6 ms·

There has to be a better term than Ponzi Scheme. The point being made is that (in theory) a bunch of customers will buy ads on facebook, see poor returns, and

by johnrob 14y ago

There has to be a better term than Ponzi Scheme. The point being made is that (in theory) a bunch of customers will buy ads on facebook, see poor returns, and not renew their ads. In the early days, this pattern will look like impressive growth, and people will think that growth is for the long haul.

ljlolel 14y ago
I think you're right. English doesn't have the right term (does another language?). Paul Graham used the same term in another essay. Should we make one up right now?
- tgrass 14y ago
  It reminds me more of the tourist attraction that promises to show you a creek that runs uphill. The kids scream from the backseat to see it, dad caves and turns in and pays $5 for parking. Kid gets disappointed and as an adult vows to never waste his own children's time.
- zackzackzack 14y ago
  I wish "Positive feedback cycle fuelled by new advertisers' naivete" had a better acronym. PFCFBNAN doesn't have the ring I was hoping it would.
  - guscost 14y ago
    Maybe just "bubble" instead?
  - dhugiaskmak 14y ago
    "Stock market"
- squidfood 14y ago
  How about just "bubble"?
  - ryanholiday 14y ago
    Or Scam? Or Hustle?
- jerf 14y ago
  Petri dish growth. Cells in a petri dish can exhibit a behavior where they grow quickly, consuming the sustenance where they are, and expanding outward in a rapidly growing ring, as the middle starves, until the landscape is consumed and everything starves. The XScreenSaver "GLCells" [1] is a simulation of this effect. By all the simple metrics like cell count or cell mass, everything looks great... until it's not. A biology expert may be able to tweak this. If this phenomenon has a specific name, that would be even better, but I doubt I can google it up. (Incidentally, I'm just offering this up as a term. I think the title is premature; it has not been proved that this is the case for Facebook. If we are going to speculate that they may in the future not be able to continue making money as they are today, they still have a lot of runway. I'm not itching to buy shares, but I wouldn't personally guarantee they won't be able to make money.) [1]: http://www.jwz.org/xscreensaver/screenshots/ http://www.jwz.org/xscreensaver/screenshots/
  - throwaway1979 14y ago
    I think you might be referring to the Bacterial Growth Curve ... http://en.wikipedia.org/wiki/Bacterial_growth http://en.wikipedia.org/wiki/Bacterial_growth
    - jerf 14y ago
      Looks like it, thanks!
- toemetoch 14y ago
  How about just "facebook" as the word that describes this affair? After all, that's how we ended up with "Ponzi" scheme.
vannevar 14y ago
I'd have to agree. By that definition, most startups are Ponzi Schemes. If you grow faster than the GDP, you're most likely cannibalizing other businesses. Eventually you'll run out of competitors to cannibalize and your growth rate will flatten to approach the background growth. If your stock price is predicated on the unsustainable growth rate, it will collapse. But that's not a Ponzi Scheme. If Facebook took in revenues from new customers and used them to buy fake click-throughs for existing customers to inflate their ad rates, then THAT would be a Ponzi Scheme.
- ljlolel 14y ago
  No, you misunderstand. High growth is not a ponzi scheme. High growth with no value is. Going flat is fine, Google did that. Losing a lot of traffic because people stop using your worthless site entirely is bad. Groupon will do that.
  - mikeryan 14y ago
    High growth with no value is. No its not a Ponzi Scheme is a type of fraud where the con man pays out early investors from proceeds from later investors.
    - gnaritas 14y ago
      And also includes the intent to defraud, otherwise insurance would meet your criteria.
  - jbigelow76 14y ago
    I never really get the hate on Groupon from a business model standpoint, I get it from an execution standpoint but not the business model. I've derived quite a bit of value from Groupon myself, as have several people I know. They failed in execution because it appears they don't value their relationship with vendors as evidenced by not letting them impose limits in the number of coupons sold. Mom and Pop restaurants don't scale like startups and many were left with really bad experiences from being ill equipped to deal with a massive influx of customers in a short time frame, and consequently the customers ended up having a bad experience as well. This wasn't universal but it seems to have been frequent enough to have severely tarnished the brand. If Groupon had been better stewards of their relationships with their merchants instead of sacrificing them in the name of growth I don't think anybody would lump them into the "ponzi scheme" camp. Groupon could have gone about it differently, Bernie Madoff probably could not have.
wmf 14y ago
I think something that only works once is a "gimmick".

by johnrob 14y ago

ljlolel 14y ago

I think you're right. English doesn't have the right term (does another language?). Paul Graham used the same term in another essay. Should we make one up right now?

tgrass 14y ago
It reminds me more of the tourist attraction that promises to show you a creek that runs uphill. The kids scream from the backseat to see it, dad caves and turns in and pays $5 for parking. Kid gets disappointed and as an adult vows to never waste his own children's time.
zackzackzack 14y ago
I wish "Positive feedback cycle fuelled by new advertisers' naivete" had a better acronym. PFCFBNAN doesn't have the ring I was hoping it would.
- guscost 14y ago
  Maybe just "bubble" instead?
- dhugiaskmak 14y ago
  "Stock market"
squidfood 14y ago
How about just "bubble"?
- ryanholiday 14y ago
  Or Scam? Or Hustle?
jerf 14y ago
Petri dish growth. Cells in a petri dish can exhibit a behavior where they grow quickly, consuming the sustenance where they are, and expanding outward in a rapidly growing ring, as the middle starves, until the landscape is consumed and everything starves. The XScreenSaver "GLCells" [1] is a simulation of this effect. By all the simple metrics like cell count or cell mass, everything looks great... until it's not. A biology expert may be able to tweak this. If this phenomenon has a specific name, that would be even better, but I doubt I can google it up. (Incidentally, I'm just offering this up as a term. I think the title is premature; it has not been proved that this is the case for Facebook. If we are going to speculate that they may in the future not be able to continue making money as they are today, they still have a lot of runway. I'm not itching to buy shares, but I wouldn't personally guarantee they won't be able to make money.) [1]: http://www.jwz.org/xscreensaver/screenshots/ http://www.jwz.org/xscreensaver/screenshots/
- throwaway1979 14y ago
  I think you might be referring to the Bacterial Growth Curve ... http://en.wikipedia.org/wiki/Bacterial_growth http://en.wikipedia.org/wiki/Bacterial_growth
  - jerf 14y ago
    Looks like it, thanks!
toemetoch 14y ago
How about just "facebook" as the word that describes this affair? After all, that's how we ended up with "Ponzi" scheme.

vannevar 14y ago

I'd have to agree. By that definition, most startups are Ponzi Schemes. If you grow faster than the GDP, you're most likely cannibalizing other businesses. Eventually you'll run out of competitors to cannibalize and your growth rate will flatten to approach the background growth. If your stock price is predicated on the unsustainable growth rate, it will collapse. But that's not a Ponzi Scheme. If Facebook took in revenues from new customers and used them to buy fake click-throughs for existing customers to inflate their ad rates, then THAT would be a Ponzi Scheme.

ljlolel 14y ago
No, you misunderstand. High growth is not a ponzi scheme. High growth with no value is. Going flat is fine, Google did that. Losing a lot of traffic because people stop using your worthless site entirely is bad. Groupon will do that.
- mikeryan 14y ago
  High growth with no value is. No its not a Ponzi Scheme is a type of fraud where the con man pays out early investors from proceeds from later investors.
  - gnaritas 14y ago
    And also includes the intent to defraud, otherwise insurance would meet your criteria.
- jbigelow76 14y ago
  I never really get the hate on Groupon from a business model standpoint, I get it from an execution standpoint but not the business model. I've derived quite a bit of value from Groupon myself, as have several people I know. They failed in execution because it appears they don't value their relationship with vendors as evidenced by not letting them impose limits in the number of coupons sold. Mom and Pop restaurants don't scale like startups and many were left with really bad experiences from being ill equipped to deal with a massive influx of customers in a short time frame, and consequently the customers ended up having a bad experience as well. This wasn't universal but it seems to have been frequent enough to have severely tarnished the brand. If Groupon had been better stewards of their relationships with their merchants instead of sacrificing them in the name of growth I don't think anybody would lump them into the "ponzi scheme" camp. Groupon could have gone about it differently, Bernie Madoff probably could not have.

wmf 14y ago

I think something that only works once is a "gimmick".