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One, you presume that advertisers are incredibly naive and don't measure returns. Obviously cleanly measuring advertising returns from fb is hard, but it's sti

by earl 14y ago

One, you presume that advertisers are incredibly naive and don't measure returns. Obviously cleanly measuring advertising returns from fb is hard, but it's still being done. Second, fb can put up the first credible alternative to adsense since they collect browsing info from their fb login and other widgets. In fact, they can do better than adsense: fb can mix in very accurate demographics alongside the page context. Adsense makes google nearly $10B/year and I'd bet fb could eat half of that. And many pubs that lean heavily on adsense are desperate for a competitor. So I'd say fb is -- at bare minimum -- a $5B/year company. Plus another billion or two from taxing every bit of money that flows through social gaming. Plus it seems like zynga will be able to do poker for money now. Plus I don't believe all the ads on fb proper are worthless, so roll that into the mix. Finally, from your comments below, you seem to think advertising in general is worthless. If you think companies (US only) spend $400B/year because they're stupid, then I'm too dumbfounded to formulate a response.

JPKab 14y ago
http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-lost-my-faith-in-facebook-advertising/ http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los... Advertising isn't worthless, but advertisers are very naive. You talk about companies spending money because they are stupid. I SUSPECT, but only Facebook has the data to KNOW, that there is a high turnover in companies advertising on Facebook. New companies coming in every day, but also many who realize they aren't getting a return on investment and leaving. I think a lot of big companies advertise on it strictly for brand presence, rather than for direct sales. That's fine. But let's not pretend that there is remotely the click-thru rate that Google has.
- earl 14y ago
  You realize that brand advertising isn't measured via clickthrough, right? Most people on the net don't click -- see the infamous natural born clickers study. Yet nonetheless, brand advertising via display can be demonstrated to be very effective on an roas basis via A/B testing by geo. Also -- ctr doesn't matter as long as your cpc compares. So 1/100 the ctr is fine w/ 1/100 the price, etc.
qohen 14y ago
> One, you presume that advertisers are incredibly naive and don't measure returns. What if there were enough naive newbies to keep things afloat even in the face of advertisers who became disillusioned? http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme (via: http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-lost-my-faith-in-facebook-advertising/2/ http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los... )
- earl 14y ago
  That is possible but extremely unlikely. Companies who spend interesting amounts of money on advertising don't just hand you $100k or something. Instead, they hand you $10k for a month or a quarter and tell you to demonstrate what you can do. You only get more as long as you can show something going up and to the right. So you can certainly get to million dollar accounts but it's going to take at least a year of demonstrating performance and going out and demanding quarterly increases in spend. Now, to your claim: could fb get $2B in ad spend w/o demonstrating that performance? Sure. It's damn unlikely though because the companies that will eventually spend $1m/year with you don't start there. If your theory is there is super high churn, then 2e9/(10k) = 200k different advertisers spending $10k for a quarter then churning. That seems dubious. Now obviously they make some money from tax, etc, but just look at the rough order of magnitude of new suckers you would have to find every year and estimate whether it's likely.
jlawer 14y ago
> One, you presume that advertisers are incredibly naive and don't measure returns. Working in digital media (in Australia) I would say this is actually accurate.... People measure returns not on the impact on sales because its difficult to account for... people are using metrics such as "likes" and size of the email list to know if a campaign is working. The top advertisers do measure the impact down to the user... but most are not willing to pay the money it costs to gather and analyse the data. Instead they follow the trends, under the impression that if everyone else is doing it, it must be right. Part of the problem is that - Most companies run digital through a different team from press, broadcast and other media. - The digital team is almost always very lightly funded compared to the other mediums (its also cheaper to run). Due to the lighter funding it tends to have the more junior marketers. - Many companies run each brand in their portfolio through a different marketing team, so that your dealing with small teams (3-10) of people even for large national brands. - These people are typically not mathematically and technologically trained and typically work with outside vendors to do their work. Don't overestimate the value of facebook ads, they work really well for certain things (some impulse buys, things on the facebook platform, etc), but It doesn't work well (at the moment) for many other products (expensive, niche). Facebook has a lot of potential to adapt this going forward but I am thinking that people are betting on facebook like its a sure thing and am not yet convinced they will pull it off.

by earl 14y ago

JPKab 14y ago

http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-lost-my-faith-in-facebook-advertising/ http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los... Advertising isn't worthless, but advertisers are very naive. You talk about companies spending money because they are stupid. I SUSPECT, but only Facebook has the data to KNOW, that there is a high turnover in companies advertising on Facebook. New companies coming in every day, but also many who realize they aren't getting a return on investment and leaving. I think a lot of big companies advertise on it strictly for brand presence, rather than for direct sales. That's fine. But let's not pretend that there is remotely the click-thru rate that Google has.

earl 14y ago
You realize that brand advertising isn't measured via clickthrough, right? Most people on the net don't click -- see the infamous natural born clickers study. Yet nonetheless, brand advertising via display can be demonstrated to be very effective on an roas basis via A/B testing by geo. Also -- ctr doesn't matter as long as your cpc compares. So 1/100 the ctr is fine w/ 1/100 the price, etc.

qohen 14y ago

> One, you presume that advertisers are incredibly naive and don't measure returns. What if there were enough naive newbies to keep things afloat even in the face of advertisers who became disillusioned? http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme (via: http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-lost-my-faith-in-facebook-advertising/2/ http://www.forbes.com/sites/ryanholiday/2012/05/17/why-i-los... )

earl 14y ago
That is possible but extremely unlikely. Companies who spend interesting amounts of money on advertising don't just hand you $100k or something. Instead, they hand you $10k for a month or a quarter and tell you to demonstrate what you can do. You only get more as long as you can show something going up and to the right. So you can certainly get to million dollar accounts but it's going to take at least a year of demonstrating performance and going out and demanding quarterly increases in spend. Now, to your claim: could fb get $2B in ad spend w/o demonstrating that performance? Sure. It's damn unlikely though because the companies that will eventually spend $1m/year with you don't start there. If your theory is there is super high churn, then 2e9/(10k) = 200k different advertisers spending $10k for a quarter then churning. That seems dubious. Now obviously they make some money from tax, etc, but just look at the rough order of magnitude of new suckers you would have to find every year and estimate whether it's likely.

jlawer 14y ago

> One, you presume that advertisers are incredibly naive and don't measure returns. Working in digital media (in Australia) I would say this is actually accurate.... People measure returns not on the impact on sales because its difficult to account for... people are using metrics such as "likes" and size of the email list to know if a campaign is working. The top advertisers do measure the impact down to the user... but most are not willing to pay the money it costs to gather and analyse the data. Instead they follow the trends, under the impression that if everyone else is doing it, it must be right. Part of the problem is that - Most companies run digital through a different team from press, broadcast and other media. - The digital team is almost always very lightly funded compared to the other mediums (its also cheaper to run). Due to the lighter funding it tends to have the more junior marketers. - Many companies run each brand in their portfolio through a different marketing team, so that your dealing with small teams (3-10) of people even for large national brands. - These people are typically not mathematically and technologically trained and typically work with outside vendors to do their work. Don't overestimate the value of facebook ads, they work really well for certain things (some impulse buys, things on the facebook platform, etc), but It doesn't work well (at the moment) for many other products (expensive, niche). Facebook has a lot of potential to adapt this going forward but I am thinking that people are betting on facebook like its a sure thing and am not yet convinced they will pull it off.