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Phase 3: Profit
- run4yourlives 19y agoThe biggest problem with facebook, imo. All the lovers will come and razz Matt and this comment, but none of them will be able to provide any evidence that facebook is doing anything but spending capital.
- Mistone 19y agohow about growing users?..hmm thats seems like a valuable way to spend your time if your a consumer web company.
- run4yourlives 19y agoWhen you have over "65 billion page views per month", you don't need to focus on more users. You need to focus on getting paid. Fast. EDIT: In other words: if Money In - Money Out > 0: Success if Money In - Money Out < 0: Fail The number of users doesn't matter.
- okeumeni 19y agoGood point!
- neilc 19y agoWhy does Facebook need to focus on "getting paid. Fast."? It's not like they have any difficulty getting funding. Obviously they need to figure out how to make money in the long run, but it's not like they're going to run out of cash any time soon.
- run4yourlives 19y agoI get your point, but given the current economic climate and the understanding that the you can't predict when "the cat'll be out of the bag" in terms of when the valley realizes they're living on funding, the faster they find a way to bring in revenue, the better it is for them.
- mattmaroon 19y agoThey'll have difficulty getting funding at some point in the future without a down round, which nobody wants.
- nostrademons 19y agoThey're profitable, though. So if they wanted, they could avoid taking any more funding, ever, and just grow the company off retained earnings.
- pchristensen 19y agoProfitable, but nowhere near profitable enough to justify the enormous investment they've taken and their valuation.
- boredguy8 19y agoWhat exactly are facebook users consuming? And volume is no substitute for probability if every "consumption" is at a loss. Sony can sell the PS3 at a loss because it makes money on the games and in the long run, wins. They can't sell the PS3 at a loss and sell the games at a loss, and make up for it with volume. That's what facebook seems to be attempting. And they're not even winning the volume game.
- boredguy8 19y agoShould have read, "volume is no substitute for profitability".
- alex_c 19y agoMy suspicion is that Facebook will have to change how online advertising works, or die. Look at Compete data: average stay of 15 minutes * 350 million visits/month = 87.5 million hours / month in the US. That is coupled with decent demographic data and ability to target. How much would that much attention be worth in TV or newspaper advertising? A lot more than Facebook is currently getting, I suspect. If it can convince major brands that Facebook eyeballs are worth the same as traditional advertising (in effect sell them CPM, not CPC - "Facebook is the new TV"), then Facebook will do quite well. That's a very tough sell for smaller players, but it might not be impossible for Facebook.
- run4yourlives 19y agoThat's a good point, but those players will want fb to adopt big msn style flash ads. I'm not sure fb's users will go for that now. I think they're going to have to look at membership or some other direct charge to users, and that's going to really affect that inflated valuation.
- aswanson 19y agoThey can convince major brands to advertise there. The problem is, unlike traditional media ads, web based advertisers can quantify how much bang for their buck they are getting (click throughs, etc). Turns out that blanket, weakly-targeted advertising just doesn't perform that well, and companies get explicit feedback from these networks on just how bad the typical ad really is in terms of ROI.
- shawndrost 19y agoBrand advertising (most of traditional media ads) isn't measured in click throughs, isn't any easier to measure on the web than elsewhere, and can't be dismissed without evidence.
- aswanson 19y agoIt wasn't a dismissal. I would strongly disagree with isn't any easier to measure on the web than elsewhere though. If I place an ad on a site that results in 16 clicks which result in 4 transactions out of an audience of 32, I have a mathematical percentage of the effectiveness of my ad placement. This is possible on any ad placement on the web. If I run the same ad on tv or print, I have nowhere near the ability to accurately attribute any delta in sales activity to that specific ad run at that specific point in time.
- yariv 19y agoI think that when Facebook introduces a transactions API to their platform to enable frictionless micro-transactions in apps it will start raking in a lot of money by taking a cut of each transaction. How successful it can be is pure speculation, of course.
- axod 19y agoThat assumes someone actually makes an app which is worth using. Let alone paying for...
- jcromartie 19y agoI can only guess that you're getting downvoted because there are people here who would rather not believe what you're saying because their startup is based on building Facebook apps.
- yariv 19y agoI think the key issue isn't whether apps are worth using, but whether many people actually use them. The answer is a pretty clear "yes."
- run4yourlives 19y agoNot so much. The key issue is whether people will somehow pay for apps, and by extension FB itself. That remains to be seen.
- yters 19y agoFacebook potentially offers the best kind of advertising: referrals. The social graph gives companies the data they need to target this kind of advertising. However, this means companies need to be less exploitative and work more with their consumer. I see this as being a bigger benefit for smaller, more personable seeming companies.
- dpapathanasiou 19y agoSearch engine style ads don't work because people login to see what their friends are up to, not because they're open to buying something. Ultimately, the answer may lie in some kind of customized event sponsorship: e.g. you're planning a poker game with your friends, and facebook allows its clients (beer and snack companies for this example) to offer you a deal on those products. Or something else entirely. Either way, I agree with the blog post that they haven't found that something yet.
- okeumeni 19y agoThe difference between Facebook and Google is Technology, the value of goods is define by its availability/scarcity. There's nothing spectacular about Facebook technology, Fame alone is not enough to justify those billions if you don't think so let see when they go public.
- boucher 19y agoFacebook's technology is not as impressive as Google's for sure, but they actually do have some fairly impressive technology. For one thing, they process a huge amount of data on a daily basis (I want to say I was told over a trillion "news items" per day, but I don't remember for sure). Admittedly the site has slowed a bit in the last couple months, but not significantly.
- Raphael 19y agoAgreed. Facebook will lose dominance shortly because it is so easily replicable. (Although, the way Facebook grew its user base through colleges was genius and would be hard to match.) The same argument could be made for Google as well. Hadoop is poised to render Google's search technology worthless.
- pchristensen 19y agoI disagree. Google's value is in the quality of its results and the speed of search. Facebook's value is in 1) all the users (a social site sucks if your friends aren't there) and 2) it's brand (people know about it and trust it). Someone could buy equivalent technology but not the users or the brand. Remember Google Video vs YouTube? (fwiw, I think Facebook is valuable but if they can't monetize it, then they're in trouble and it won't bode well for all the other social network sites out there either)
- Readmore 19y agoExcellent, I love the ZuckerGnome!
- cglee 19y agoOne easy way for them to make money is to charge some nominal fee (say $15/yr) for premium services or ad-free experience. I don't use facebook myself, but most of my friends do, and most of them would gladly pay a small fee to just keep using facebook as is, nevermind premium features. Mining the social graph is the holy grail of social networks, but facebook, with its millions of addicted users, doesn't have to solve that problem to generate revenue. It can do so with other means until they figure it out. IMO, Google was in an even more precarious position before it figured out advertising because people could switch easily. Facebook's got its hooks in your life; you can't switch.
- Xichekolas 19y agoI'd pay $15/yr to automatically block all Facebook Apps. Sadly I don't think I'm alone. It was useful before, but it's gotten increasingly spammy.
- dangoldin 19y agoFacebook will keep on getting more and more users but it just seems that if they want to get to the next level, they need to do something about this App thing. Once they figure it out I don't doubt they'll be able to offer some type of productivity software - they already have the social infrastructure as well as the users in place for that. When they launched the API and the apps I, as many others, were excited about the entire idea of a facebook OS but it seems that notion is drifting farther and farther away.
- rrival 19y agoBut then they'd have some kind of rational yardstick for measuring valuation, and we have that -and- keep Zuckerberg a paper billionaire.
- Goladus 19y agoFacebook is a bit sticky, but switching is not as hard as you might think. If I had to dump facebook, I could probably rebuild my network (as much as I really cared about) pretty quickly starting with just a couple of phone numbers and emails.
- Mistone 19y agoso many fb haters - yet they keep growing users, keep launching features, you can say they have no tech (baseless), they can't monetize (eer ask pg about this one; build something people want - a business model will emerge) and all the rest - yet you can say nothing about their growth and engagement.
- SwellJoe 19y agoMatt's not saying they aren't getting a lot of traffic, or that a lot of people don't enjoy using Facebook (nobody in their right mind would claim those things). Matt's saying that it's a rare form of chutzpah that Zuckerberg possesses that allows him to make up stuff like "the social graph" as justification for his second-place social network being worth 30 times the first-place social network (he's also saying some other stuff, but I think that's the funniest/truest part). And, of course, it takes an astounding reality distortion field for him to be able to convince half the people in the valley that it's a done deal: Facebook is "the next Google".
- Mistone 19y agonice point - but myspace was a steal for fox and should be kicking themselves for selling so low. fb's valuation is mind boggling indeed and fb is not the next google - it does however have people excited about something besides the big G which is refreshing. chutzpa is making people believe, not telling the literal truth.
- mattmaroon 19y agoSome of the people involved in the MySpace deal are calling shenanigans. I almost have to believe them. Their traffic was just so immense, even then, and that was long before people even imagined how hard it is to monetize social network traffic.
- aswanson 19y agoFacebook is not the next google for the simple fact that everyone is saying that it is. The Next Big Thing usually slips under the radar until it becomes completely dominant.
- Mistone 19y agoquick name the only company in the valley that scares googles mngt team? quick name the only company in the valley thats harvesting googlers like its October in Napa valley?
- wumi 19y agoSomebody should start a poll: Facebook + Email + IM + Phone vs. HN + Email + IM + Phone Which would you rather have? I suspect this would provide some valuable information as to the near future of the internet -- so many of us are on HN because it is specific to our current interests -- whether hobby or professional -- and our desire to know and bounce ideas off of similar minds. Now for specific interests replace HN with (Popsugar, TMZ, Social Investing sites, etc.)
- Tichy 19y agoI suppose you are only looking for excuses so that your startup doesn't have to create a Facebook app ;-)
- chaostheory 19y agoI don't disagree with his main idea, but I really find it hard to believe that AIM and most cell phones are open platforms; though someone can prove me wrong.
- mattmaroon 19y agoI know of many apps not built by AOL that use AIM. Meebo, Trillian, Pidgin, Adium, etc. I don't think they meant it to be an open platform (until fairly recently) but it became one. I meant the phone system. Individual cell phones are not necessarily platforms.
- mariorz 19y agoand how is the phone system an open plataform with regards to your "social graph"? and IM services?
- chaostheory 19y ago"open AIM" isn't really open, I think this was discussed in a past yc post; there are a lot of terms and conditions that are more overbearing than facebook's or google's terms/conditions - like if you have x number of users, you must feature AOL ads on your app (or something like that) Until Google Contacts API came out, I don't remember any major company giving third parties access to their users and their contacts officially. (ok Plaxo did but they had a condition that you couldn't make anything for profit) typically apps like Trillian got access when users gave them access to their own login information which is far from ideal and still not open by choice - more like 'broken into' "I meant the phone system. Individual cell phones are not necessarily platforms." the problem is, the social graph (contact info and call history) is contained and accessible from individual cell phones and not the phone system (unless again you trust some company to your login information for your cell phone web site account - still not open and a more dangerous than giving someone access your AIM login). individual cell phones may not be platforms themselves, but the OS's they run on are...
- rhiltd 19y agoWhy do people keep repeating that FB is 'worth' $15 Billion? Is it an American thing for self-delusions? FB as a business has the same credibility as a Washington Mutual AAA rated CDO.
- mattmaroon 19y agoBecause that's their market value based on recent investments.
- tonystubblebine 19y agoI've never understood if the $15B valuation is real either (although I understand that it's quoted by everyone as being real). The original $15B number comes from an investment that Microsoft did for a share of the company plus advertising consideration. If you just valued the company on the share then it would be worth $15B but since there were other considerations you can't know at all what the valuation was. I've heard of follow-on investments but I never heard any hard facts about the valuation of those investments. On the other hand, I've heard people who should know (actual VCs, TechCrunch, press) say FB has a $15B valuation. I just don't understand how that's the case. Is it bogus or what is the piece of information that I'm missing?
- mattmaroon 19y agoWithout knowing the details on the MS deal or the follow on funding, it's hard to say. I would speculate, solely from what I've read, that MS's investment values them at $15 billion while giving them the right to run ads for which they'll have to pay a certain amount as well. So in the case, and assuming other investors also valued them at $15b, that's their actual valuation.
- staunch 19y agoI recall Zuckerberg admitting at SXSW they only valued it at that so that Microsoft could invest their cash and not suck up a big percentage of the company. That would mean not even Zuckerberg pretends its worth $15 billion. It seems a bit lame to repeat this valuation as if Zuckerberg is running around yelling "My company is worth $15 billion!" because he's definitely not doing that.
- nickb 19y agoMatt reminds me of this: http://en.wikipedia.org/wiki/The_Emperor's_New_Clothes http://en.wikipedia.org/wiki/The_Emperor's_New_Clothes
- bayareaguy 19y agoI go to places because of the value they offer. Facebook offers me next to nothing. I went there exactly once to peek at the Thrift documentation (you can download the source without registering but the link to the docs is a group). I'd be there if there were some there there.
- daniel-cussen 19y agoA minor nit-pick: only one d in 'adds', in the phrase 'video adds'.
- deleted 19y ago[deleted]
- zkinion 19y agohttp://www.outrunpoker.com/blog/2008/03/a-way-for-social-networks-to-a.html http://www.outrunpoker.com/blog/2008/03/a-way-for-social-net... I don't think social graphs or other "hocus pocus" BS will get them much more CPM than they are currently getting. I believe the only solution is to take more of the revenue stream from advertising by starting some companies in fields where it is possible, and ones that already advertise on FB. This is the most direct approach, and takes the longest and most work, but the most rewarding in the long run due to many reasons.
- Mistone 19y agoFrom PG's latest: Why Aren't There More Googles "So what's the real reason there aren't more Googles? Curiously enough, it's the same reason Google and Facebook have remained independent: money guys undervalue the most innovative startups."