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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 de

by rhl 16y 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 16y 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 16y 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 16y ago
  I guess I can see too how using the 'Ponzi scheme' word is not warranted, as it makes it sound illegal.
- deleted 16y ago
  [deleted]
- nailer 16y 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 16y 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 16y 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.

by rhl 16y ago

dantheman 16y 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 16y 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 16y ago
I guess I can see too how using the 'Ponzi scheme' word is not warranted, as it makes it sound illegal.
deleted 16y ago
[deleted]
nailer 16y 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 16y 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 16y 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.