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You're accounting for Facebook's and Google's business model all wrong. The end users aren't the customer. Advertisers are the customers. Think of Facebook a
by steego 11y ago
You're accounting for Facebook's and Google's business model all wrong. The end users aren't the customer. Advertisers are the customers. Think of Facebook and Google more like giant hydro-generation plants that have to continually work to divert the flow of attention of its users to its customers.
Like any hydro-generation plant, you want to capture a monopoly from this recurring source of income so you can dictate premium prices from your customers.
- LAMike 11y agoA+ analogy
- nostrademons 11y agoThey also have basically zero user-acquisition costs, on both the user and advertiser side. CAC (customer acquisition cost) is usually the largest variable cost for most businesses. Things like server costs, electricity, etc. are tiny in comparison. Cut CAC and your margins skyrocket. Indeed, the reason why Google & Facebook are profitable is because they're a very effective way of cutting CAC for other businesses. Their revenue is another businesses's marketing spending, and yet they're still better than the alternatives for driving customer conversions.
- eggie 11y agoTo see these systems like massive hydro-generation plants, you first have to assume that human attention for advertising is an infinitely-renewable resource. Revenue is certainly increasing rapidly in recent years: http://www.iab.net/about_the_iab/recent_press_releases/press_release_archive/press_release/pr-061115 http://www.iab.net/about_the_iab/recent_press_releases/press.... Maybe there is no ceiling in sight.