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

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

#31

Post by chailatte »

chadp wrote: post #26
mx12 wrote: post #23

Earlier quoted context omitted.

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 plat…

yes possible that people will jump ship for the next coolest thing. will everyones moms, dads and grandparents really want to "recreate" their social network and learn a new platform though? facebook is unique as they are the biggest game in the world with people's real names and real social connections.

As the consumers become more tech-savvy (old dogs can learn new tricks) and technologies become easier to use, it will be easier for them to switch service. All it takes is the influential people to move (think celebrities, popular friend, active family member, etc) for the others to follow.

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

#32

Post by djhworld »

ajays wrote: post #25

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 a…

Many supermarkets and shop offer their customers a loyalty scheme where they can accrue points through purchases and spend them either in store or on special deals the shop offers.

The catch? The shop collects data on your habits. They already know your name, address, date of birth so they can determine whether you're single/part of a family/old/young. But the real value is matching up that profile of your life with your shopping habits, every transaction you make is tracked and collated to form an evolving picture of your relationship with the shop you're shopping at. This allows the retailer to target their advertisements to your needs accordingly and even gives a customer profile for people in the area so the shop can tailor the layout of the store to suit meet the needs of their demographic.

In my personal opinion Facebook is the step up from the loyalty card. In exchange for 'free use' of the site, you're giving away crucial details about your life that can be packaged up and sold on to businesses. Data mining is essentially what facebook does, it's just they surround it with a wrapper that people find beneficial to their lives.

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

#33

Post by Tycho »

Well in the case of a Ponzi scheme everyone thinks there's profits being reaped. It's possible that investors just think that one day Facebook will figure out how to make money from their massive install-base, and then the cash will flow like crazy. Or alternatively, their costs for hosting and bandwidth will fall massively over time (the central combo is pictures + text messages), increasing profit margins.

I could imagine Facebook doing a lot. For instance some sort of premium dating service whereby they match you with other people who like the same things (they have all the data already), and then you see their pic, and then if you both accept you view each others' pages to learn more about the person and build trust (also Facebook can censor/randomize real names and addresses at this stage to make it more safe), then you add each other as friends, and from there possibly start dating. They key thing is that people are comfortable with Facebook, but most people are probably UNcomfortable with online dating. What they need is it to be seamlessly merged into their life, so that there's no 'putting yourself out there,' no stigma, and minimum possibility of a poor match.

Or what about setting up a rival to Paypal. Anyone else trying that needs to start from scratch, Facebook already has the users, and to some extent the trust. Plus they don't need to rely on email and deal with all the scams that PayPal had to fend off.

At the moment FB are a bit suspicious in terms of profit but there's still lots of potential for the future.

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

#34

Post by AmitinLA »

ajays wrote: post #25

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 a…

This is a logical, well-thought out argument that I largely agree with. The one thing I wonder is if, as brand advertising is increasingly transferred to the internet and those dollars are spent on sites like Facebook, we see overall spending drop and an increase in spender (and consumer) surplus to the detriment of the middlemen. The analogous example is Craigslist -- a site that destroyed millions (billions?) of advertising revenue and that will likely never be recovered but was overall a net gain for consumers and advertisers both in a way that is hard to quantify.

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

#35

Post by ttunguz »

The difference between the online ad bubble in 2000 and the one you suggest today is the transition of offline ad spending and offline consumer spending online.

1. 4% of total commerce is now ecommerce, according to the US Dept of Commerce. Ecommerce penetration in certain categories like travel exceeds 20%. 2. 11% of all ad dollars are now online ($26B on $210B) according to SNL Kagan. 3. $13.7B of local online spending is by regional or smaller businesses, according to Borrell. The average local business has $1200 per month in marketing spend, which is finally beginning to move online.

In short, consumer dollars and non-venture backed businesses need/want to be advertising online and Facebook is great solution: They offer access to the 2nd largest audience on the web and presumably mobile.

You could argue that Zynga and other venture backed gaming companies are driving short term revenues, but this advertising base is profitable, generating revenues from consumers who pay for virtual goods.

The flows of money governing this boom are consumers and enterprises, not a litany of unprofitable venture backed startups.

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

#36

Post by webwright »

"Not because of revenue they're actually making"?

HUH?! Estimates for 2010 are 1-2 BILLION in revenue for Facebook. Fueling this revenue are companies like Zynga and Groupon - hardly bubbly companies... These guys are making real/sustainable revenue. Facebook is smack dab in the middle of social gaming and stands to be the AppStore of that world (WIN). Their targeting marketing has proven to be a huge driver of companies like Groupon (WIN).

There are probably a few bucks from VCs pouring into Facebook ads (like the Yahoo story)... But calling Facebook out as a company that's entirely (or mostly) propped up by investors rather than revenue? Totally disagree. If Facebook stopped investing in innovation/growth and focused on monetization, they'd be profitable instantly.

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

#37

Post by earl »

ajays wrote: post #25

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 a…

Also -- the exact numbers I've seen might be proprietary, but here's part of the value prop of online quantitative advertising: if you take ad spend and divide by minutes spent in a bunch of areas such as {TV, magazine, newspaper, online}, online is an extreme outlier -- far lower than all the others. That indicates that most likely there will be at least a further doubling or tripling of online advertising spend. Add in trends you see like people ditching cable (just in the bare beginning, but itunes / apple tv, netflix, roku, googletv, et al are beginning to be a real competitor for people who aren't super techy) and it's not unreasonable to assume increasing movement of tens of billions of dollars of brand ad spend online. And fb will be a primary beneficiary of all this because of their ability to do very precise demographic targeting -- want to show your ads to eg self-identified unmarried asian women who like tennis, who are between 24 and 35 years old, and who have a kid in the house? fb can make that segment for you with high confidence.

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

#38

Post by ceejayoz »

blantonl wrote: post #17
broofa wrote: post #10

Earlier quoted context omitted.

@blantoni: You can find Facebook data center cost data here: http://www.datacenterknowledge.com/archives/2010/09/16/faceb... You'd have to 10X those costs (to $500M/yr), plus assume a 250% overhead (another $500M) on top of your $200M salary and benefits figure for Facebook to be in the red. Calling that plausible would seem a bit of a stretch.

Did you actually read that article? That is lease cost for their data centers (in 2009 no less). That's basically just paying the rent on their data centers. That doesn't include a 200 million dollar data center project to be built in Pineville, OR. And that does not include infrastructure, bandwidth, software, hardware maintenance etc. Let's face it, Facebook does not sell a product. Their only current viable revenu…

> That doesn't include a 200 million dollar data center project to be built in Pineville, OR.

Which will, in the long run, be dramatically cheaper than leasing space - which has all the same costs, plus a middleman to pay, minus the efficiencies of an entirely custom setup.

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

#39

Post by hasenj »

paolomaffei wrote: post #12

Facebook? What about Youtube then? http://www.internetevolution.com/author.asp?section_id=715&#... Reality is Yahoo wasn't going to make revenue after time, FB and YT probably will.

True, Youtube is also questionable. BUT, Youtube got bought by Google, and Google does generate massive revenue, so it's a different story.

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

#40

Post by hasenj »

chadp wrote: post #26
mx12 wrote: post #23

Earlier quoted context omitted.

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 plat…

yes possible that people will jump ship for the next coolest thing. will everyones moms, dads and grandparents really want to "recreate" their social network and learn a new platform though? facebook is unique as they are the biggest game in the world with people's real names and real social connections.

Before facebook, people thought their email was their online identity, they had all their friend and relatives in their contacts, why bother register on facebook to recreate all that?
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