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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

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).
  - rhl 17y ago
    I guess I can see too how using the 'Ponzi scheme' word is not warranted, as it makes it sound illegal.
  - deleted 17y ago
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  - nailer 17y ago
    > Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme Not the author, but I've addressed that elsewhere. Anyone who has used Facebook knows that Facebook doesn't solicit money from it's users or return money to it's user. This is hence clearly an analogy, no more than if I said Facebook was crap, a black hole, a dinosaur, or anything else. > facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode. I believe the article is saying that Facebook needs each successive generation of users to be bigger than the previous, which is indeed what causes ponzi schemes to implode.
- rortian 17y ago
  No, it's actually really horrible. In a Ponzi scheme you: 1. Fraudulently promise returns. 2. Payout imaginary returns with other people's money. >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. This is really silly because you don't even specify what quantity you are taking a derivative of. Ponzi schemes are a certain type of fraud. There are many kinds of fraud. Amazingly, the author never asserts any sort of fraud. I think you and the author of the blog post are thinking: "Ponzi schemes are bad and I don't like facebook so they are kinda similar." Anything substantive you'd like to add, or would you like to concede that absurd contrarian claims usually just confuse and waste everyones time?
  - rhl 17y ago
    Woo. Let's chill out a bit. 1. I actually do like Facebook, and am very impressed by what they are pulling off. 2. I learned about Ponzi schemes a while back in macro theory class, before they were mainstream and irremediably tainted by the vileness of Bernie Madoff. The story of Ponzi himself -- as I remember our macro professor telling it five years ago -- is pretty 'funny', or at least provided welcome distraction between two utility maximization derivations in econ class; he's supposed to have been a 16th century Venitian who ended up in the Venice lagoon once the bankers he was pulling his cash from realized what happened. I didn't think of it as a crime. All this to say that I never implied nor intended to imply that Facebook was committing any sort of fraud, immoral behavior or else. 3. What I mean by this derivative thing is quite simple -- imagine the movie Speed with a bomb that explodes, not when the speed goes under X mph, but when the bus's acceleration goes below X mph/h, forcing the bus to keep on accelerating, driving faster and faster and faster. Eventually you'll hit the physical speed limit of the bus, acceleration will converge to zero, and the bus will explode. That's a very silly metaphor for what I was trying to explain - being that, if indeed FB had to rely on an ever growing in-flow of first time ad buyers to keep the lights up, they are would be in as desperate a situation as was Mr Ponzi in 16th century Venice. Just to cool everyone's mind -- I really don't think this will happen. The team is least extremely smart to have gotten where they are, and I trust Facebook to eventually find as ridiculously profitable a business model as AdSense, with high probability. As a user I do hope it will respect my privacy, and as an entrepreneur I do hope it will allow some cool new distribution models.
ljlolel 17y ago
Hi Dantheman, you are right. It's not a perfect analogy. There's not really any closer analogy, though. I state this later in the post, if you read through the whole thing (including saying "like a Ponzi scheme"): "Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it's not quite entirely a ponzi scheme, but there is no closer idea). It's possible that they do not even realize that they are like a Ponzi scheme." Moreover, I recognize that Facebook isn't necessarily doing this on purpose (whereas in a real ponzi scheme a competent accountant has to scheme willfully). Nevertheless, I hope you agree that the positive feedback, the bubble effects, and the deceptive illusion of growth all have analogs to Facebook (if you assume the premise, of course). I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. The metaphor is better than the simile. My main motivation was to make people think about the reality of Facebooks revenue. It may be less solid than social proof makes it seem.
- jfager 17y ago
  If you think FB ads suck and provide no return, fine, say so. I mostly agree. But you shouldn't go around accusing people of criminal activity on the grounds that you couldn't come up with a better analogy and your post wouldn't be as effective.
- gabrielroth 17y ago
  I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. Yes, describing things in an overheated, sensationalistic way has a more powerful effect than describing them in an accurate way. Congratulations on figuring that out. By the way, referring to a business as a Ponzi scheme is prima facie defamatory. I don't think you have much to worry about, since I doubt Facebook will bother to sue you on the basis of a blog post, but you might write differently if you were more conscious of the fact that you're accusing someone of a crime.
  - nailer 17y ago
mak120 17y ago
I think the author at least has a point, but I totally disagree with his use of the word 'ponzi' here. It looks like yet another cheap attempt to make something look horribly bad by just tacking on a term that is hated/disliked widely.
deleted 17y ago
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mattmaroon 17y ago
Hilariously he has a link to his own blog post accurately describing ponzi schemes. My guess is he was just baiting.

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).
- rhl 17y ago
  I guess I can see too how using the 'Ponzi scheme' word is not warranted, as it makes it sound illegal.
- deleted 17y ago
  [deleted]
- nailer 17y ago
  > Except the author doesn't say "like a ponzi scheme" it's unsustainable -- they say it is a ponzi scheme Not the author, but I've addressed that elsewhere. Anyone who has used Facebook knows that Facebook doesn't solicit money from it's users or return money to it's user. This is hence clearly an analogy, no more than if I said Facebook was crap, a black hole, a dinosaur, or anything else. > facebook doesn't need each successive generation of advertisers to be bigger than the previous which is what causes ponzi schemes to implode. I believe the article is saying that Facebook needs each successive generation of users to be bigger than the previous, which is indeed what causes ponzi schemes to implode.
rortian 17y ago
No, it's actually really horrible. In a Ponzi scheme you: 1. Fraudulently promise returns. 2. Payout imaginary returns with other people's money. >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. This is really silly because you don't even specify what quantity you are taking a derivative of. Ponzi schemes are a certain type of fraud. There are many kinds of fraud. Amazingly, the author never asserts any sort of fraud. I think you and the author of the blog post are thinking: "Ponzi schemes are bad and I don't like facebook so they are kinda similar." Anything substantive you'd like to add, or would you like to concede that absurd contrarian claims usually just confuse and waste everyones time?
- rhl 17y ago
  Woo. Let's chill out a bit. 1. I actually do like Facebook, and am very impressed by what they are pulling off. 2. I learned about Ponzi schemes a while back in macro theory class, before they were mainstream and irremediably tainted by the vileness of Bernie Madoff. The story of Ponzi himself -- as I remember our macro professor telling it five years ago -- is pretty 'funny', or at least provided welcome distraction between two utility maximization derivations in econ class; he's supposed to have been a 16th century Venitian who ended up in the Venice lagoon once the bankers he was pulling his cash from realized what happened. I didn't think of it as a crime. All this to say that I never implied nor intended to imply that Facebook was committing any sort of fraud, immoral behavior or else. 3. What I mean by this derivative thing is quite simple -- imagine the movie Speed with a bomb that explodes, not when the speed goes under X mph, but when the bus's acceleration goes below X mph/h, forcing the bus to keep on accelerating, driving faster and faster and faster. Eventually you'll hit the physical speed limit of the bus, acceleration will converge to zero, and the bus will explode. That's a very silly metaphor for what I was trying to explain - being that, if indeed FB had to rely on an ever growing in-flow of first time ad buyers to keep the lights up, they are would be in as desperate a situation as was Mr Ponzi in 16th century Venice. Just to cool everyone's mind -- I really don't think this will happen. The team is least extremely smart to have gotten where they are, and I trust Facebook to eventually find as ridiculously profitable a business model as AdSense, with high probability. As a user I do hope it will respect my privacy, and as an entrepreneur I do hope it will allow some cool new distribution models.

ljlolel 17y ago

Hi Dantheman, you are right. It's not a perfect analogy. There's not really any closer analogy, though. I state this later in the post, if you read through the whole thing (including saying "like a Ponzi scheme"): "Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it's not quite entirely a ponzi scheme, but there is no closer idea). It's possible that they do not even realize that they are like a Ponzi scheme." Moreover, I recognize that Facebook isn't necessarily doing this on purpose (whereas in a real ponzi scheme a competent accountant has to scheme willfully). Nevertheless, I hope you agree that the positive feedback, the bubble effects, and the deceptive illusion of growth all have analogs to Facebook (if you assume the premise, of course). I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. The metaphor is better than the simile. My main motivation was to make people think about the reality of Facebooks revenue. It may be less solid than social proof makes it seem.

jfager 17y ago
If you think FB ads suck and provide no return, fine, say so. I mostly agree. But you shouldn't go around accusing people of criminal activity on the grounds that you couldn't come up with a better analogy and your post wouldn't be as effective.
gabrielroth 17y ago
I think you are right that I should have used "like a" Ponzi scheme throughout the post, but the writing and the point would have lost a lot of its effect in explaining that. Yes, describing things in an overheated, sensationalistic way has a more powerful effect than describing them in an accurate way. Congratulations on figuring that out. By the way, referring to a business as a Ponzi scheme is prima facie defamatory. I don't think you have much to worry about, since I doubt Facebook will bother to sue you on the basis of a blog post, but you might write differently if you were more conscious of the fact that you're accusing someone of a crime.
- nailer 17y ago

mak120 17y ago

I think the author at least has a point, but I totally disagree with his use of the word 'ponzi' here. It looks like yet another cheap attempt to make something look horribly bad by just tacking on a term that is hated/disliked widely.

deleted 17y ago

[deleted]

mattmaroon 17y ago

Hilariously he has a link to his own blog post accurately describing ponzi schemes. My guess is he was just baiting.