Comment by JPKab | Hacker News Reader

Comment by JPKab | Hacker News Reader

"THOMPSON: Is Facebook worth $100 billion?

BLANK: In the last bubble there were no customers. Facebook makes $4 per user. The users are customers. They produce real revenue. Nobody's debating whether Facebook can make money. They're debating how much more valuable Facebook's hundreds of millions of users can be, and how fast can they can grow that value. That's an execution problem."

Facebook makes $4 per user from advertisers who LOSE money when they pay Facebook. In other words, Facebook's users LOVE their product. Facebook's customers (advertisers) get nothing from it. Click through rates suck, and actual ROI is negative. Eventually, the new advertisers who show up and realize it's a waste of money will stop paying for nothing, and then the $4/user goes away. Users and the media LOVED Groupon. The businesses who were Groupon's actual customers HATED it. This is no different. Don't get me wrong, a billion users is incredibly monetizable. Just not the way Facebook is trying to do it. The social B.S. will eventually fade to the real stuff.

It depends on what the users are using. I think it's extremely hard to get people on a platform to socialise* and then get them to do something else that generates revenue. With the exception of purchasing game credits etc, there's no easy way to do it.

* blanket term for status/photo/video sharing

The advertisers are the customers, they are the ones paying Facebook. The 'users' are the audience that the advertisers are paying to reach.

What's the real stuff?

Cars that drive themselves. Distributed power generation. Web connected sensors in everything. You know, things that have a material effect on people's quality of life. As opposed to Facebook.

It's important to realize that Facebook has done a tremendous job of connecting the non-digerati who previously communicated via infrequent mail or rare phone calls.

While I am very bearish on a 100 P/E, the reality of Facebook's userbase and its engagement is not something to blow off. Facebook has distinctly impressed itself on the communication modality of many many people.

Don't underestimate that.

> things that have a material effect on people's quality of life. As opposed to Facebook.

As much as I dislike Facebook, there is some scientific evidence that increasing one's social ties produces measurable improvements to health, including longevity. If Facebook increases social connectivity, which in my limited experience it does, it's not a stretch to suggest that it could materially improve one's quality of life.

My money's still on google though for the long run ...

I believe that that evidence is based on close friends. I think Facebook tends to make it easier to maintain lots of light friendships, but doesn't do much for close friendships.

>As much as I dislike Facebook, there is some scientific evidence that increasing one's social ties produces measurable improvements to health, including longevity.

Yes, increasing those ties in person. I have yet to see any evidence social media has the same effect.

Also, those studies may have the causality arrow going the wrong way. Sick people tend to stay at home and not get out much, so it may be that you're more likely to have social ties if you're healthy than the other way around.

>I have yet to see any evidence social media has the same effect.

Have you looked for these studies? Are you an expert on this corner of the literature?

There have been studies and they do show that internet socialization has an effect on a variety of relevant measurements. To summarize, Internet socialization is not equivalent to face-to-face socialization but it does provide some of the benefits and is also able to provide benefits that face-to-face cannot provide.

I find it strange how people such as yourself will make statements about the literature as if your opinion had value. Your opinion about the literature is only valuable if you have studied the literature. If you have not, then you should remain silent if you want to be a valuable contributor.

Perhaps you can cite the research with which you're so familiar.

Anyone genuinely interested in these facts could check Wikipedia, Google Scholar, or a Google Books textbook and find copious citations.

To be perfectly honest, I find your behaviour more interesting than the actual topic.

Why do people who have clearly not exhaustively studied a particular field put forth their own ignorance as an argument in their favor?

"I'm an evangelical Christian who has never gone to university and I've never seen any evidence of evolution. My ignorance is a strong argument against evolution! I am going to use my ignorance as a bludgeon in this debate and make everyone else do all the work of digging up citations, which I won't read anyway."

Am I wrong in thinking this is a uniquely American form of entitled debating style? "Everyone has the right to spread their ignorant opinion" or something?

>Anyone genuinely interested in these facts could check Wikipedia, Google Scholar, or a Google Books textbook and find copious citations.

That's what I thought. You have no idea what you're talking about.

>Why do people who have clearly not exhaustively studied a particular field put forth their own ignorance as an argument in their favor?

Oh, the irony. It burns!

The entire internet population (or at least close to it) binded by one global network -- it's a mistake to think of Facebook as just another social network in the same league as Twitter, Foursquare, etc... rather, it's probably more useful to think of it as an alternative internet, or even an operating system.

Bill Gates and Paul Allen dreamed of putting a personal computer in every home in 1975, and that dream came true over the decades following. Facebook's dream is just beginning and we're going to see big waves in internet, media, telecom, and commerce over the next few decades.

Facebook(the platform, not the company) was pretty instrumental for the Arab Spring.

Mark Zuckerberg doesn't think so. http://www.charlierose.com/view/clip/12125

One, you presume that advertisers are incredibly naive and don't measure returns. Obviously cleanly measuring advertising returns from fb is hard, but it's still being done.

Second, fb can put up the first credible alternative to adsense since they collect browsing info from their fb login and other widgets. In fact, they can do better than adsense: fb can mix in very accurate demographics alongside the page context. Adsense makes google nearly $10B/year and I'd bet fb could eat half of that. And many pubs that lean heavily on adsense are desperate for a competitor. So I'd say fb is -- at bare minimum -- a $5B/year company. Plus another billion or two from taxing every bit of money that flows through social gaming. Plus it seems like zynga will be able to do poker for money now. Plus I don't believe all the ads on fb proper are worthless, so roll that into the mix.

Finally, from your comments below, you seem to think advertising in general is worthless. If you think companies (US only) spend $400B/year because they're stupid, then I'm too dumbfounded to formulate a response.

http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los...

Advertising isn't worthless, but advertisers are very naive. You talk about companies spending money because they are stupid. I SUSPECT, but only Facebook has the data to KNOW, that there is a high turnover in companies advertising on Facebook. New companies coming in every day, but also many who realize they aren't getting a return on investment and leaving. I think a lot of big companies advertise on it strictly for brand presence, rather than for direct sales. That's fine. But let's not pretend that there is remotely the click-thru rate that Google has.

You realize that brand advertising isn't measured via clickthrough, right? Most people on the net don't click -- see the infamous natural born clickers study. Yet nonetheless, brand advertising via display can be demonstrated to be very effective on an roas basis via A/B testing by geo.

Also -- ctr doesn't matter as long as your cpc compares. So 1/100 the ctr is fine w/ 1/100 the price, etc.

> One, you presume that advertisers are incredibly naive and don't measure returns.

What if there were enough naive newbies to keep things afloat even in the face of advertisers who became disillusioned?

http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme

(via: http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los... )

That is possible but extremely unlikely. Companies who spend interesting amounts of money on advertising don't just hand you $100k or something. Instead, they hand you $10k for a month or a quarter and tell you to demonstrate what you can do. You only get more as long as you can show something going up and to the right. So you can certainly get to million dollar accounts but it's going to take at least a year of demonstrating performance and going out and demanding quarterly increases in spend.

Now, to your claim: could fb get $2B in ad spend w/o demonstrating that performance? Sure. It's damn unlikely though because the companies that will eventually spend $1m/year with you don't start there. If your theory is there is super high churn, then 2e9/(10k) = 200k different advertisers spending $10k for a quarter then churning. That seems dubious. Now obviously they make some money from tax, etc, but just look at the rough order of magnitude of new suckers you would have to find every year and estimate whether it's likely.

> One, you presume that advertisers are incredibly naive and don't measure returns.

Working in digital media (in Australia) I would say this is actually accurate.... People measure returns not on the impact on sales because its difficult to account for... people are using metrics such as "likes" and size of the email list to know if a campaign is working. The top advertisers do measure the impact down to the user... but most are not willing to pay the money it costs to gather and analyse the data. Instead they follow the trends, under the impression that if everyone else is doing it, it must be right.

Part of the problem is that

- Most companies run digital through a different team from press, broadcast and other media.

- The digital team is almost always very lightly funded compared to the other mediums (its also cheaper to run). Due to the lighter funding it tends to have the more junior marketers.

- Many companies run each brand in their portfolio through a different marketing team, so that your dealing with small teams (3-10) of people even for large national brands.

- These people are typically not mathematically and technologically trained and typically work with outside vendors to do their work.

Don't overestimate the value of facebook ads, they work really well for certain things (some impulse buys, things on the facebook platform, etc), but It doesn't work well (at the moment) for many other products (expensive, niche).

Facebook has a lot of potential to adapt this going forward but I am thinking that people are betting on facebook like its a sure thing and am not yet convinced they will pull it off.

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