up per month, principally through in person drives, with a smaller portion through the web form.
This means if you don't find a donor immediately, the chances that a donor will appear while you wait are small. The promise of online ads is that they could potentially scale up better than in-person drives -- with a large enough advertising campaign, we could acquire more donors per month than is feasible with current methods. How large a buy is needed of course depends on the conversion rate (i.e. signups for the repository) of ads. That conversion rate is one of the things I am learning through this experience.
I do not mean to suggest that ads could or should replace the traditional in-person methods. Certainly they will not. What they can do is offer an additional tool to attack this problem (and hey, maybe an effective way for some large advertising company to donate in-kind to a good cause).
Does that address your concerns? Again I'm sorry for not being clear that this is not the only method available to our family for finding donors. Don't hesitate to ask any follow up questions.
In the United States, the Be The Match Registry, operated by the National Marrow Donor Program, employs full time recruiters to encourage people to sign up for the registry. One of those recruiters, Magda Silva, has been tireless in her efforts to find new donors for my sister and others. For example she organizes marrow drives on at least a weekly basis where people can sign up to have their tissue type tested. Immediately after hearing about my sister, she worked to set up a drive a Noisebridge, a San Francisco hacker space.
In addition, transplant centers, such as the one at the Seattle Cancer Care Alliance where my sister is being treated, have resources to find potential donors. For example, because our family has significant Hungarian background, the transplant center is reaching out to the Hungarian national donor program. These searches are targeted for the patient in need and carried out by doctors who are intimately familiar with the search process.
These efforts are amazing and have paid off for thousands of people in need, including my sister. The Be The Match registry is a nonprofit, supported by generous donations. The transplant center is supported by health insurance and also by generous donations. Neither my sister nor I have been required to do anything special to find donors with these resources.
Indeed, after I began the ad campaign, the transplant center found a partial match for my sister. My family and I are so grateful that someone decided to voluntarily donate their marrow for a complete stranger. We are also grateful to the registry and our transplant center for all their work that made this possible. (What's more, someone even donated cord blood that matches her, which is another, more experimental alternative.) Thank you, whoever you are!
So why bother with online ads at all?
0) When I started, I didn't know if we had a match. I could do something by using these ads, and I was sure it would not duplicate existing efforts (see below). I am lucky enough that I can afford it.
1) Targeting for my sister's marrow type. The existing recruiting is by necessity broad-based, trying to bring in as many donors as possible from as broad a spectrum of people as possible. To the extent there is targeting, there is an emphasis on bringing in minorities because they are critically under represented in the registry. If you are African American and need a marrow transplant, you are likely in serious trouble.
In contrast, I can target ads to geographies which are most likely to have people matching my sister's tissue type. For example, there are many people of Hungarian descent in Ohio, our family has a heavy concentration of Hungarians, so I can target ads there.
2) Potential to scale up. Despite the best efforts of the registry and transplant centers since 1988, only 7MM people total are signed up in the U.S. registry. The in-person drives I mentioned above typically bring in between 30 to 200 people per drive. Roughly 12K sign up per month, principally through in person drives, with a smaller portion through the web form.
This means if you don't find a donor immediately, the chances that a donor will appear while you wait are small. The promise of online ads is that they could potentially scale up better than in-person drives -- with a large enough advertising campaign, we could acquire more donors per month than is feasible with current methods. How large a buy is needed of course depends on the conversion rate (i.e. signups for the repository) of ads. That conversion rate is one of the things I am learning through this experience.
I do not mean to suggest that ads could or should replace the traditional in-person methods. Certainly they will not. What they can do is offer an additional tool to attack this problem (and hey, maybe an effective way for some large advertising company to donate in-kind to a good cause).
Does that address your concerns? Again I'm sorry for not being clear that this is not the only method available to our family for finding donors. Don't hesitate to ask any follow up questions.
At my previous employer, we hired an extremely talented engineer who found us via our facebook ad. Apparently he was looking for a job and had downvoted all the non-job related ads, so he was only shown job ads.
We have a client right now who is in the real estate sector; they ran ads leading people to a free guide which itself eventually leads them to the clients sales people. They had a home sell on the first couple of thousand of FB adspend (~10 days) and this way outperformed adsense.
YMMV for all of this stuff; I have often thought the same as this author with respect to adsense and other PPC.
What isn't figured into "many, many people who have" is their ability to make decent PPC ads, landing pages and other creative solutions to making clicks work for them...
YMMV for all of this stuff; I have often thought the same as this author with respect to adsense and other PPC.
What isn't figured into "many, many people who have" is their ability to make decent PPC ads, landing pages and other creative solutions to making clicks work for them...
You can target facebook ads amazingly well. I can reach only under-30 single programmers in San Francisco.
I have friends who've built businesses targeting exactly who they wanted to reach, in a way that would have been prohibitively expensive (and less effective) via AdWords. I'd love to share their specific stories, but I don't have permission (yet?).
Edit: I guess I can elaborate a little. What these businesses had in common:
1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service.
2. The service itself made sense in a social context. I don't know if advertising a plumbing business would work, despite being able to drill down into local married people of homeowning age.
I have friends who've built businesses targeting exactly who they wanted to reach, in a way that would have been prohibitively expensive (and less effective) via AdWords. I'd love to share their specific stories, but I don't have permission (yet?).
Edit: I guess I can elaborate a little. What these businesses had in common:
1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service.
2. The service itself made sense in a social context. I don't know if advertising a plumbing business would work, despite being able to drill down into local married people of homeowning age.
I've never advertised on Facebook, but it has some impressive targeting options:
http://www.facebook.com/help/?page=863
...What these businesses had in common:
1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service.
So perhaps Facebook isn't bound to take over the whole of the Internet. It's just bound to take over as advertisement infrastructure for the easily categorizable subset of the Long Tail.
1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service.
So perhaps Facebook isn't bound to take over the whole of the Internet. It's just bound to take over as advertisement infrastructure for the easily categorizable subset of the Long Tail.
It's a good point, but we're all unique, so we all might be part of the "easily categorizable subset of the Long Tail".
Take the most average guy you know, and he still has unique qualities, and lives in a targetable location. Add any hobby or interest, and now he's part of some long tail group.
Take the most average guy you know, and he still has unique qualities, and lives in a targetable location. Add any hobby or interest, and now he's part of some long tail group.
Perhaps "easily categorizable" is the wrong way to put it. I suspect that there are lots of long tail demographics that are online, but still exceedingly hard to reach or market to unless you are an insider. In terms of groups that I am a part of, Facebook doesn't broaden my reach. It only acts as an address book. If Facebook advertising could effectively give access to a lot of insider's address books, I'm still not home free. I still have to figure out a message that will reach everyone without coming across intrusively.
The author's thesis is that Facebook ads are bad because they can't harvest demand the same way Google ads can (no purchasing intent), so once Facebook has exhausted its share of 'gullible' or 'naive' businesses who give ads a try, their profitability will fall like a house of cards.
This is flawed in two important ways:
1. Just because people don't click on banner ads doesn't mean there isn't a place for advertising.
2. Facebook isn't only monetizing with ads. For example, they've proven themselves to be a killer platform for social games and Facebook Credits seems to have a promising future.
This is flawed in two important ways:
1. Just because people don't click on banner ads doesn't mean there isn't a place for advertising.
2. Facebook isn't only monetizing with ads. For example, they've proven themselves to be a killer platform for social games and Facebook Credits seems to have a promising future.
I've been thinking this for years, glad someone articulated it.
1) Facebook's demographics suck. The people on there the most are broke college kids and younger. Sure older people check the site, but your average college kid is on all day - because they don't work.
2) When people look at an ad on Google, they are looking for something and the ad might be the answer. When I'm looking for something on Facebook, it is a picture/event/person/comment, the ads will never be what I'm looking for.
The one area I disagree is that I'm not sure a FB+1 will be able to undercut FB on price alone. If FB goes with a freemium model where only the people with 500+ picture and 200+ friends have to pay and businesses with fan pages have to pay, the "regular" users will probably stick around and keep FB the leader because of the network effect. The resulting revenue wouldn't match their valuation at all but it would probably keep them profitable.
1) Facebook's demographics suck. The people on there the most are broke college kids and younger. Sure older people check the site, but your average college kid is on all day - because they don't work.
2) When people look at an ad on Google, they are looking for something and the ad might be the answer. When I'm looking for something on Facebook, it is a picture/event/person/comment, the ads will never be what I'm looking for.
The one area I disagree is that I'm not sure a FB+1 will be able to undercut FB on price alone. If FB goes with a freemium model where only the people with 500+ picture and 200+ friends have to pay and businesses with fan pages have to pay, the "regular" users will probably stick around and keep FB the leader because of the network effect. The resulting revenue wouldn't match their valuation at all but it would probably keep them profitable.
"I've been thinking this for years, ... The people on there the most are broke college kids and younger."
Years are funny that way: things tend to change as they pass.
Facebook has 400 million active users, where "active" means the account has been used in the last 30 days. 200 million of them have logged in in the last 24 hours.
http://www.facebook.com/press/info.php?statistics
To put those numbers in perspective, the Internet itself has about 1.67 billion users. Even assuming, for the sake of argument, that many of those daily active users are duplicate or fake, for facebook's demographics to suck, the Internet's demographics must suck.
(Disclaimer: I work for facebook.)
Years are funny that way: things tend to change as they pass.
Facebook has 400 million active users, where "active" means the account has been used in the last 30 days. 200 million of them have logged in in the last 24 hours.
http://www.facebook.com/press/info.php?statistics
To put those numbers in perspective, the Internet itself has about 1.67 billion users. Even assuming, for the sake of argument, that many of those daily active users are duplicate or fake, for facebook's demographics to suck, the Internet's demographics must suck.
(Disclaimer: I work for facebook.)
Ok, so possibly (though not empirically proven) there is some misleading going on. Bad, I agree.
But a Ponzi scheme? I think that damages his argument because it doesn't really resemble a Ponzi scheme - indeed it sounds like an attempt to rationalise what is going as something illegal and thereby win support for the argument.
Bad rhetoric.
But a Ponzi scheme? I think that damages his argument because it doesn't really resemble a Ponzi scheme - indeed it sounds like an attempt to rationalise what is going as something illegal and thereby win support for the argument.
Bad rhetoric.
I manage over $100k/month in adwords advertising spend for clients who demand results. I've also spent a few thousand dollars on Facebook ads for those same clients. Facebook ads do not work as a direct response type of advertising.
However they work fabulously well for sending traffic to your company Facebook fan page and building your fan base. You can typically get new fans for about 40 cents to a dollar a fan. These are people who you will be able to influence on a daily basis for years to come, and although you won't be able to directly track sales/leads/whatever to your Facebook advertising, I also believe there is tremendous value in interacting with your fans in this more personal way. It's a lot harder to convince clients of this value, but it's real.
However they work fabulously well for sending traffic to your company Facebook fan page and building your fan base. You can typically get new fans for about 40 cents to a dollar a fan. These are people who you will be able to influence on a daily basis for years to come, and although you won't be able to directly track sales/leads/whatever to your Facebook advertising, I also believe there is tremendous value in interacting with your fans in this more personal way. It's a lot harder to convince clients of this value, but it's real.
I don't ever recall being influenced through Facebook by anyone I'm a fan of.
I think he means that you are signed up on the fan page's mailing list. Companies of which you are a fan gain access to your social inbox, which I would assume allows them to garner much more of your attention than if they reached for your spam-filtered, labels-and-filter-ridden, adblocker-protected email inbox.
Another intangible but real benefit is the backchannel that fan pages open from the users to the company, and the other fans. Hard to quantify indeed.
What I am curious to see is hard data on acquisition cost of fans vs. mailing list subscribers, and subsequent mailing conversion rates.
Another intangible but real benefit is the backchannel that fan pages open from the users to the company, and the other fans. Hard to quantify indeed.
What I am curious to see is hard data on acquisition cost of fans vs. mailing list subscribers, and subsequent mailing conversion rates.
Yeah, I've not become a fan of too many big corporate entities. I tend to ignore lots of FB stuff.
People who are up to three degrees of separation can still have an influence on us. If you have a friend of a friend of a friend who has been influenced by advertising, the influence can trickle through his friends to you, and you don't even realize you were effected by advertising. The influence of advertising is pervasive and unavoidable.
Everyone says they aren't influenced by advertising.
The fun part of that conversation comes when you point out that they're wearing Nikes.
The fun part of that conversation comes when you point out that they're wearing Nikes.
I'm wearing Pumas. I can't recall ever seeing a Puma ad on TV.
Did you know they were Pumas without looking? Do you know any sports teams that wear Puma? Do any of your friends have Puma clothing? If you answered yes to any of these then the advertising has worked IMO.
Puma TV ad: http://www.youtube.com/watch?v=sRweijN6-IQ
Puma TV ad: http://www.youtube.com/watch?v=sRweijN6-IQ
Yes, I spent a month tracking down speedcats in my size last year because I am picky about my footwear. They're very comfortable and I've worn nothing but black speedcats since I happened upon them in a sale in nordstrom four years ago.
No.
No.
Also I haven't watched network tv in 10 years without DVR mediation
No.
No.
Also I haven't watched network tv in 10 years without DVR mediation
He's somewhat incorrect. Facebook ads work great for some things, and those things are where most of the money comes from. Right now it's games (which I have much experience with first hand, having spent somewhere in the 6 figures in ads) though I'm assuming also t-shirts and dating sites given the number of ads I see for those long-term.
The article assumes that Facebook will never change or evolve, which I think is wrong given Facebook's history.
For one thing, Facebook does have extremely valuable data, and they're not too shy about starting to sell it to the highest bidders: http://social.venturebeat.com/2010/04/22/facebook-lobbying/
For one thing, Facebook does have extremely valuable data, and they're not too shy about starting to sell it to the highest bidders: http://social.venturebeat.com/2010/04/22/facebook-lobbying/
Totally agreed here.
I have seen too many articles lately that examine Facebook's strategy and business model based on the present. FB has been extremely agile for a large company, and they have proven this fact again and again. They are not afraid to throw things away and try new tactics.
Even if they aren't doing well with their ad system right now, there is a big chance they will stumble upon an even bigger goldmine through their concerted and iterative effort (ie. Zynga + social gaming).
I have seen too many articles lately that examine Facebook's strategy and business model based on the present. FB has been extremely agile for a large company, and they have proven this fact again and again. They are not afraid to throw things away and try new tactics.
Even if they aren't doing well with their ad system right now, there is a big chance they will stumble upon an even bigger goldmine through their concerted and iterative effort (ie. Zynga + social gaming).
Part of the motivation for putting 'like' buttons all over the web is to gather more granular behavioural data on users, which is eventually going to enable much better targeted ads. They aren't stupid. That said, I'm still mystified by the low quality/relevance of the current ads given what they already ought to know about me.
[deleted]
Well, not literally a Ponzi scheme, but I guess I get the point. He means to say, simply, that advertisers will eventually catch on and stop using facebook ads because they're ineffective.
The analysis suffers in trying to shoehorn facebook's biz model into google's. Facebook is relatively young and may very well find different ways to make money. If their push to be a major platform pans out, they're in a powerful position.
The analysis suffers in trying to shoehorn facebook's biz model into google's. Facebook is relatively young and may very well find different ways to make money. If their push to be a major platform pans out, they're in a powerful position.
Facebook ads serve a different sweet spot than Google ads. The latter excels at capturing purchase intent for the obvious reason that people will run a search specifically for something they want to buy -- it's a no-brainer.
Given that people do not hop onto Facebook to buy things, it is the ad purchaser's fault for expecting great direct sales from their product ad on Facebook. Use the right tool for the right purpose. To be fair, the article doesn't give details on the book promoter example, but given the statement "nobody ever clicks them", I feel safe assuming that they did not use all the social features you can build into ads. I've used FB ads and achieved excellent click-through rates. With FB (unlike Google) the promoter could have made a fan page for the book and attracted users to like the page by a) targeting people who would like the book based on demographics and b) showing "your friend Foo liked this page" sort of teasers. Once someone likes the page, you can get stories into their newsfeed for free, which is a pretty darn good return on your ad investment.
Given that people do not hop onto Facebook to buy things, it is the ad purchaser's fault for expecting great direct sales from their product ad on Facebook. Use the right tool for the right purpose. To be fair, the article doesn't give details on the book promoter example, but given the statement "nobody ever clicks them", I feel safe assuming that they did not use all the social features you can build into ads. I've used FB ads and achieved excellent click-through rates. With FB (unlike Google) the promoter could have made a fan page for the book and attracted users to like the page by a) targeting people who would like the book based on demographics and b) showing "your friend Foo liked this page" sort of teasers. Once someone likes the page, you can get stories into their newsfeed for free, which is a pretty darn good return on your ad investment.
"A useless product is never sustainable. I wish I could short Facebook."
Knowledge about lack of sustainability is not enough to short. Even if you are sure about the imminent collapse, they might skyrocket before that point. In this case you are forced to cover at a huge loss.
Knowledge about lack of sustainability is not enough to short. Even if you are sure about the imminent collapse, they might skyrocket before that point. In this case you are forced to cover at a huge loss.
Buy a put option instead of shorting, and you are protected against rising share price.
+1
Haha, yea, you're completely right. Also, don't forget that Facebook can monetize in ways other than ads. So even if I were right, my short would still probably lose.
I said this merely for effect. I wanted to emphasize a point: I think its unlikely that their ad platform will add value long-term.
Haha, yea, you're completely right. Also, don't forget that Facebook can monetize in ways other than ads. So even if I were right, my short would still probably lose.
I said this merely for effect. I wanted to emphasize a point: I think its unlikely that their ad platform will add value long-term.
But this week didn't Facebook take one big step closer to their own version of AdSense? Put those social ads all over the internet, where they aren't just hanging out with their friends, and it's a whole new ballgame.
I think to work a facebook ad can't be trying to directly see something. Providing a link to a game or a fan page or anything the person wants to do I think would be the way to succeed. I've seen figures before for a direct sell type campaign, they were horrible, the cpc was a lot higher than the usual long tail adwords stuff and the ctr was a lot lower.
I think if nothing else brand advertisers and facebook app advertisers would keep them going, I can see how it would be cheaper continuing to shove something like coke in our faces on facebook than TV ads.
I think if nothing else brand advertisers and facebook app advertisers would keep them going, I can see how it would be cheaper continuing to shove something like coke in our faces on facebook than TV ads.
Pay-per-performance is only one type of advertising.
Brand advertising is the big elephant in the room and might make fb a tonne of $ going forward.
Brand advertising is the big elephant in the room and might make fb a tonne of $ going forward.
The author basically says that ads on Facebook are a Ponzi scheme as it is often taken up by newer advertisers who then dump it as it produces no results. He estimates Facebook will make about 10 billion doing this.
$10 billion is a lot! by the time they run out of the ad based ponzi they can well find another scheme and keep making huge returns!
$10 billion is a lot! by the time they run out of the ad based ponzi they can well find another scheme and keep making huge returns!
It would be interesting to have figures backing these assertions. What sort of conversion performance did you see Joseph?
[deleted]
Facebook is well aware of this, that's why they're experimenting with payment platforms and credits as a form of making money.
Seems like no one could tell how they would return an investment. Of course, their exit strategy could be an IPO, but it seems too late - looks like they were reached their peak, and in-browser social networks in general is not a so cool thing anymore.
They got the hype, the users, and the data. The data is what someone might want to buy when users start to shift to some new emerging service (something truly mobile and location-based, I guess).
So, it is an established communication platform for people across the globe, but they still unable to make a profit from it, while it is already on the peak.
It that sense it is a true Ponzi scheme. For investors. =)
They got the hype, the users, and the data. The data is what someone might want to buy when users start to shift to some new emerging service (something truly mobile and location-based, I guess).
So, it is an established communication platform for people across the globe, but they still unable to make a profit from it, while it is already on the peak.
It that sense it is a true Ponzi scheme. For investors. =)
What isn't a Ponzi Scheme?
-- Sorry I edited my question, and then reverted it back.
-- Sorry I edited my question, and then reverted it back.
Anarchy.
If in fact they are selling a defective or useless product then they are in the lemon business -- a card dealership that sells crappy cars will stay in business until everyone realizes they suck.
Anyway, I've never purchased ads on facebook so this in no way relates to that; however, when you link to the definition of a word in your first sentence -- by god, use it correctly.