8 ms·

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

by seldo 16y ago

spolsky 16y ago
They're almost certainly making $2 per user. Another dime is gonna be easy.
- bhickey 16y ago
  First of all, Joel, it's THEY'RE not THERE. ;)
  - shadowmatter 16y ago
    Hey, lay off man! If Chicago doesn't have to teach multiplication, New York doesn't have to teach grammar, alright?
  - blusie 16y ago
    Read the original post, Joel didn't make that mistake.
    - lrm242 16y ago
      lol, he edited it.
- lovskogen 16y ago
  Haven't got a dime from me, and they don't have an idea on how to.
  - moe 16y ago
    Also a dime per user/year is more than it seems when you can only collect it through indirect means (ads, charging other companies for using your platform). Remember their ~500mio user figure also includes the overwhelming portion of users who generate no more than a handful of page impressions per month. It's not like facebook could invent a yearly membership fee or start selling t-shirts or such... Well, they could, but I doubt more than ~20% of their audience would actually pay.
    - marclove 16y ago
      They'd be lucky if ~0.5% of their audience would actually pay.
  - timcederman 16y ago
    You don't think so, but they probably have. I always used to think I was a 'leech' user of TripAdvisor, until I worked there.
  - portman 16y ago
    Have you viewed more than 300 pages on the facebook.com domain in your lifetime? If so, they've gotten a dime from you. 3 ads per page, each ad selling at a $0.10 CPM.
- krschultz 16y ago
  I think their CPM is in the $30-$40 range, but the key missing piece of information is how many views they get per user. I know my Facebook use has gone from multiple views per day (20, 40?) to 1 page every other day. Still lets say each user looks at Facebook twicer per day, each user is about 1/2 a CPM per year, or $20 revenue per year. But CPC, well I've never clicked on an ad on Facebook in my entire life.
  - mikeklaas 16y ago
    Never use tech-savvy people as representative examples when evaluating advertising. Otherwise, even google would be out of business.
    - krschultz 16y ago
      The problem with the comparison of Facebook VS Google is that Google advertising is fantastically targeted. You literally type into Google "I have this problem" and get a bunch of ads solving that problem. It is practically the holy grail of advertising. Now consider that it is a catch all for personal and corporate questions, it is a cash cow. It is perfectly acceptable to google something at your job, click on a link, and buy a $15,000 system. Facebook might know a lot about you, but they don't know what you are looking for at any given moment. Add on top that most people are spending their time on personal relationships, and it isn't the same even if they get more impressions. I can't log into Facebook from work and say "who has 5" diameter pipe?" and expect a response, but if I google that I find a vendor and place a multi thousand dollar order. Also the market on Facebook is somewhat inverted. The "best" customers are generally on their the least. The most frequent people are college students - mostly broke at that. If you aren't advertising clothes, personal electronics, or local bars I don't see the draw.
      - portman 16y ago
        Speaking as someone who has spent $30,000 on Facebook ads in the last several months: Facebook advertising is fantastically targeted as well. Google ads work when there is so-called "purchase intent": I know I want a new waffle maker, so I search for it. Facebook ads work when there is demographic correlation: I just got engaged, and I might not know that I now need a waffle maker, but a Facebook ad can target me and tell me that I should be adding a waffle maker to my wedding registry. Different kids of targeting, both extremely powerful.
- deleted 16y ago
  [deleted]
nadam 16y ago
My gut feeling is that Facebook is somewhat overvalued at $33billion. (This is $66 for their average user.) But I don't think it is overvalued by orders of magnitudes and I think the 37signals article is very demagogue.
- mrtron 16y ago
  People are horrible at taking variables like growth into account. It isn't 66$ per user. It is 33billion/expected number of total users over the lifetime of facebook. So if you throw in rough estimates of 2 billion facebook users and give them a decade of profiting from an average user...3$ per year per user.
  - poet 16y ago
    It strikes me as a bad plan to depend on 400% growth that's sustainable over a decade. You're right, people are horrible at taking growth variables into account. They usually overestimate them. Facebook may well achieve the numbers outlined above. But let's not kid ourselves. People were doing the same back of the envelope calculations for MySpace when it first started to get big. I see nothing wrong with a judicious use of common sense and caution in this case.
  - nadam 16y ago
    Things are changing very fast in this industry. So even 10 years and 2 billion users are optimistic numbers. And if you take 2 billion users, most of these users are from very poor countries, it is extremely hard to monetize these users (almost orders of magnitudes harder than users from rich countries.). That said, I don't think that Facebook is overvalued by orders of magnitudes, and the 37signals article did not make much sense to me.
  - InclinedPlane 16y ago
    Which means that if Facebook's valuation rises over the next decade there will be an even bigger gap between their user base * revenue per user than there is today. Either that or their valuation will have to remain flat for the next decade. Does anybody else see a problem in that? A company's valuation can certainly take into account growth potential, but when it assumes massive growth and leaves no margin bad things happen. Risk is much higher since any faltering of the company would need to be adjusted for in stock price almost instantly. If a normal company sees slower than expected growth the stock may fall a little. If an overenthusiatically future valued company sees slower than expected growth the stock may tumble by huge margins (because it's tied to the company's size 10 years from now, not today). Worse yet, if there's no margin remaining in stock price it'll be forced to remain stagnant for a very long time. This is bad for investors and bad for the company (because the use of stock as employee compensation is less potent).

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

by seldo 16y ago

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

spolsky 16y ago

They're almost certainly making $2 per user. Another dime is gonna be easy.

bhickey 16y ago
First of all, Joel, it's THEY'RE not THERE. ;)
- shadowmatter 16y ago
  Hey, lay off man! If Chicago doesn't have to teach multiplication, New York doesn't have to teach grammar, alright?
- blusie 16y ago
  Read the original post, Joel didn't make that mistake.
  - lrm242 16y ago
    lol, he edited it.
lovskogen 16y ago
Haven't got a dime from me, and they don't have an idea on how to.
- moe 16y ago
  Also a dime per user/year is more than it seems when you can only collect it through indirect means (ads, charging other companies for using your platform). Remember their ~500mio user figure also includes the overwhelming portion of users who generate no more than a handful of page impressions per month. It's not like facebook could invent a yearly membership fee or start selling t-shirts or such... Well, they could, but I doubt more than ~20% of their audience would actually pay.
  - marclove 16y ago
    They'd be lucky if ~0.5% of their audience would actually pay.
- timcederman 16y ago
  You don't think so, but they probably have. I always used to think I was a 'leech' user of TripAdvisor, until I worked there.
- portman 16y ago
  Have you viewed more than 300 pages on the facebook.com domain in your lifetime? If so, they've gotten a dime from you. 3 ads per page, each ad selling at a $0.10 CPM.
krschultz 16y ago
I think their CPM is in the $30-$40 range, but the key missing piece of information is how many views they get per user. I know my Facebook use has gone from multiple views per day (20, 40?) to 1 page every other day. Still lets say each user looks at Facebook twicer per day, each user is about 1/2 a CPM per year, or $20 revenue per year. But CPC, well I've never clicked on an ad on Facebook in my entire life.
- mikeklaas 16y ago
  Never use tech-savvy people as representative examples when evaluating advertising. Otherwise, even google would be out of business.
  - krschultz 16y ago
    The problem with the comparison of Facebook VS Google is that Google advertising is fantastically targeted. You literally type into Google "I have this problem" and get a bunch of ads solving that problem. It is practically the holy grail of advertising. Now consider that it is a catch all for personal and corporate questions, it is a cash cow. It is perfectly acceptable to google something at your job, click on a link, and buy a $15,000 system. Facebook might know a lot about you, but they don't know what you are looking for at any given moment. Add on top that most people are spending their time on personal relationships, and it isn't the same even if they get more impressions. I can't log into Facebook from work and say "who has 5" diameter pipe?" and expect a response, but if I google that I find a vendor and place a multi thousand dollar order. Also the market on Facebook is somewhat inverted. The "best" customers are generally on their the least. The most frequent people are college students - mostly broke at that. If you aren't advertising clothes, personal electronics, or local bars I don't see the draw.
    - portman 16y ago
      Speaking as someone who has spent $30,000 on Facebook ads in the last several months: Facebook advertising is fantastically targeted as well. Google ads work when there is so-called "purchase intent": I know I want a new waffle maker, so I search for it. Facebook ads work when there is demographic correlation: I just got engaged, and I might not know that I now need a waffle maker, but a Facebook ad can target me and tell me that I should be adding a waffle maker to my wedding registry. Different kids of targeting, both extremely powerful.
deleted 16y ago
[deleted]

nadam 16y ago

My gut feeling is that Facebook is somewhat overvalued at $33billion. (This is $66 for their average user.) But I don't think it is overvalued by orders of magnitudes and I think the 37signals article is very demagogue.

mrtron 16y ago
People are horrible at taking variables like growth into account. It isn't 66$ per user. It is 33billion/expected number of total users over the lifetime of facebook. So if you throw in rough estimates of 2 billion facebook users and give them a decade of profiting from an average user...3$ per year per user.
- poet 16y ago
  It strikes me as a bad plan to depend on 400% growth that's sustainable over a decade. You're right, people are horrible at taking growth variables into account. They usually overestimate them. Facebook may well achieve the numbers outlined above. But let's not kid ourselves. People were doing the same back of the envelope calculations for MySpace when it first started to get big. I see nothing wrong with a judicious use of common sense and caution in this case.
- nadam 16y ago
  Things are changing very fast in this industry. So even 10 years and 2 billion users are optimistic numbers. And if you take 2 billion users, most of these users are from very poor countries, it is extremely hard to monetize these users (almost orders of magnitudes harder than users from rich countries.). That said, I don't think that Facebook is overvalued by orders of magnitudes, and the 37signals article did not make much sense to me.
- InclinedPlane 16y ago
  Which means that if Facebook's valuation rises over the next decade there will be an even bigger gap between their user base * revenue per user than there is today. Either that or their valuation will have to remain flat for the next decade. Does anybody else see a problem in that? A company's valuation can certainly take into account growth potential, but when it assumes massive growth and leaves no margin bad things happen. Risk is much higher since any faltering of the company would need to be adjusted for in stock price almost instantly. If a normal company sees slower than expected growth the stock may fall a little. If an overenthusiatically future valued company sees slower than expected growth the stock may tumble by huge margins (because it's tied to the company's size 10 years from now, not today). Worse yet, if there's no margin remaining in stock price it'll be forced to remain stagnant for a very long time. This is bad for investors and bad for the company (because the use of stock as employee compensation is less potent).