7 ms·

Facebook is a Ponzi Scheme

213 points by ljlolel 17y ago

rradu 17y ago
Facebook is well aware of this, that's why they're experimenting with payment platforms and credits as a form of making money.
unignorant 17y ago
> Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them. Somewhat damning, if true... Has anyone here had a different experience?
- defen 17y ago
  At my previous employer, we hired an extremely talented engineer who found us via our facebook ad. Apparently he was looking for a job and had downvoted all the non-job related ads, so he was only shown job ads.
- ephermata 17y ago
  Yes, I have had people click on FB ads. It's not clear to me if they are more effective than alternative ads, but people are clicking on them. The ads are not traditional, though. I have an ad campaign running now on Facebook encouraging people to go to http://join.marrow.org/gosusan http://join.marrow.org/gosusan . ("My sister has cancer. Help her and people like her beat it by donating your bone marrow! Click here to sign up!" ) Short answer is I've yielded 6 people signed up out of ads from Facebook, Myspace, and others. The signups could be improved, but it looks like at least one of these methods is recruiting donors. Overall Facebook campaign since 9 March 2010: 4,801,855 impressions 803 clicks CTR 0.017% Average CPC $0.99 Spend $796.99 My banner ads on MySpace ("A CANCER KILLA IS YOU! My sister has cancer. Help her or someone like her kill it by donating bone marrow. Click this ad to get started!") overall have these numbers: 973,774 impressions 452 clicks CTR 0.05% Average CPC $0.45 Spend $203.00 At first blush MySpace looks like a better deal (compare the CTR). The thing is, for targeted geographies, I am seeing a lot more clicks, faster, from Facebook than from MySpace. That is, while the clicks from Myspace are cheaper, I'm seeing fewer of them. My most recent campaign is targeted to south Ohio and south-east Ohio. (Turns out this is where a lot of people with similar heredity as me and my sister live. Therefore I expect these people to be more likely to have a matching bone marrow type). The Facebook ad for this geography has yielded 95 clicks in the last two days. The MySpace ad has yielded 10 clicks.
  - TotlolRon 17y ago
    Maybe I'm outdated - but I find it disturbing that such a cause should be promoted in such a way.
    - rbanffy 17y ago
      Serious?! I thought it was real good out-of-the-box thinking.
      - TotlolRon 17y ago
        Serious. It is good out-of-the-box, but that's not the point. What I find disturbing is that the burden of enlisting potential donors falls on the shoulders of those in need and that they are forced to use such inefficient mechanism. Sorry if it wasn't clear.
        ephermata 17y ago
        My apologies for not being clear: Facebook ads is far from the only method in use for enlisting potential donors. Furthermore, families in need typically do not need to do anything because of the resources available. In my case I choose to do more because I am fortunate enough to be able to do so. In the United States, the Be The Match Registry, operated by the National Marrow Donor Program, employs full time recruiters to encourage people to sign up for the registry. One of those recruiters, Magda Silva, has been tireless in her efforts to find new donors for my sister and others. For example she organizes marrow drives on at least a weekly basis where people can sign up to have their tissue type tested. Immediately after hearing about my sister, she worked to set up a drive a Noisebridge, a San Francisco hacker space. In addition, transplant centers, such as the one at the Seattle Cancer Care Alliance where my sister is being treated, have resources to find potential donors. For example, because our family has significant Hungarian background, the transplant center is reaching out to the Hungarian national donor program. These searches are targeted for the patient in need and carried out by doctors who are intimately familiar with the search process. These efforts are amazing and have paid off for thousands of people in need, including my sister. The Be The Match registry is a nonprofit, supported by generous donations. The transplant center is supported by health insurance and also by generous donations. Neither my sister nor I have been required to do anything special to find donors with these resources. Indeed, after I began the ad campaign, the transplant center found a partial match for my sister. My family and I are so grateful that someone decided to voluntarily donate their marrow for a complete stranger. We are also grateful to the registry and our transplant center for all their work that made this possible. (What's more, someone even donated cord blood that matches her, which is another, more experimental alternative.) Thank you, whoever you are! So why bother with online ads at all? 0) When I started, I didn't know if we had a match. I could do something by using these ads, and I was sure it would not duplicate existing efforts (see below). I am lucky enough that I can afford it. 1) Targeting for my sister's marrow type. The existing recruiting is by necessity broad-based, trying to bring in as many donors as possible from as broad a spectrum of people as possible. To the extent there is targeting, there is an emphasis on bringing in minorities because they are critically under represented in the registry. If you are African American and need a marrow transplant, you are likely in serious trouble. In contrast, I can target ads to geographies which are most likely to have people matching my sister's tissue type. For example, there are many people of Hungarian descent in Ohio, our family has a heavy concentration of Hungarians, so I can target ads there. 2) Potential to scale up. Despite the best efforts of the registry and transplant centers since 1988, only 7MM people total are signed up in the U.S. registry. The in-person drives I mentioned above typically bring in between 30 to 200 people per drive. Roughly 12K sign up per month, principally through in person drives, with a smaller portion through the web form. This means if you don't find a donor immediately, the chances that a donor will appear while you wait are small. The promise of online ads is that they could potentially scale up better than in-person drives -- with a large enough advertising campaign, we could acquire more donors per month than is feasible with current methods. How large a buy is needed of course depends on the conversion rate (i.e. signups for the repository) of ads. That conversion rate is one of the things I am learning through this experience. I do not mean to suggest that ads could or should replace the traditional in-person methods. Certainly they will not. What they can do is offer an additional tool to attack this problem (and hey, maybe an effective way for some large advertising company to donate in-kind to a good cause). Does that address your concerns? Again I'm sorry for not being clear that this is not the only method available to our family for finding donors. Don't hesitate to ask any follow up questions.
- mipapage 17y ago
  We have a client right now who is in the real estate sector; they ran ads leading people to a free guide which itself eventually leads them to the clients sales people. They had a home sell on the first couple of thousand of FB adspend (~10 days) and this way outperformed adsense. YMMV for all of this stuff; I have often thought the same as this author with respect to adsense and other PPC. What isn't figured into "many, many people who have" is their ability to make decent PPC ads, landing pages and other creative solutions to making clicks work for them...
rhl 17y ago
It would be interesting to have figures backing these assertions. What sort of conversion performance did you see Joseph?
deleted 17y ago
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krschultz 17y ago
I've been thinking this for years, glad someone articulated it. 1) Facebook's demographics suck. The people on there the most are broke college kids and younger. Sure older people check the site, but your average college kid is on all day - because they don't work. 2) When people look at an ad on Google, they are looking for something and the ad might be the answer. When I'm looking for something on Facebook, it is a picture/event/person/comment, the ads will never be what I'm looking for. The one area I disagree is that I'm not sure a FB+1 will be able to undercut FB on price alone. If FB goes with a freemium model where only the people with 500+ picture and 200+ friends have to pay and businesses with fan pages have to pay, the "regular" users will probably stick around and keep FB the leader because of the network effect. The resulting revenue wouldn't match their valuation at all but it would probably keep them profitable.
- kmavm 17y ago
  "I've been thinking this for years, ... The people on there the most are broke college kids and younger." Years are funny that way: things tend to change as they pass. Facebook has 400 million active users, where "active" means the account has been used in the last 30 days. 200 million of them have logged in in the last 24 hours. http://www.facebook.com/press/info.php?statistics http://www.facebook.com/press/info.php?statistics To put those numbers in perspective, the Internet itself has about 1.67 billion users. Even assuming, for the sake of argument, that many of those daily active users are duplicate or fake, for facebook's demographics to suck, the Internet's demographics must suck. (Disclaimer: I work for facebook.)
zaidf 17y ago
Pay-per-performance is only one type of advertising. Brand advertising is the big elephant in the room and might make fb a tonne of $ going forward.
fizx 17y ago
You can target facebook ads amazingly well. I can reach only under-30 single programmers in San Francisco. I have friends who've built businesses targeting exactly who they wanted to reach, in a way that would have been prohibitively expensive (and less effective) via AdWords. I'd love to share their specific stories, but I don't have permission (yet?). Edit: I guess I can elaborate a little. What these businesses had in common: 1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service. 2. The service itself made sense in a social context. I don't know if advertising a plumbing business would work, despite being able to drill down into local married people of homeowning age.
- stcredzero 17y ago
  ...What these businesses had in common: 1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service. So perhaps Facebook isn't bound to take over the whole of the Internet. It's just bound to take over as advertisement infrastructure for the easily categorizable subset of the Long Tail.
  - fizx 17y ago
    It's a good point, but we're all unique, so we all might be part of the "easily categorizable subset of the Long Tail". Take the most average guy you know, and he still has unique qualities, and lives in a targetable location. Add any hobby or interest, and now he's part of some long tail group.
    - stcredzero 17y ago
      Perhaps "easily categorizable" is the wrong way to put it. I suspect that there are lots of long tail demographics that are online, but still exceedingly hard to reach or market to unless you are an insider. In terms of groups that I am a part of, Facebook doesn't broaden my reach. It only acts as an address book. If Facebook advertising could effectively give access to a lot of insider's address books, I'm still not home free. I still have to figure out a message that will reach everyone without coming across intrusively.
mixmax 17y ago
Some data instead of "I have a friend who..." anecdotal evidence would be nice. The author doesn't make a very strong claim as to why facebook ads don't work which is the whole premise of the article.
- mnemonicsloth 17y ago
  Skepticism is always healthy, but being more skeptical of some than of others is the same as being biased. The comments I saw about Facebook's big plan came in two flavors. Some said "Facebook is getting creepy. I want my privacy." The rest said "this will be awesome, you'll see." This guy is saying, "yeah, but will they be able to execute?" You don't need data to ask that question, and we all need to know the answer.
- rabidgnat 17y ago
  I lightly approve of anecdotal posts like these. Facebook controls all of the data needed to make informed decisions, and they're not going to share if the OP's claims are accurate. Lots of bad press about CPM and cost/click will force Facebook to publish data proving the worth of getting Facebook ads that transcend the 'case study' nonsense. If they continually ignore lots of bad press, that's a big tell that the only party that benefits is Facebook, even though it's not a smoking gun. I've taken this approach with PayPal. I'd use them for person-to-person finances, but I've heard so many small-business horror stories that I'd invest the time to make a merchant account if I made a startup. It's not exactly scientific, but PayPal's not exactly flooding the market with data either
  - mixmax 17y ago
    Excellent point.
  - ErrantX 17y ago
    I agree for the most part. The only problem I see in this post is that it mentions one specific form of ad (and one example) and then vaguely expands it to cover all forms. It should be immediately obvious that the specific example mentioned is going to have a very poor ROI. Who sells on Facebook?
huangm 17y ago
The author's thesis is that Facebook ads are bad because they can't harvest demand the same way Google ads can (no purchasing intent), so once Facebook has exhausted its share of 'gullible' or 'naive' businesses who give ads a try, their profitability will fall like a house of cards. This is flawed in two important ways: 1. Just because people don't click on banner ads doesn't mean there isn't a place for advertising. 2. Facebook isn't only monetizing with ads. For example, they've proven themselves to be a killer platform for social games and Facebook Credits seems to have a promising future.
mnemonicsloth 17y ago
http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/ http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/ Chris Dixon posted on this recently: Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything. ... The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline. Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook. Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products. Expect the online Starbucks of the future to have a lot more – and more effective – ads. The problem, of course, is that nobody knows how, but we expect someone to figure it out eventually. So here's a fun question to overcome your status quo bias. What if brand advertising is an artifact of one-to-many communications tech, and can't work in a many-to-many environment?
- rhl 17y ago
  My recollection is that Max Levchin presented his vision for Slide under these exact terms about two years ago. Interestingly enough, Lance Tokuda, who had launched RockYou with an analog vision, publicly buried the potential for brand advertisement last summer (in comparison with virtual goods). I imagine it's a reflection of the time it takes to ramp up sales accounts with large consumer products corporations. There also was some great data on the wide disconnect between attention market share and ad spend market share of the net in the last Meeker report: http://www.readwriteweb.com/archives/mary_meekers_internet_trends_presentation_2009.php http://www.readwriteweb.com/archives/mary_meekers_internet_t...
- njl 17y ago
  I suspect online advertising is undervalued precisely because it can be measured. I further suspect that "brand advertising" is a scam for all but the largest advertisers.
  - timr 17y ago
    The largest advertisers became the largest because they spend a lot on brand advertising. So perhaps it's true that you have to spend a lot to make brand advertising effective, but it's not a "scam" in any conventional sense of the word. It is what it is. If we're going to sling arrows at online advertising, I think we have to start with the fact that there are a lot more publishers than there were back in the day, and virtually all of them have an undifferentiated audience of "eyeballs". It's still possible to get high CPM rates, as long as you've got a targeted audience and a sales team.
deleted 17y ago
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dantheman 17y ago
Obviously this guy doesn't understand what a ponzi scheme is. Perhaps if facebook took some of the money from new ad buys to purchase goods from slightly older ads so that they thought they were more successful a case could be made for it being a ponzi scheme -- this is in no way one. If in fact they are selling a defective or useless product then they are in the lemon business -- a card dealership that sells crappy cars will stay in business until everyone realizes they suck. Anyway, I've never purchased ads on facebook so this in no way relates to that; however, when you link to the definition of a word in your first sentence -- by god, use it correctly.
- rhl 17y ago
  The analogy to a Ponzi scheme is actually pretty good: at a certain level a Ponzi scheme is any business that lives entirely off a positive and growing first derivative while heading faster and faster toward a certain death. If eventually (though I'd personally find it extremely surprising) Facebook doesn't manage to find a sustainable and highly profitable business model, that description would have been accurate. Still waiting for data from the OP though :-)
  - dantheman 17y ago
    Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme. I know this is just semantics, but the whole premise of the article is flawed... facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode. Now if we're saying that they need their advertising revenues to grow so that they can maintain growth -- well that's the same dynamic of almost every company.
    - rhl 17y ago
      Actually I think he is saying that they need their advertising revenues to grow in order to maintain perceived momentum in advertisers' minds, in order to have revenue at all. So it's more drastic than what you describe, assuming of course that the OP is right and that retention of FB advertisers is null (which I'd love to see data about).
mattmaroon 17y ago
He's somewhat incorrect. Facebook ads work great for some things, and those things are where most of the money comes from. Right now it's games (which I have much experience with first hand, having spent somewhere in the 6 figures in ads) though I'm assuming also t-shirts and dating sites given the number of ads I see for those long-term.
jmm 17y ago
Well, not literally a Ponzi scheme, but I guess I get the point. He means to say, simply, that advertisers will eventually catch on and stop using facebook ads because they're ineffective. The analysis suffers in trying to shoehorn facebook's biz model into google's. Facebook is relatively young and may very well find different ways to make money. If their push to be a major platform pans out, they're in a powerful position.
aheilbut 17y ago
Part of the motivation for putting 'like' buttons all over the web is to gather more granular behavioural data on users, which is eventually going to enable much better targeted ads. They aren't stupid. That said, I'm still mystified by the low quality/relevance of the current ads given what they already ought to know about me.
lotharbot 17y ago
When I get on Google and search, typically there are a few ads keyed to my search. These ads are selling real products, often the exact product I'm looking for, from legitimate and well-established companies. When I get on Facebook, my sidebar is filled with ads. I would estimate 50% of them are scams. About 25% are for Facebook games, which I am not interested in. The remaining 25% are legitimate ads which are rarely targeted toward something I want, but even when they are, I won't click on them because of the 50% of ads that are scams.
- BRadmin 17y ago
  This is the interest v. intent paradigm. Listing 'photography' as an interest on a social network and typing it into google with the intent to research, purchase, learn, etc., represent fundamentally different mindsets.
ErrantX 17y ago
Ok, so possibly (though not empirically proven) there is some misleading going on. Bad, I agree. But a Ponzi scheme? I think that damages his argument because it doesn't really resemble a Ponzi scheme - indeed it sounds like an attempt to rationalise what is going as something illegal and thereby win support for the argument. Bad rhetoric.
aresant 17y ago
Facebook seems to overwhelmingly treat their users as just "metrics" instead of individuals. Their short term revenue has been supported by: a) Small businesses - like this story mentions - buying into an ad platform that performs on the low end of AdSense. b) CPA scammers pumping rebill offers and breaking through FaceBooks meager ad-clearance department to get anything they can on there. c) Sketchy fly-by-night dating sites & apps that take advantage of lonely hearts. d) 25 - 35% of the ads are simply facebook app makers, who in turn sell users "credits" in a model more akin to selling addictive narcotics to addicts than anything else. That's all bad enough, but the complete disregard for user privacy through their continued "opt-out" policy is out of control. Through each update of Facebook we've seen bolder and bolder violations of user data , and I think that will ultimately be Facebook's undoing once people recognize just how much your typical advertiser can uncover with your profile. References: Zynga - http://www.businessinsider.com/gossip-2009-11 http://www.businessinsider.com/gossip-2009-11 Zoosk - http://manybodytheory.com/777/ive-spent-over-5-million-dollars-on-facebook-and-all-i-have-is-this-t-shirt/ http://manybodytheory.com/777/ive-spent-over-5-million-dolla...
- patio11 17y ago
  low end of AdSense. I'd be freaking ecstatic if my Facebook campaign had performed on the low end of my AdSense performances. Instead, I ended up paying about $50 for each signup to my free trial of a $30 product.
noelchurchill 17y ago
I manage over $100k/month in adwords advertising spend for clients who demand results. I've also spent a few thousand dollars on Facebook ads for those same clients. Facebook ads do not work as a direct response type of advertising. However they work fabulously well for sending traffic to your company Facebook fan page and building your fan base. You can typically get new fans for about 40 cents to a dollar a fan. These are people who you will be able to influence on a daily basis for years to come, and although you won't be able to directly track sales/leads/whatever to your Facebook advertising, I also believe there is tremendous value in interacting with your fans in this more personal way. It's a lot harder to convince clients of this value, but it's real.
- stcredzero 17y ago
  I don't ever recall being influenced through Facebook by anyone I'm a fan of.
  - rhl 17y ago
    I think he means that you are signed up on the fan page's mailing list. Companies of which you are a fan gain access to your social inbox, which I would assume allows them to garner much more of your attention than if they reached for your spam-filtered, labels-and-filter-ridden, adblocker-protected email inbox. Another intangible but real benefit is the backchannel that fan pages open from the users to the company, and the other fans. Hard to quantify indeed. What I am curious to see is hard data on acquisition cost of fans vs. mailing list subscribers, and subsequent mailing conversion rates.
    - stcredzero 17y ago
      Yeah, I've not become a fan of too many big corporate entities. I tend to ignore lots of FB stuff.
  - waterlesscloud 17y ago
    Everyone says they aren't influenced by advertising. The fun part of that conversation comes when you point out that they're wearing Nikes.
praptak 17y ago
"A useless product is never sustainable. I wish I could short Facebook." Knowledge about lack of sustainability is not enough to short. Even if you are sure about the imminent collapse, they might skyrocket before that point. In this case you are forced to cover at a huge loss.
- LiveTheDream 17y ago
  Buy a put option instead of shorting, and you are protected against rising share price.
- ljlolel 17y ago
  +1 Haha, yea, you're completely right. Also, don't forget that Facebook can monetize in ways other than ads. So even if I were right, my short would still probably lose. I said this merely for effect. I wanted to emphasize a point: I think its unlikely that their ad platform will add value long-term.
LiveTheDream 17y ago
Facebook ads serve a different sweet spot than Google ads. The latter excels at capturing purchase intent for the obvious reason that people will run a search specifically for something they want to buy -- it's a no-brainer. Given that people do not hop onto Facebook to buy things, it is the ad purchaser's fault for expecting great direct sales from their product ad on Facebook. Use the right tool for the right purpose. To be fair, the article doesn't give details on the book promoter example, but given the statement "nobody ever clicks them", I feel safe assuming that they did not use all the social features you can build into ads. I've used FB ads and achieved excellent click-through rates. With FB (unlike Google) the promoter could have made a fan page for the book and attracted users to like the page by a) targeting people who would like the book based on demographics and b) showing "your friend Foo liked this page" sort of teasers. Once someone likes the page, you can get stories into their newsfeed for free, which is a pretty darn good return on your ad investment.
jgilliam 17y ago
But this week didn't Facebook take one big step closer to their own version of AdSense? Put those social ads all over the internet, where they aren't just hanging out with their friends, and it's a whole new ballgame.
chaostheory 17y ago
The article assumes that Facebook will never change or evolve, which I think is wrong given Facebook's history. For one thing, Facebook does have extremely valuable data, and they're not too shy about starting to sell it to the highest bidders: http://social.venturebeat.com/2010/04/22/facebook-lobbying/ http://social.venturebeat.com/2010/04/22/facebook-lobbying/
- jamesjyu 17y ago
  Totally agreed here. I have seen too many articles lately that examine Facebook's strategy and business model based on the present. FB has been extremely agile for a large company, and they have proven this fact again and again. They are not afraid to throw things away and try new tactics. Even if they aren't doing well with their ad system right now, there is a big chance they will stumble upon an even bigger goldmine through their concerted and iterative effort (ie. Zynga + social gaming).
greg 17y ago
I worked on Facebook ads for the past year so I know that some of the claims in this article are just wrong, but I think the average reader can figure that out for themselves. > People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google. All true, all what Facebook tells its advertisers. www.facebook.com/ads > They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs. Because advertising on Facebook is not typically about buying something, it is often difficult to measure direct ROI in $. In this, it is like the majority of all advertising. > ...Facebook ads are worthless. Everyone I've talked to who has actually bought Facebook ads knows this Have you talked to Zynga? They make Facebook games. It is speculated they are making $300M+ a year. You can see their ads all the time on Facebook. Either they are incredibly incompetent, or FB Ads delivers positive ROI for them. Search google for "zynga revenue estimate".
- seregine 17y ago
  I always hear Zynga mentioned as the success story for Facebook Ads. If you had to name an example other than Zynga, who would it be?
  - swivelmaster 17y ago
    As a PM at a company that uses Facebook ads extensively to attract users, I can tell you with absolute certainty that Facebook ads are worth it and the author of the article doesn't know what he's talking about. At all. End of the story.
    - seregine 17y ago
      That's not quite what I was asking. I generally believe that Facebook ads can be successful. I'm curious about what companies are effectively using them now at a large scale. I also suspect that the effectiveness of Facebook ads has a lot to do with the nature of the product/service being advertised, and the ad itself (just like any advertising). Your comment applies your specific experience (unknown to me) as evidence for an absurdly general statement ("Facebook ads are worth it") and an ad hominem attack on the author of the article. Classy.
mrtron 17y ago
This feels like a 1960s article stating: TV ads don't work because people change the channel when commercials are on!
- easyfrag 17y ago
  In the 60's you couldn't prove it
  - mrtron 17y ago
    The point is television ads have been incredibly good at generating revenue for 50 years.
binspace 17y ago
What isn't a Ponzi Scheme? -- Sorry I edited my question, and then reverted it back.
- evanrmurphy 17y ago
  Anarchy.
robryan 17y ago
I think to work a facebook ad can't be trying to directly see something. Providing a link to a game or a fan page or anything the person wants to do I think would be the way to succeed. I've seen figures before for a direct sell type campaign, they were horrible, the cpc was a lot higher than the usual long tail adwords stuff and the ctr was a lot lower. I think if nothing else brand advertisers and facebook app advertisers would keep them going, I can see how it would be cheaper continuing to shove something like coke in our faces on facebook than TV ads.
c00p3r 17y ago
Seems like no one could tell how they would return an investment. Of course, their exit strategy could be an IPO, but it seems too late - looks like they were reached their peak, and in-browser social networks in general is not a so cool thing anymore. They got the hype, the users, and the data. The data is what someone might want to buy when users start to shift to some new emerging service (something truly mobile and location-based, I guess). So, it is an established communication platform for people across the globe, but they still unable to make a profit from it, while it is already on the peak. It that sense it is a true Ponzi scheme. For investors. =)
poundy 17y ago
The author basically says that ads on Facebook are a Ponzi scheme as it is often taken up by newer advertisers who then dump it as it produces no results. He estimates Facebook will make about 10 billion doing this. $10 billion is a lot! by the time they run out of the ad based ponzi they can well find another scheme and keep making huge returns!

213 points by ljlolel 17y ago

rradu 17y ago

Facebook is well aware of this, that's why they're experimenting with payment platforms and credits as a form of making money.

unignorant 17y ago

> Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them. Somewhat damning, if true... Has anyone here had a different experience?

defen 17y ago
At my previous employer, we hired an extremely talented engineer who found us via our facebook ad. Apparently he was looking for a job and had downvoted all the non-job related ads, so he was only shown job ads.
ephermata 17y ago
Yes, I have had people click on FB ads. It's not clear to me if they are more effective than alternative ads, but people are clicking on them. The ads are not traditional, though. I have an ad campaign running now on Facebook encouraging people to go to http://join.marrow.org/gosusan http://join.marrow.org/gosusan . ("My sister has cancer. Help her and people like her beat it by donating your bone marrow! Click here to sign up!" ) Short answer is I've yielded 6 people signed up out of ads from Facebook, Myspace, and others. The signups could be improved, but it looks like at least one of these methods is recruiting donors. Overall Facebook campaign since 9 March 2010: 4,801,855 impressions 803 clicks CTR 0.017% Average CPC $0.99 Spend $796.99 My banner ads on MySpace ("A CANCER KILLA IS YOU! My sister has cancer. Help her or someone like her kill it by donating bone marrow. Click this ad to get started!") overall have these numbers: 973,774 impressions 452 clicks CTR 0.05% Average CPC $0.45 Spend $203.00 At first blush MySpace looks like a better deal (compare the CTR). The thing is, for targeted geographies, I am seeing a lot more clicks, faster, from Facebook than from MySpace. That is, while the clicks from Myspace are cheaper, I'm seeing fewer of them. My most recent campaign is targeted to south Ohio and south-east Ohio. (Turns out this is where a lot of people with similar heredity as me and my sister live. Therefore I expect these people to be more likely to have a matching bone marrow type). The Facebook ad for this geography has yielded 95 clicks in the last two days. The MySpace ad has yielded 10 clicks.
- TotlolRon 17y ago
  Maybe I'm outdated - but I find it disturbing that such a cause should be promoted in such a way.
  - rbanffy 17y ago
    Serious?! I thought it was real good out-of-the-box thinking.
    - TotlolRon 17y ago
      Serious. It is good out-of-the-box, but that's not the point. What I find disturbing is that the burden of enlisting potential donors falls on the shoulders of those in need and that they are forced to use such inefficient mechanism. Sorry if it wasn't clear.
      - ephermata 17y ago
        My apologies for not being clear: Facebook ads is far from the only method in use for enlisting potential donors. Furthermore, families in need typically do not need to do anything because of the resources available. In my case I choose to do more because I am fortunate enough to be able to do so. In the United States, the Be The Match Registry, operated by the National Marrow Donor Program, employs full time recruiters to encourage people to sign up for the registry. One of those recruiters, Magda Silva, has been tireless in her efforts to find new donors for my sister and others. For example she organizes marrow drives on at least a weekly basis where people can sign up to have their tissue type tested. Immediately after hearing about my sister, she worked to set up a drive a Noisebridge, a San Francisco hacker space. In addition, transplant centers, such as the one at the Seattle Cancer Care Alliance where my sister is being treated, have resources to find potential donors. For example, because our family has significant Hungarian background, the transplant center is reaching out to the Hungarian national donor program. These searches are targeted for the patient in need and carried out by doctors who are intimately familiar with the search process. These efforts are amazing and have paid off for thousands of people in need, including my sister. The Be The Match registry is a nonprofit, supported by generous donations. The transplant center is supported by health insurance and also by generous donations. Neither my sister nor I have been required to do anything special to find donors with these resources. Indeed, after I began the ad campaign, the transplant center found a partial match for my sister. My family and I are so grateful that someone decided to voluntarily donate their marrow for a complete stranger. We are also grateful to the registry and our transplant center for all their work that made this possible. (What's more, someone even donated cord blood that matches her, which is another, more experimental alternative.) Thank you, whoever you are! So why bother with online ads at all? 0) When I started, I didn't know if we had a match. I could do something by using these ads, and I was sure it would not duplicate existing efforts (see below). I am lucky enough that I can afford it. 1) Targeting for my sister's marrow type. The existing recruiting is by necessity broad-based, trying to bring in as many donors as possible from as broad a spectrum of people as possible. To the extent there is targeting, there is an emphasis on bringing in minorities because they are critically under represented in the registry. If you are African American and need a marrow transplant, you are likely in serious trouble. In contrast, I can target ads to geographies which are most likely to have people matching my sister's tissue type. For example, there are many people of Hungarian descent in Ohio, our family has a heavy concentration of Hungarians, so I can target ads there. 2) Potential to scale up. Despite the best efforts of the registry and transplant centers since 1988, only 7MM people total are signed up in the U.S. registry. The in-person drives I mentioned above typically bring in between 30 to 200 people per drive. Roughly 12K sign up per month, principally through in person drives, with a smaller portion through the web form. This means if you don't find a donor immediately, the chances that a donor will appear while you wait are small. The promise of online ads is that they could potentially scale up better than in-person drives -- with a large enough advertising campaign, we could acquire more donors per month than is feasible with current methods. How large a buy is needed of course depends on the conversion rate (i.e. signups for the repository) of ads. That conversion rate is one of the things I am learning through this experience. I do not mean to suggest that ads could or should replace the traditional in-person methods. Certainly they will not. What they can do is offer an additional tool to attack this problem (and hey, maybe an effective way for some large advertising company to donate in-kind to a good cause). Does that address your concerns? Again I'm sorry for not being clear that this is not the only method available to our family for finding donors. Don't hesitate to ask any follow up questions.
mipapage 17y ago
We have a client right now who is in the real estate sector; they ran ads leading people to a free guide which itself eventually leads them to the clients sales people. They had a home sell on the first couple of thousand of FB adspend (~10 days) and this way outperformed adsense. YMMV for all of this stuff; I have often thought the same as this author with respect to adsense and other PPC. What isn't figured into "many, many people who have" is their ability to make decent PPC ads, landing pages and other creative solutions to making clicks work for them...

rhl 17y ago

It would be interesting to have figures backing these assertions. What sort of conversion performance did you see Joseph?

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krschultz 17y ago

I've been thinking this for years, glad someone articulated it. 1) Facebook's demographics suck. The people on there the most are broke college kids and younger. Sure older people check the site, but your average college kid is on all day - because they don't work. 2) When people look at an ad on Google, they are looking for something and the ad might be the answer. When I'm looking for something on Facebook, it is a picture/event/person/comment, the ads will never be what I'm looking for. The one area I disagree is that I'm not sure a FB+1 will be able to undercut FB on price alone. If FB goes with a freemium model where only the people with 500+ picture and 200+ friends have to pay and businesses with fan pages have to pay, the "regular" users will probably stick around and keep FB the leader because of the network effect. The resulting revenue wouldn't match their valuation at all but it would probably keep them profitable.

kmavm 17y ago
"I've been thinking this for years, ... The people on there the most are broke college kids and younger." Years are funny that way: things tend to change as they pass. Facebook has 400 million active users, where "active" means the account has been used in the last 30 days. 200 million of them have logged in in the last 24 hours. http://www.facebook.com/press/info.php?statistics http://www.facebook.com/press/info.php?statistics To put those numbers in perspective, the Internet itself has about 1.67 billion users. Even assuming, for the sake of argument, that many of those daily active users are duplicate or fake, for facebook's demographics to suck, the Internet's demographics must suck. (Disclaimer: I work for facebook.)

zaidf 17y ago

Pay-per-performance is only one type of advertising. Brand advertising is the big elephant in the room and might make fb a tonne of $ going forward.

fizx 17y ago

You can target facebook ads amazingly well. I can reach only under-30 single programmers in San Francisco. I have friends who've built businesses targeting exactly who they wanted to reach, in a way that would have been prohibitively expensive (and less effective) via AdWords. I'd love to share their specific stories, but I don't have permission (yet?). Edit: I guess I can elaborate a little. What these businesses had in common: 1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service. 2. The service itself made sense in a social context. I don't know if advertising a plumbing business would work, despite being able to drill down into local married people of homeowning age.

stcredzero 17y ago
...What these businesses had in common: 1. You could nail down the interested demographic in facebook to reach ~0.01% of the population who would be immensely interested in your service. So perhaps Facebook isn't bound to take over the whole of the Internet. It's just bound to take over as advertisement infrastructure for the easily categorizable subset of the Long Tail.
- fizx 17y ago
  It's a good point, but we're all unique, so we all might be part of the "easily categorizable subset of the Long Tail". Take the most average guy you know, and he still has unique qualities, and lives in a targetable location. Add any hobby or interest, and now he's part of some long tail group.
  - stcredzero 17y ago
    Perhaps "easily categorizable" is the wrong way to put it. I suspect that there are lots of long tail demographics that are online, but still exceedingly hard to reach or market to unless you are an insider. In terms of groups that I am a part of, Facebook doesn't broaden my reach. It only acts as an address book. If Facebook advertising could effectively give access to a lot of insider's address books, I'm still not home free. I still have to figure out a message that will reach everyone without coming across intrusively.

mixmax 17y ago

Some data instead of "I have a friend who..." anecdotal evidence would be nice. The author doesn't make a very strong claim as to why facebook ads don't work which is the whole premise of the article.

mnemonicsloth 17y ago
Skepticism is always healthy, but being more skeptical of some than of others is the same as being biased. The comments I saw about Facebook's big plan came in two flavors. Some said "Facebook is getting creepy. I want my privacy." The rest said "this will be awesome, you'll see." This guy is saying, "yeah, but will they be able to execute?" You don't need data to ask that question, and we all need to know the answer.
rabidgnat 17y ago
I lightly approve of anecdotal posts like these. Facebook controls all of the data needed to make informed decisions, and they're not going to share if the OP's claims are accurate. Lots of bad press about CPM and cost/click will force Facebook to publish data proving the worth of getting Facebook ads that transcend the 'case study' nonsense. If they continually ignore lots of bad press, that's a big tell that the only party that benefits is Facebook, even though it's not a smoking gun. I've taken this approach with PayPal. I'd use them for person-to-person finances, but I've heard so many small-business horror stories that I'd invest the time to make a merchant account if I made a startup. It's not exactly scientific, but PayPal's not exactly flooding the market with data either
- mixmax 17y ago
  Excellent point.
- ErrantX 17y ago
  I agree for the most part. The only problem I see in this post is that it mentions one specific form of ad (and one example) and then vaguely expands it to cover all forms. It should be immediately obvious that the specific example mentioned is going to have a very poor ROI. Who sells on Facebook?

huangm 17y ago

The author's thesis is that Facebook ads are bad because they can't harvest demand the same way Google ads can (no purchasing intent), so once Facebook has exhausted its share of 'gullible' or 'naive' businesses who give ads a try, their profitability will fall like a house of cards. This is flawed in two important ways: 1. Just because people don't click on banner ads doesn't mean there isn't a place for advertising. 2. Facebook isn't only monetizing with ads. For example, they've proven themselves to be a killer platform for social games and Facebook Credits seems to have a promising future.

mnemonicsloth 17y ago

http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/ http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/ Chris Dixon posted on this recently: Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything. ... The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline. Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook. Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products. Expect the online Starbucks of the future to have a lot more – and more effective – ads. The problem, of course, is that nobody knows how, but we expect someone to figure it out eventually. So here's a fun question to overcome your status quo bias. What if brand advertising is an artifact of one-to-many communications tech, and can't work in a many-to-many environment?

rhl 17y ago
My recollection is that Max Levchin presented his vision for Slide under these exact terms about two years ago. Interestingly enough, Lance Tokuda, who had launched RockYou with an analog vision, publicly buried the potential for brand advertisement last summer (in comparison with virtual goods). I imagine it's a reflection of the time it takes to ramp up sales accounts with large consumer products corporations. There also was some great data on the wide disconnect between attention market share and ad spend market share of the net in the last Meeker report: http://www.readwriteweb.com/archives/mary_meekers_internet_trends_presentation_2009.php http://www.readwriteweb.com/archives/mary_meekers_internet_t...
njl 17y ago
I suspect online advertising is undervalued precisely because it can be measured. I further suspect that "brand advertising" is a scam for all but the largest advertisers.
- timr 17y ago
  The largest advertisers became the largest because they spend a lot on brand advertising. So perhaps it's true that you have to spend a lot to make brand advertising effective, but it's not a "scam" in any conventional sense of the word. It is what it is. If we're going to sling arrows at online advertising, I think we have to start with the fact that there are a lot more publishers than there were back in the day, and virtually all of them have an undifferentiated audience of "eyeballs". It's still possible to get high CPM rates, as long as you've got a targeted audience and a sales team.

deleted 17y ago

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dantheman 17y ago

Obviously this guy doesn't understand what a ponzi scheme is. Perhaps if facebook took some of the money from new ad buys to purchase goods from slightly older ads so that they thought they were more successful a case could be made for it being a ponzi scheme -- this is in no way one. If in fact they are selling a defective or useless product then they are in the lemon business -- a card dealership that sells crappy cars will stay in business until everyone realizes they suck. Anyway, I've never purchased ads on facebook so this in no way relates to that; however, when you link to the definition of a word in your first sentence -- by god, use it correctly.

rhl 17y ago
The analogy to a Ponzi scheme is actually pretty good: at a certain level a Ponzi scheme is any business that lives entirely off a positive and growing first derivative while heading faster and faster toward a certain death. If eventually (though I'd personally find it extremely surprising) Facebook doesn't manage to find a sustainable and highly profitable business model, that description would have been accurate. Still waiting for data from the OP though :-)
- dantheman 17y ago
  Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme. I know this is just semantics, but the whole premise of the article is flawed... facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode. Now if we're saying that they need their advertising revenues to grow so that they can maintain growth -- well that's the same dynamic of almost every company.
  - rhl 17y ago
    Actually I think he is saying that they need their advertising revenues to grow in order to maintain perceived momentum in advertisers' minds, in order to have revenue at all. So it's more drastic than what you describe, assuming of course that the OP is right and that retention of FB advertisers is null (which I'd love to see data about).

mattmaroon 17y ago

He's somewhat incorrect. Facebook ads work great for some things, and those things are where most of the money comes from. Right now it's games (which I have much experience with first hand, having spent somewhere in the 6 figures in ads) though I'm assuming also t-shirts and dating sites given the number of ads I see for those long-term.

jmm 17y ago

Well, not literally a Ponzi scheme, but I guess I get the point. He means to say, simply, that advertisers will eventually catch on and stop using facebook ads because they're ineffective. The analysis suffers in trying to shoehorn facebook's biz model into google's. Facebook is relatively young and may very well find different ways to make money. If their push to be a major platform pans out, they're in a powerful position.

aheilbut 17y ago

Part of the motivation for putting 'like' buttons all over the web is to gather more granular behavioural data on users, which is eventually going to enable much better targeted ads. They aren't stupid. That said, I'm still mystified by the low quality/relevance of the current ads given what they already ought to know about me.

lotharbot 17y ago

When I get on Google and search, typically there are a few ads keyed to my search. These ads are selling real products, often the exact product I'm looking for, from legitimate and well-established companies. When I get on Facebook, my sidebar is filled with ads. I would estimate 50% of them are scams. About 25% are for Facebook games, which I am not interested in. The remaining 25% are legitimate ads which are rarely targeted toward something I want, but even when they are, I won't click on them because of the 50% of ads that are scams.

BRadmin 17y ago
This is the interest v. intent paradigm. Listing 'photography' as an interest on a social network and typing it into google with the intent to research, purchase, learn, etc., represent fundamentally different mindsets.

ErrantX 17y ago

Ok, so possibly (though not empirically proven) there is some misleading going on. Bad, I agree. But a Ponzi scheme? I think that damages his argument because it doesn't really resemble a Ponzi scheme - indeed it sounds like an attempt to rationalise what is going as something illegal and thereby win support for the argument. Bad rhetoric.

aresant 17y ago

Facebook seems to overwhelmingly treat their users as just "metrics" instead of individuals. Their short term revenue has been supported by: a) Small businesses - like this story mentions - buying into an ad platform that performs on the low end of AdSense. b) CPA scammers pumping rebill offers and breaking through FaceBooks meager ad-clearance department to get anything they can on there. c) Sketchy fly-by-night dating sites & apps that take advantage of lonely hearts. d) 25 - 35% of the ads are simply facebook app makers, who in turn sell users "credits" in a model more akin to selling addictive narcotics to addicts than anything else. That's all bad enough, but the complete disregard for user privacy through their continued "opt-out" policy is out of control. Through each update of Facebook we've seen bolder and bolder violations of user data , and I think that will ultimately be Facebook's undoing once people recognize just how much your typical advertiser can uncover with your profile. References: Zynga - http://www.businessinsider.com/gossip-2009-11 http://www.businessinsider.com/gossip-2009-11 Zoosk - http://manybodytheory.com/777/ive-spent-over-5-million-dollars-on-facebook-and-all-i-have-is-this-t-shirt/ http://manybodytheory.com/777/ive-spent-over-5-million-dolla...

patio11 17y ago
low end of AdSense. I'd be freaking ecstatic if my Facebook campaign had performed on the low end of my AdSense performances. Instead, I ended up paying about $50 for each signup to my free trial of a $30 product.

noelchurchill 17y ago

I manage over $100k/month in adwords advertising spend for clients who demand results. I've also spent a few thousand dollars on Facebook ads for those same clients. Facebook ads do not work as a direct response type of advertising. However they work fabulously well for sending traffic to your company Facebook fan page and building your fan base. You can typically get new fans for about 40 cents to a dollar a fan. These are people who you will be able to influence on a daily basis for years to come, and although you won't be able to directly track sales/leads/whatever to your Facebook advertising, I also believe there is tremendous value in interacting with your fans in this more personal way. It's a lot harder to convince clients of this value, but it's real.

stcredzero 17y ago
I don't ever recall being influenced through Facebook by anyone I'm a fan of.
- rhl 17y ago
  I think he means that you are signed up on the fan page's mailing list. Companies of which you are a fan gain access to your social inbox, which I would assume allows them to garner much more of your attention than if they reached for your spam-filtered, labels-and-filter-ridden, adblocker-protected email inbox. Another intangible but real benefit is the backchannel that fan pages open from the users to the company, and the other fans. Hard to quantify indeed. What I am curious to see is hard data on acquisition cost of fans vs. mailing list subscribers, and subsequent mailing conversion rates.
  - stcredzero 17y ago
    Yeah, I've not become a fan of too many big corporate entities. I tend to ignore lots of FB stuff.
- waterlesscloud 17y ago
  Everyone says they aren't influenced by advertising. The fun part of that conversation comes when you point out that they're wearing Nikes.

praptak 17y ago

"A useless product is never sustainable. I wish I could short Facebook." Knowledge about lack of sustainability is not enough to short. Even if you are sure about the imminent collapse, they might skyrocket before that point. In this case you are forced to cover at a huge loss.

LiveTheDream 17y ago
Buy a put option instead of shorting, and you are protected against rising share price.
ljlolel 17y ago
+1 Haha, yea, you're completely right. Also, don't forget that Facebook can monetize in ways other than ads. So even if I were right, my short would still probably lose. I said this merely for effect. I wanted to emphasize a point: I think its unlikely that their ad platform will add value long-term.

LiveTheDream 17y ago

Facebook ads serve a different sweet spot than Google ads. The latter excels at capturing purchase intent for the obvious reason that people will run a search specifically for something they want to buy -- it's a no-brainer. Given that people do not hop onto Facebook to buy things, it is the ad purchaser's fault for expecting great direct sales from their product ad on Facebook. Use the right tool for the right purpose. To be fair, the article doesn't give details on the book promoter example, but given the statement "nobody ever clicks them", I feel safe assuming that they did not use all the social features you can build into ads. I've used FB ads and achieved excellent click-through rates. With FB (unlike Google) the promoter could have made a fan page for the book and attracted users to like the page by a) targeting people who would like the book based on demographics and b) showing "your friend Foo liked this page" sort of teasers. Once someone likes the page, you can get stories into their newsfeed for free, which is a pretty darn good return on your ad investment.

jgilliam 17y ago

But this week didn't Facebook take one big step closer to their own version of AdSense? Put those social ads all over the internet, where they aren't just hanging out with their friends, and it's a whole new ballgame.

chaostheory 17y ago

The article assumes that Facebook will never change or evolve, which I think is wrong given Facebook's history. For one thing, Facebook does have extremely valuable data, and they're not too shy about starting to sell it to the highest bidders: http://social.venturebeat.com/2010/04/22/facebook-lobbying/ http://social.venturebeat.com/2010/04/22/facebook-lobbying/

jamesjyu 17y ago
Totally agreed here. I have seen too many articles lately that examine Facebook's strategy and business model based on the present. FB has been extremely agile for a large company, and they have proven this fact again and again. They are not afraid to throw things away and try new tactics. Even if they aren't doing well with their ad system right now, there is a big chance they will stumble upon an even bigger goldmine through their concerted and iterative effort (ie. Zynga + social gaming).

greg 17y ago

I worked on Facebook ads for the past year so I know that some of the claims in this article are just wrong, but I think the average reader can figure that out for themselves. > People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google. All true, all what Facebook tells its advertisers. www.facebook.com/ads > They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs. Because advertising on Facebook is not typically about buying something, it is often difficult to measure direct ROI in $. In this, it is like the majority of all advertising. > ...Facebook ads are worthless. Everyone I've talked to who has actually bought Facebook ads knows this Have you talked to Zynga? They make Facebook games. It is speculated they are making $300M+ a year. You can see their ads all the time on Facebook. Either they are incredibly incompetent, or FB Ads delivers positive ROI for them. Search google for "zynga revenue estimate".

seregine 17y ago
I always hear Zynga mentioned as the success story for Facebook Ads. If you had to name an example other than Zynga, who would it be?
- swivelmaster 17y ago
  As a PM at a company that uses Facebook ads extensively to attract users, I can tell you with absolute certainty that Facebook ads are worth it and the author of the article doesn't know what he's talking about. At all. End of the story.
  - seregine 17y ago
    That's not quite what I was asking. I generally believe that Facebook ads can be successful. I'm curious about what companies are effectively using them now at a large scale. I also suspect that the effectiveness of Facebook ads has a lot to do with the nature of the product/service being advertised, and the ad itself (just like any advertising). Your comment applies your specific experience (unknown to me) as evidence for an absurdly general statement ("Facebook ads are worth it") and an ad hominem attack on the author of the article. Classy.

mrtron 17y ago

This feels like a 1960s article stating: TV ads don't work because people change the channel when commercials are on!

easyfrag 17y ago
In the 60's you couldn't prove it
- mrtron 17y ago
  The point is television ads have been incredibly good at generating revenue for 50 years.

binspace 17y ago

What isn't a Ponzi Scheme? -- Sorry I edited my question, and then reverted it back.

evanrmurphy 17y ago
Anarchy.

robryan 17y ago

I think to work a facebook ad can't be trying to directly see something. Providing a link to a game or a fan page or anything the person wants to do I think would be the way to succeed. I've seen figures before for a direct sell type campaign, they were horrible, the cpc was a lot higher than the usual long tail adwords stuff and the ctr was a lot lower. I think if nothing else brand advertisers and facebook app advertisers would keep them going, I can see how it would be cheaper continuing to shove something like coke in our faces on facebook than TV ads.

c00p3r 17y ago

Seems like no one could tell how they would return an investment. Of course, their exit strategy could be an IPO, but it seems too late - looks like they were reached their peak, and in-browser social networks in general is not a so cool thing anymore. They got the hype, the users, and the data. The data is what someone might want to buy when users start to shift to some new emerging service (something truly mobile and location-based, I guess). So, it is an established communication platform for people across the globe, but they still unable to make a profit from it, while it is already on the peak. It that sense it is a true Ponzi scheme. For investors. =)

poundy 17y ago

The author basically says that ads on Facebook are a Ponzi scheme as it is often taken up by newer advertisers who then dump it as it produces no results. He estimates Facebook will make about 10 billion doing this. $10 billion is a lot! by the time they run out of the ad based ponzi they can well find another scheme and keep making huge returns!