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

500 million users and many use it on a daily basis and spend more time on the site than most others.

The only problem is that you are assuming continual growth. While they are the cool place to be now, as soon as the become the uncool place to be, then they will be screwed.

If I was facebook, I would be very afraid of this happening. I understand facebook has some patents on the news feed an other minor aspects of facebook, but their basic feature set is somewhat small, but reproducible.

I think that any social platform faces the problem, that people will jump ship to what ever they think is cooler. Look at Myspace, that was hugely popular and suddenly it become the uncool place to be and then everyone and their moms, jumped ship to facebook. History is bound to repeat itself.

I don't work for Facebook and have no inside knowledge, but here's what I think.

It helps to step back and take a look at the big picture. Companies have a certain number of advertising dollars. Companies that are really big in the consumer space spend large chunks of their revenue on advertising: consumer goods (soap, etc.), durables, autos, pharma, etc. This money is not going away anytime soon.

Now, if you're an advertiser, you want to advertise where there are people. This is why you see the MetLife blimp over big football games. The decals on the NASCAR cars. The funny ads in the SuperBowl.

For an advertiser, the holy grail is to achieve laser-like targeting: to be able to advertise to exactly the person who's most likely to buy his product. 80 years ago, the best option for advertisers was the radio. But it's a broadcast medium; you have no idea who's listening. So you make some intelligent guesses based on the program content and hope for the best. What's the ROI on radio ads?

20 years ago the best was the TV: the content was varied, so you could make better guesses. Want to appeal to the male 18-24 market? Advertise in football games, NASCAR events, WWF "Rumbles".

Then came the Internet. An advertiser could make even better guesses about the user; and more importantly, the advertiser could keep track of every impression, every click and every action. This is good, but still not good enough.

Broadly speaking: if you (advertiser) are willing to pay $X for a 10% chance of reaching the right audience, then chances are you'd be willing to pay $10*X for a 100% chance of reaching the right audience. Right?

And finally there's Facebook. The genius of FB is that the users have, on their own accord, given FB detailed information about themselves. Thanks to their social connections, they can't lie much either. I mean, it would be hard for me to claim I'm a female and single when my girlfriend is a connection on FB.

People keep thinking that FB will make money from the pageviews. IMHO, that is not the case. Yes, they have a bazillion pageviews and minutes spent online; they could make a billion or five per year easy with their pageviews.

The goldmine here is the "like" button. It will allow FB to spread its influence far and wide; and more importantly, it will allow FB to influence advertising on 3rd party sites. Instead of buying advertising on, say, CNN and paying $2/CPM, an advertiser will be able to hyper-target a user and advertise to that specific user on CNN (or wherever that user is). User + Content = More Value for Advertiser. So while CNN may get $2/CPM for its pages currently, by using the "FB Ad Network" they will be able to make more, and give a large cut to FB too.

Anyways: that's where I think the value lies with FB. Sorry about the long comment. :-)

As a social media marketer, I can tell you that facebook is by far the best place to advertise when you want to go after a specific demographic. You can use the ads to target very very specific niches that are otherwise unreachable.

With Google, people are coming to you, they know what they are searching for and your ads are designed to appeal to that. The problem with search targeted ads though, is that you can't target people who don't know your product exists.

Facebook's CPC(cost-per-click) and CPM(cost-per-thousand impressions) are way lower as well, especially for demographics that google AdWords would charge you through he nose for. And as a benefit to good marketers, the Facebook advertising platform rewards you with lower costs the more successful your ads are.

You can create ads based on the interests you enter into your profile, city, age, sex, birthday, etc. A lot of companies are starting to take notice of the power of these ads, which is causing the advertising prices to rise (it's a bidding system), which in turn will increase FB's profit.

Facebook isn't going to go away anytime soon, people will always need a way to map out their connections, and Facebook is the de facto online identity for most people. I don't see Facebook being dethroned anytime soon, maybe disrupted a bit, by the likes of twitter or foursquare, but the core services of FB are something that will always be in demand.

I think you are mistaking "number of employees" with "number of engineers". Facebook has quite a lot fewer than 900 engineers even today.