Ask HN: Is Facebook benefiting from a ponzi scheme? a bubble?

In PG's essay about "what happend to yahoo":

> By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in.

Is Facebook in a similar situation today? They're not profitable, but investors are investing in them. They even acquire startups!!

As far as I can tell, all of Facebook's money comes from investments. They're getting bigger, but not because of any revenue they're actually making.

The founders got rich.

So economically, how does this work?

It seems to me like a bubble phenomenon:

Investment money => grow bigger => more investments.

The guys at the top of the pyramid benefit the most.

No actual revenue is being made.

I don't even know if they have a viable business model. I don't know the details of whether or not they're profitable yet, or how much they're making, but from what I'm reading around, they're either not profitable or the revenue they're actually making is very small. (Please do correct me).

Be careful: That article talks only about revenue, not profits.

I'm pulling these numbers out of thin air, but consider it plausible.

Let's say 2200 employees with an average expense of 100K/year (salary and benefits) = 200 million dollars right there in costs. Factor in property (building, furniture etc) and other standard business operation costs.

Then when you get to the engineering side of the house - the data centers, servers, bandwidth, etc.

It is easily plausible for facebook to be un-profitable.

They have 1700 employees. How much money is spent per employee (salary + other costs, like food, equipment, etc.)? Let's assume $150,000 (I think I saw this figure used elsewhere for this purpose, no idea if it's at all accurate.)

In that case, $255,000,000 goes on employees. That's already a nice chunk. Add to that any advertising costs, add to that server costs (I assume that for Facebook, these are quite high considering the huge amount of traffic they get), etc. That'll already be way up there.

Also, they buy some smaller companies for large chunks as well. Not sure if we can include that or not.

In other words, it's possible they're not profitable. No idea whether they are or not, but it is possible.

People invest based on what they think the company will earn in the future. That's how investment works - you're betting that, given some money now, they'll make you more money later.

Considering the huge role Facebook has taken in the Internet, I'd say betting on them is a great idea.