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When the high P/Es are pointed out about Facebook, the defenders nearly always point out that the platform is immature and/or they haven't monetized yet (this l

by cletus 15y ago

When the high P/Es are pointed out about Facebook, the defenders nearly always point out that the platform is immature and/or they haven't monetized yet (this last one is a huge one for Twitter defenders too). To this I say: you're missing the point and you're basically wrong. Ads on Facebook are basically spam. They are not things people want to see, not related to anything they're doing, they are at best crude attempts to convert likes into an audience. But they are as welcome as ads on TV are. Not that advertising isn't (and can't be) effective but there is a time and a place. On Ebay, if you're looking on Ebay you want to buy or sell something. The intent of an Ebay user is about by definition: you almost certainly want to transact something. On Google of course you have the intent of search (disclaimer: I work for Google), which is huge. But on Facebook? Most people just want to share photos, send messages and send updates. Ads are an intrusion. Probably the most important sentence in this piece is: > It was not clear what portion of Facebook's $1.6 billion in revenue in the first half of the year came from advertising sales. Bingo. Within probably 6 months Facebook will have filed an S1 for IPO. At that point we'll get a far better picture of the sources of their revenue. If the $1.6 billion 2011H1 figure is true I suspect a huge portion of that comes from virtual goods. That's bad. While I believe that Facebook is a very valuable property I also believe that it comes with huge risks. A few years ago Facebook was scared at the (then) meteoric rise of Twitter. Social networks seem to be incredibly fickle, possibly even generational (as Myspace was). Even with 700+ million users there is always the risk of users abandoning Facebook for the next thing (IMHO). Also, the games thing is a risk too. Facebook faces the risk of games going elsewhere (eventually as they have an exclusive on many Zynga properties but Zynga doesn't want to be dependent on Facebook long term) or simply new platforms and paradigms emerging, particularly mobile games. What will be interesting to see is whether Facebook enters the search space in coming years.

mun2mun 15y ago
But on Facebook? Most people just want to share photos, send messages and send updates. So why is Google so much desperate to enter into social space?
- deleted 15y ago
  [deleted]
revorad 15y ago
I see your point about Facebook ads. In fact, a lot of the ads I see are just linking to brand pages on Facebook itself. But then you say that there's a problem if Facebook's main revenue comes from virtual goods. That doesn't make sense. If people are spending most of their time doing fun stuff on Facebook, then virtual goods are probably their biggest profitable business model. And if people get in the habit of spending money on fake stuff, they could soon start buying physical goods too. That won't be intent just based on needs, it will be shopping driven by social pressure and entertainment value.
- ig1 15y ago
  The reason for that is that likes are essentially a form of permission marketing. If you've liked a brand that company knows: (1) you're interested in their products (2) they can push you out promotions via your friend stream for free in the future (3) they can use you as social proof when advertising to your friends Obviously this doesn't apply to all businesses, if you're selling a one-off product having a long term relationship with a user ins't important. But if you're a retailer or brand then that long term relationship can have a lot of value.
shoham 15y ago
I agree with just about everything but your last sentence.
ig1 15y ago
> But they are as welcome as ads on TV are. You say that as if TV adverts are a failure. TV Advertising spend in the US alone last year was $50bn, that's more than the entire global online ad spend. While I think Facebook has far more relevance based upon demographic targeting than TV, no-one's disputing that it doesn't have the intent matching that search advertising has (although if they allowed advertiser to target based upon status updates they could significantly close the gap). But that doesn't matter, it has a huge number of ad impressions and even at much lower CPM than search advertising they can still make a fortune. > I suspect a huge portion of that comes from virtual goods. Unlikely. Several third party companies have analyzed Facebook ads (based upon pricing which is public and sampling to measure ad fill rate, and surveying big agencies who buy ads direct) and general estimates for last year were that Facebook probably made in the region of $1.5-$2bn from advertising. So if that $1.6bn figure is accurate it seems likely that >90% will be from ads. I'm not just arguing this as a bystander, I'm arguing this as someone who's bought over 25 million ad impressions on Facebook this year, because my cost per conversion on Facebook is less than my cost on Google (I still buy ads on both though).
- shoham 15y ago
  TV ads work because, and only if they grab the attention of the viewer. I've bought tens of millions of FB impressions this year myself. The results have been fine, but I've moved on. It's really easy to ignore Facebook ads, and the point of Facebook isn't to help you get off of Facebook, so I don't know how good that is in the long run for any business to buy postage stamp sized display ads on. Personally, I think that the Reddit model has some potential. Have you checked out/used their system? I think that it's imperfect, as I stated here: http://news.ycombinator.com/item?id=2968162 http://news.ycombinator.com/item?id=2968162 but there are some good aspects, and we've been more successful there than anywhere else.
  - ig1 15y ago
    Out of curiosity If the results were good why did you stop using them ? I'm currently running my first extended ad campaign on Reddit, I've used it in bursts before, but now I'm gathering data to see if it's still effective over a longer time period. My current platforms for advertising are: Facebook, LinkedIn, Google, PlentyOfFish, Reddit and Bing. They all have advantages and disadvantages.

by cletus 15y ago

mun2mun 15y ago

But on Facebook? Most people just want to share photos, send messages and send updates. So why is Google so much desperate to enter into social space?

deleted 15y ago
[deleted]

revorad 15y ago

I see your point about Facebook ads. In fact, a lot of the ads I see are just linking to brand pages on Facebook itself. But then you say that there's a problem if Facebook's main revenue comes from virtual goods. That doesn't make sense. If people are spending most of their time doing fun stuff on Facebook, then virtual goods are probably their biggest profitable business model. And if people get in the habit of spending money on fake stuff, they could soon start buying physical goods too. That won't be intent just based on needs, it will be shopping driven by social pressure and entertainment value.

ig1 15y ago
The reason for that is that likes are essentially a form of permission marketing. If you've liked a brand that company knows: (1) you're interested in their products (2) they can push you out promotions via your friend stream for free in the future (3) they can use you as social proof when advertising to your friends Obviously this doesn't apply to all businesses, if you're selling a one-off product having a long term relationship with a user ins't important. But if you're a retailer or brand then that long term relationship can have a lot of value.

shoham 15y ago

I agree with just about everything but your last sentence.

ig1 15y ago

> But they are as welcome as ads on TV are. You say that as if TV adverts are a failure. TV Advertising spend in the US alone last year was $50bn, that's more than the entire global online ad spend. While I think Facebook has far more relevance based upon demographic targeting than TV, no-one's disputing that it doesn't have the intent matching that search advertising has (although if they allowed advertiser to target based upon status updates they could significantly close the gap). But that doesn't matter, it has a huge number of ad impressions and even at much lower CPM than search advertising they can still make a fortune. > I suspect a huge portion of that comes from virtual goods. Unlikely. Several third party companies have analyzed Facebook ads (based upon pricing which is public and sampling to measure ad fill rate, and surveying big agencies who buy ads direct) and general estimates for last year were that Facebook probably made in the region of $1.5-$2bn from advertising. So if that $1.6bn figure is accurate it seems likely that >90% will be from ads. I'm not just arguing this as a bystander, I'm arguing this as someone who's bought over 25 million ad impressions on Facebook this year, because my cost per conversion on Facebook is less than my cost on Google (I still buy ads on both though).

shoham 15y ago
TV ads work because, and only if they grab the attention of the viewer. I've bought tens of millions of FB impressions this year myself. The results have been fine, but I've moved on. It's really easy to ignore Facebook ads, and the point of Facebook isn't to help you get off of Facebook, so I don't know how good that is in the long run for any business to buy postage stamp sized display ads on. Personally, I think that the Reddit model has some potential. Have you checked out/used their system? I think that it's imperfect, as I stated here: http://news.ycombinator.com/item?id=2968162 http://news.ycombinator.com/item?id=2968162 but there are some good aspects, and we've been more successful there than anywhere else.
- ig1 15y ago
  Out of curiosity If the results were good why did you stop using them ? I'm currently running my first extended ad campaign on Reddit, I've used it in bursts before, but now I'm gathering data to see if it's still effective over a longer time period. My current platforms for advertising are: Facebook, LinkedIn, Google, PlentyOfFish, Reddit and Bing. They all have advantages and disadvantages.