17 ms·

The Facebook Fallacy - Without an earth-changing idea, it will collapse

75 points by kibaekr 14y ago

jinushaun 14y ago
All of the theories on the death of Facebook are all based on the premise that Facebook won't pivot. That the only way out is to monetize mobile. If you asked me 10 years ago, I could've never predicted AWS or the Kindle, but look at Amazon today.
- ragmondo 14y ago
  Exactly. It's not as if everybody left the "good ship facebook" on autopilot. With the amount of cash they have now, they could easily develop / acquire hardware, create another paypal, replicate "google apps for business" or even Android. What about a facebook ISP or even global telecom provider ? Hell, they could even fund a facebook OS.. I'm not saying any of these is a good idea but they really do have some resources (ie $$$) behind them now.
- gk1 14y ago
  This mass hysteria about FB flopping and calling buyers suckers just makes me want to buy more of their stock. Why? Because the majority rarely gets it right when it comes to something as volatile as stocks. Same goes for media and other "experts."
- majani 14y ago
  AWS and Kindle make up just over 1 percent of Amazon's annual revenue. The theories of Facebook's death are based on the premise that they are promising to discover a grand new revenue giant in the near future, which is a bit of a stretch in many people's eyes.
- saturdaysaint 14y ago
  In a way Amazon is an absurd object lesson - their P/E ratio isn't far from double Facebook's and Facebook was five times as profitable as Amazon last quarter. If anything, Amazon shows that as long as you're profitable and retain a controlling stake in the company, the media's and Wall Street's much-vaunted expectations aren't worth a damn.
  - InclinedPlane 14y ago
    P/E isn't everything since earnings can fluctuate for a lot of reasons. Amazon's market cap is only about twice their annual revenue, compared to 28x for facebook.
    - ScottBurson 14y ago
      But I think you have to admit that there's an expectation built into Amazon's market cap that they will eventually find a way to improve their margins. Compare HP, whose market cap is around 1/3 annual revenue at the moment.
      - InclinedPlane 14y ago
        Not necessarily. AWS and Kindle/eBooks are already proven businesses with high margins, if the current growth rate on those businesses is maintained then the overall profit margin across all Amazon will improve. And in both cases Amazon is the leader in those fields (PaaS and eBooks). Also, Amazon has been spending a lot of money lately on expansion and hiring, once that's stabilized their profit will go up as well. Overall I'd say the bet that AWS, Kindle, and Amazon's retailing business will sustain double digit growth rates over the next several years is a pretty safe bet. Also you need to factor in that Amazon has about $25 billion in assets, so their net market cap is only about $75 billion. Anyone looking at Amazon's revenue growth and the diversified foundations of that company can't be too upset at the seemingly high P/E ratio of AMZN. Facebook is also growing revenue like crazy, but their market is much different and there are a lot of open questions on whether or not they can maintain that growth (or even retain their user base). That doesn't mean that facebook is a bad investment, it just means that there's a lot of risk there and the stock price doesn't seem to reflect any of that risk. Consider: Yahoo has nearly as many users as Facebook (700 mil vs 900 mil), higher total revenue, just as many experienced developers, and a similar business model (ads). Almost all of facebook's valuation lies at the feet of their reputation, not at any sound business fundamentals, and that's a pretty big burden.
- InclinedPlane 14y ago
  I think you're missing the point. Even without AWS or kindle amazon's business was growing like crazy, and for good reason. The same goes for google too. The problem with facebook's stock is that the valuation is based on the successful completion of an as yet hypothetical pivot. Yes, they may succeed, but pivots at that scale are risky, and there's no margin for risk built into the facebook share price. That's a problem.
conanite 14y ago
The article proposes that the ad-supported web will collapse along with FB after prices have dropped to beyond unsustainable ... what would the post-ad web look like? I'm looking forward to all the content farms, endless plagiarism, and constant attention-seeking going away; what else will happen?
- personlurking 14y ago
  I haven't a clue but both CL and, for some reason, the São Paulo gov't banning outdoor adverts come to mind (perhaps the world gov't one day will ban all ads everywhere). Also Star Trek where you'd do things because you are good at them and wish to contribute to society, no money needed.
- josefonseca 14y ago
  > what else will happen? Well that is like asking what comes next in the stock market. If anyone knows, then they're the next billionaires ;)
helipad 14y ago
If I can send a message to anyone I know or have met (in real-time, asychronously, or by video), who will receive it on their phone or computer immediately, without having to remember a number or address, I'd call that earth-changing. I don't know if Facebook will be a successful business, or if more convenient ways of communicating will appear in the future, but the ability to let me easily communicate with all my friends and family is as earth-changing as I'm going to need it.
- stef25 14y ago
  In that aspect Skype is no different: sender and receiver need an account, you need to know whatever the FB name is of whoever you're messaging, you have to have an app (mobile app or browser) running on your device to be aware of the message. Main difference in messaging is Skype doesn't allow you to message offline users, I think.
  - lmm 14y ago
    It does. My group of friends use it as a pure text IM system; crazy as it seems, it works better than anything else we've tried (e.g. if you're signed into Jabber from two devices, messages for you will only go to one of them).
  - rbn 14y ago
    Skype and Facebook are very close to each other. Skype powers Facebook video chat and you can use FB in the Skype client. Also Skype is owned by Microsoft, arguably Facebook's biggest ally.
jerf 14y ago
Many people suggest we're in a bubble, and usually call it a social media bubble. I still find myself wondering if we aren't in an advertising bubble instead, with social media a rider and not a driver per se of the trend. Advertising is and always shall be a very important part of the economy, but there's also this sharp bound on exactly how much money it can move around since it needs to result in net profit for the advertiser. Google definitely has demonstrated they have a superior platform. I'm not sure anybody else has. Not just Facebook, anybody else. If there's any element of this bubble that reminds me of the previous it is that there are still an awful lot of startups out there who are trying to simply acquire as many users as possible with vague plans to figure out how to make money later... and they all seem to come up with the same, "Uh... shove ads at them, I guess?" plan in the end.
- jonnathanson 14y ago
  There definitely is -- and it may still be too early to say "was" -- a period of social media advertising frenzy among Fortune 500 companies in the last few years. Until fairly recently (with GM's $30M pullout of Facebook advertising the most visible harbinger). Now the honeymoon is just about over, and with it will go the easy money that had basically been throwing itself at Facebook's heels. Facebook in specific, and social advertising in general, will have to find a way to deliver actual results in line with people's sky-high expectations. And they'll have to do it soon. This won't be easy, given that Facebook's ad sales teams have spent the last 3+ years promising the moon to F500 marketing and advertising execs. But why were all these advertisers so willing to be wooed in the first place? Because there's a very real (and growing) hole in the advertising landscape. With the erosion of TV advertising as a reliable way to generate mass impressions at scale, advertisers are anxious to find a replacement. TV is still the largest advertising vechicle, by media spend, for most F500 companies (if not all of them?). But premiums on TV are growing each year, even while total ratings are declining, audiences are dispersing (both across networks and onto other platforms), and ads are basically avoidable. While the bloom was on the Facebook rose, it seemed like a hell of a savior to people desperately seeking one. The fallacy underpinning the leap from TV onto the Facebook bandwagon was the assumption that social media could be bought, and advertised on, in pretty much the same way as TV. In reality, the advertiser needs to be much more savvy and sophisticated about social advertising. He needs to worry about more than just reach, frequency, and CPMs. He'll need to consider the quality of his content, refresh rates for content, geo-targeting and context-targeting, the relevancy algorithms powering his anticipated reach and engagement figures, and the micro-segments to which he serves different ads at different times. Instead, right now he's spent the last few years simply throwing giant checks at Facebook and expecting TV reach, impressions, etc. I'd consider both parties at fault here: the advertisers for being naive, and Facebook for playing to the deep-pocketed suckers. Picking the low-hanging fruit, in this case, may have set back Facebook's credibility within the advertising community for quite some time. And it also set expectations that Facebook wasn't, and still isn't, prepared to meet. (In fairness, I'm sure Facebook received a great deal of pressure to take the easy ad money in order to make its books look as attractive as possible in anticipation of the IPO).
zerostar07 14y ago
How about just buying Zynga?
kayoone 14y ago
Facebook Connects the world...almost everybody i meet is there and i can write messages from my phone to them for free. Add to that their giant app platform for games and entertainment stuff. Soon you will be able to Pay with Facebook Credits everywhere...i think they have plenty of ways to go apart from advertising.
- majani 14y ago
  By now, they've clearly shown us that their main game will be display ads. The history of other public web companies tells us that anything else added on will be small incremental improvements compared to the display ads.
PaulHoule 14y ago
(1) I don't think that digital ads are less effective than old TV and Newspaper advertising. In the bad old days, nobody could measure the impact of advertising and people assumed ads were worth more than they are. Once it became possible to measure the effectiveness of transactional ads online, it became a lot harder to justify the cost of display ads. The advertising apocalypse won't just affect the internet, it will affect traditional media. On the few cases where I watch cable or OTA TV I'm shocked that the ads are 5-10% relevant to me -- it seems like much of the industry is kept alive by ambulance-chasing lawyers, credit repair services and the medicare economy. (2) Facebook has other ways to make money, and in a pinch, they'll develop them -- it's believable that they could increase revenue 2-3x in a year or two if they really had to... Largely because they haven't had intense pressure to increase revenue. Facebook Credits, for instance, could be a gold mine if you could buy more things with them.
joeguilmette 14y ago
Everyone always seems to talk about Facebook for payments. Am I the only one that finds this hard to believe? Why is Facebook in a good position to authorize payments? They have very few credit cards on file. Besides FarmVille, et al, who exactly is giving their credit card info to Facebook? In what context am I supposed to use Facebook to pay for things? If we're talking about mobile, then we're talking about smartphones. What exactly makes you think Google/Apple are going to lay down and give the keys to the mobile payment castle to Facebook? Google and Apple already have our credit card info, we all already buy things through Apple and Google, and it is a logical step that I would use that same process for buying something with my smartphone in a store. I don't think it is a logical step for me to pull out my smartphone, open my Facebook app and use it to pay for something, anymore than it makes sense to use my Twitter app to pay, or Instagram for that matter. In fact, if we're going to use a third party app to pay for things, I have an app from my bank, why not use that? I just don't see Facebook getting in to mobile payments...
- Duff 14y ago
  Go to Home Depot. You can now make PayPal mobile payments. You're going to use your bank for payments because you already have low-cost ways to make payments already (ie. checks, debit and credit cards). But... there are millions of people in the US who operate outside of the banking system. They are mostly poor or working off the books in some form. For these folks, the idea of buying a $100 topoff card at a gas station to have access to mobile payments makes sense. How do I know this? Becuase the same folks are paying $5 for a disposable debit card today.
- nckpark 14y ago
  I picture a payments system on Facebook being geared to person-to-person payments and web payments, not in store, mobile payments. Need to pay back a friend for dinner, split the rent, pitch in for a co-workers gift? FB is a natural place. These type of payments could make people very used to paying with FB as well, potentially opening the door for use in more traditional payment scenarios. Year after year I've been surprised that nothing like this has emerged on FB.
  - 14y ago
rbn 14y ago
Here are some opportunities: Social graph is their biggest asset. 900million users. A number of companies have been built only because of this network. I can easily see them charging large sites in the future. Spotify, Pinterest, Tumblr are just a few companies using the social graph to build better products and all of them are billion dollar companies using Facebook for free. Google maps now charges large sites for API calls, Bing is now charging for API calls. Facebook will too. Payments is an amazing opportunity for them. One click, Purchase With Facebook. The payment processing game is all about the network effect. Dwolla is innovative but they need an "eBay" for them to gain massive usage. Facebook doesn't need it. Facebook can destroy eBay by creating a marketplace + their own payment processor. Facebook is the only company that can break eBay's monopoly of the online marketplace and payments. This field is ripe for disruption and in the game of network effect Facebook is unstoppable. I can see them moving into enterprise too. Maybe teaming up with Micosoft's Office 365 to create an awesome enterprise social network with Office 365 built in. Online gambling laws are starting to become loose. This can be huge for not only zynga but for many, many other massive companies who would love to use the social graph for the gambling. Example: BetFair and Bwin.
- kitsune_ 14y ago
  About your first part: I recently thought about a couple of app ideas that centered around integrating different web applications (facebook, dropbox, soundcloud, youtube). One of the red flags was what you described. The external service providers can pull the plug whenever they want. They can steal your idea, they can charge you for using their API. Of course, if you are lucky they might buy you, but I don't foresee too many 1 billion dollar acquisitions from Facebook in the future.
  - rbn 14y ago
    I think charging for the API in inevitable. As for stealing the idea. I personally never worry about people stealing my ideas because if an idea is good enough it will be stolen and copied %100.
tytso 14y ago
Even if Facebook collapses, it doesn't mean it will take the rest of the web down with it. It just means that perhaps a place where you are shooting the breeze with your beer-drinking buddies isn't the best place to sell some, perhaps even most, goods and services. If that's the case, and the price for putting an ad on FB decreases, it doesn't following that the price for running an ad on another website will also be lower. The author making the fundamental mistake of assuming that all web sites are the same, and that's obviously false. Just because Facebook is (in his view) a ad-supported website doesn't mean that it is interchangeable with any other ad-supported website.
- josefonseca 14y ago
  > Even if Facebook collapses, it doesn't mean it will take the rest of the web down with it. The WWW was here before Facebook. To even raise that possibility shows people completely lack a sense of proportion. Facebook and Google can disappear from the WWW and the WWW will stay there just like it was before these companies came along.
- SideburnsOfDoom 14y ago
  If Facebook collapses, sites that do semi-private chat with comments and images among groups of friends will rejoice. So will sites that allow you to create events and invite people to them.
JumpCrisscross 14y ago
»At a forward profit-to-earnings ratio of 56 56? Profit-to-earnings?
josefonseca 14y ago
It was a wrong move for Google to have gone into the social media business IMO. It took focus from their search, which has arguably lost quality, and injected search with too many diversions and "noise". The level of interest in Google+ reflects "the fallacy of Facebook" as well, it is the same effect: why would people continue to expose themselves like that? Social media with a purpose, like LinkedIn and similar, are good for business contacts. Facebook and Google+ simply aren't a business environment. The purpose of Facebook and Google+ is to mine data and sell ads. IMO that is a broken business model, because at some point privacy will inevitably become a barrier.
AznHisoka 14y ago
This is why the Demand Media model (the massive production of content part) makes some sense. Google wants publishers to make high quality content, but they don't understand that the ROI for that model is often piss poor, and very unfeasible for small, beginning publishers.
- majani 14y ago
  Thank you for saying this. As a small publisher myself, I am slowly being forced to go the Demand Media route, ever since I discovered that my articles earn about 1 dollar a piece. Got to get them done for less than that if I'm to stay in business.
bluelu 14y ago
Facebook has so many options: E.g. Imagine you could also sell goods and open a shop on facebook. No need to leave facebook anymore, or visit another website on the web.
drcube 14y ago
I think Facebook needs to get into the business of selling my data to companies I personally trust to have it. Imagine letting me auction off my corner of the Facebook graph to companies that bid for it and I trust to sell it to. I get paid, Facebook gets a cut, and everybody is happy because I retain control over my data and the company who gets it knows they have a valuable, trusting customer and not just some apathetic eyeballs. I don't think this is realistic at all, but it would be a way to calm privacy fears and revolutionize web advertising. As it is, most people I know just use adblock, because internet advertising is absolutely terrible. But -- and this is saying something from somebody like me who despises ads -- it doesn't have to be.
chaostheory 14y ago
I wonder why no one mentions surveillance? Facebook may not be a perfect platform for advertising, but it is an awesome Big Br0 2.0. It's a lot more efficient and effective than anything that the N5A, C1A, or any other major intelligence agency have ever concocted directly. Like it or not, Facebook is here to stay. Whether it generates revenue from advertisers or governments is another story. I strongly feel that C1SPA will be a strong part of Facebook's financial future.
shmerl 14y ago
I'd phrase it differently. It'll collapse because it blatantly disrespects users' privacy.
drumdance 14y ago
The earth-changing idea is that we are all connected electronically by a few degrees. A lot of companies have tried this but Facebook has come the furthest.

75 points by kibaekr 14y ago

All of the theories on the death of Facebook are all based on the premise that Facebook won't pivot. That the only way out is to monetize mobile. If you asked me 10 years ago, I could've never predicted AWS or the Kindle, but look at Amazon today.

ragmondo 14y ago
Exactly. It's not as if everybody left the "good ship facebook" on autopilot. With the amount of cash they have now, they could easily develop / acquire hardware, create another paypal, replicate "google apps for business" or even Android. What about a facebook ISP or even global telecom provider ? Hell, they could even fund a facebook OS.. I'm not saying any of these is a good idea but they really do have some resources (ie $$$) behind them now.
gk1 14y ago
This mass hysteria about FB flopping and calling buyers suckers just makes me want to buy more of their stock. Why? Because the majority rarely gets it right when it comes to something as volatile as stocks. Same goes for media and other "experts."
majani 14y ago
AWS and Kindle make up just over 1 percent of Amazon's annual revenue. The theories of Facebook's death are based on the premise that they are promising to discover a grand new revenue giant in the near future, which is a bit of a stretch in many people's eyes.
saturdaysaint 14y ago
In a way Amazon is an absurd object lesson - their P/E ratio isn't far from double Facebook's and Facebook was five times as profitable as Amazon last quarter. If anything, Amazon shows that as long as you're profitable and retain a controlling stake in the company, the media's and Wall Street's much-vaunted expectations aren't worth a damn.
- InclinedPlane 14y ago
  P/E isn't everything since earnings can fluctuate for a lot of reasons. Amazon's market cap is only about twice their annual revenue, compared to 28x for facebook.
  - ScottBurson 14y ago
    But I think you have to admit that there's an expectation built into Amazon's market cap that they will eventually find a way to improve their margins. Compare HP, whose market cap is around 1/3 annual revenue at the moment.
    - InclinedPlane 14y ago
      Not necessarily. AWS and Kindle/eBooks are already proven businesses with high margins, if the current growth rate on those businesses is maintained then the overall profit margin across all Amazon will improve. And in both cases Amazon is the leader in those fields (PaaS and eBooks). Also, Amazon has been spending a lot of money lately on expansion and hiring, once that's stabilized their profit will go up as well. Overall I'd say the bet that AWS, Kindle, and Amazon's retailing business will sustain double digit growth rates over the next several years is a pretty safe bet. Also you need to factor in that Amazon has about $25 billion in assets, so their net market cap is only about $75 billion. Anyone looking at Amazon's revenue growth and the diversified foundations of that company can't be too upset at the seemingly high P/E ratio of AMZN. Facebook is also growing revenue like crazy, but their market is much different and there are a lot of open questions on whether or not they can maintain that growth (or even retain their user base). That doesn't mean that facebook is a bad investment, it just means that there's a lot of risk there and the stock price doesn't seem to reflect any of that risk. Consider: Yahoo has nearly as many users as Facebook (700 mil vs 900 mil), higher total revenue, just as many experienced developers, and a similar business model (ads). Almost all of facebook's valuation lies at the feet of their reputation, not at any sound business fundamentals, and that's a pretty big burden.
InclinedPlane 14y ago
I think you're missing the point. Even without AWS or kindle amazon's business was growing like crazy, and for good reason. The same goes for google too. The problem with facebook's stock is that the valuation is based on the successful completion of an as yet hypothetical pivot. Yes, they may succeed, but pivots at that scale are risky, and there's no margin for risk built into the facebook share price. That's a problem.

conanite 14y ago

The article proposes that the ad-supported web will collapse along with FB after prices have dropped to beyond unsustainable ... what would the post-ad web look like? I'm looking forward to all the content farms, endless plagiarism, and constant attention-seeking going away; what else will happen?

personlurking 14y ago
I haven't a clue but both CL and, for some reason, the São Paulo gov't banning outdoor adverts come to mind (perhaps the world gov't one day will ban all ads everywhere). Also Star Trek where you'd do things because you are good at them and wish to contribute to society, no money needed.
josefonseca 14y ago
> what else will happen? Well that is like asking what comes next in the stock market. If anyone knows, then they're the next billionaires ;)

helipad 14y ago

If I can send a message to anyone I know or have met (in real-time, asychronously, or by video), who will receive it on their phone or computer immediately, without having to remember a number or address, I'd call that earth-changing. I don't know if Facebook will be a successful business, or if more convenient ways of communicating will appear in the future, but the ability to let me easily communicate with all my friends and family is as earth-changing as I'm going to need it.

stef25 14y ago
In that aspect Skype is no different: sender and receiver need an account, you need to know whatever the FB name is of whoever you're messaging, you have to have an app (mobile app or browser) running on your device to be aware of the message. Main difference in messaging is Skype doesn't allow you to message offline users, I think.
- lmm 14y ago
  It does. My group of friends use it as a pure text IM system; crazy as it seems, it works better than anything else we've tried (e.g. if you're signed into Jabber from two devices, messages for you will only go to one of them).
- rbn 14y ago
  Skype and Facebook are very close to each other. Skype powers Facebook video chat and you can use FB in the Skype client. Also Skype is owned by Microsoft, arguably Facebook's biggest ally.

jerf 14y ago

Many people suggest we're in a bubble, and usually call it a social media bubble. I still find myself wondering if we aren't in an advertising bubble instead, with social media a rider and not a driver per se of the trend. Advertising is and always shall be a very important part of the economy, but there's also this sharp bound on exactly how much money it can move around since it needs to result in net profit for the advertiser. Google definitely has demonstrated they have a superior platform. I'm not sure anybody else has. Not just Facebook, anybody else. If there's any element of this bubble that reminds me of the previous it is that there are still an awful lot of startups out there who are trying to simply acquire as many users as possible with vague plans to figure out how to make money later... and they all seem to come up with the same, "Uh... shove ads at them, I guess?" plan in the end.

jonnathanson 14y ago
There definitely is -- and it may still be too early to say "was" -- a period of social media advertising frenzy among Fortune 500 companies in the last few years. Until fairly recently (with GM's $30M pullout of Facebook advertising the most visible harbinger). Now the honeymoon is just about over, and with it will go the easy money that had basically been throwing itself at Facebook's heels. Facebook in specific, and social advertising in general, will have to find a way to deliver actual results in line with people's sky-high expectations. And they'll have to do it soon. This won't be easy, given that Facebook's ad sales teams have spent the last 3+ years promising the moon to F500 marketing and advertising execs. But why were all these advertisers so willing to be wooed in the first place? Because there's a very real (and growing) hole in the advertising landscape. With the erosion of TV advertising as a reliable way to generate mass impressions at scale, advertisers are anxious to find a replacement. TV is still the largest advertising vechicle, by media spend, for most F500 companies (if not all of them?). But premiums on TV are growing each year, even while total ratings are declining, audiences are dispersing (both across networks and onto other platforms), and ads are basically avoidable. While the bloom was on the Facebook rose, it seemed like a hell of a savior to people desperately seeking one. The fallacy underpinning the leap from TV onto the Facebook bandwagon was the assumption that social media could be bought, and advertised on, in pretty much the same way as TV. In reality, the advertiser needs to be much more savvy and sophisticated about social advertising. He needs to worry about more than just reach, frequency, and CPMs. He'll need to consider the quality of his content, refresh rates for content, geo-targeting and context-targeting, the relevancy algorithms powering his anticipated reach and engagement figures, and the micro-segments to which he serves different ads at different times. Instead, right now he's spent the last few years simply throwing giant checks at Facebook and expecting TV reach, impressions, etc. I'd consider both parties at fault here: the advertisers for being naive, and Facebook for playing to the deep-pocketed suckers. Picking the low-hanging fruit, in this case, may have set back Facebook's credibility within the advertising community for quite some time. And it also set expectations that Facebook wasn't, and still isn't, prepared to meet. (In fairness, I'm sure Facebook received a great deal of pressure to take the easy ad money in order to make its books look as attractive as possible in anticipation of the IPO).

zerostar07 14y ago

How about just buying Zynga?

kayoone 14y ago

Facebook Connects the world...almost everybody i meet is there and i can write messages from my phone to them for free. Add to that their giant app platform for games and entertainment stuff. Soon you will be able to Pay with Facebook Credits everywhere...i think they have plenty of ways to go apart from advertising.

majani 14y ago
By now, they've clearly shown us that their main game will be display ads. The history of other public web companies tells us that anything else added on will be small incremental improvements compared to the display ads.

PaulHoule 14y ago

(1) I don't think that digital ads are less effective than old TV and Newspaper advertising. In the bad old days, nobody could measure the impact of advertising and people assumed ads were worth more than they are. Once it became possible to measure the effectiveness of transactional ads online, it became a lot harder to justify the cost of display ads. The advertising apocalypse won't just affect the internet, it will affect traditional media. On the few cases where I watch cable or OTA TV I'm shocked that the ads are 5-10% relevant to me -- it seems like much of the industry is kept alive by ambulance-chasing lawyers, credit repair services and the medicare economy. (2) Facebook has other ways to make money, and in a pinch, they'll develop them -- it's believable that they could increase revenue 2-3x in a year or two if they really had to... Largely because they haven't had intense pressure to increase revenue. Facebook Credits, for instance, could be a gold mine if you could buy more things with them.

joeguilmette 14y ago

Everyone always seems to talk about Facebook for payments. Am I the only one that finds this hard to believe? Why is Facebook in a good position to authorize payments? They have very few credit cards on file. Besides FarmVille, et al, who exactly is giving their credit card info to Facebook? In what context am I supposed to use Facebook to pay for things? If we're talking about mobile, then we're talking about smartphones. What exactly makes you think Google/Apple are going to lay down and give the keys to the mobile payment castle to Facebook? Google and Apple already have our credit card info, we all already buy things through Apple and Google, and it is a logical step that I would use that same process for buying something with my smartphone in a store. I don't think it is a logical step for me to pull out my smartphone, open my Facebook app and use it to pay for something, anymore than it makes sense to use my Twitter app to pay, or Instagram for that matter. In fact, if we're going to use a third party app to pay for things, I have an app from my bank, why not use that? I just don't see Facebook getting in to mobile payments...

Duff 14y ago
Go to Home Depot. You can now make PayPal mobile payments. You're going to use your bank for payments because you already have low-cost ways to make payments already (ie. checks, debit and credit cards). But... there are millions of people in the US who operate outside of the banking system. They are mostly poor or working off the books in some form. For these folks, the idea of buying a $100 topoff card at a gas station to have access to mobile payments makes sense. How do I know this? Becuase the same folks are paying $5 for a disposable debit card today.
nckpark 14y ago
I picture a payments system on Facebook being geared to person-to-person payments and web payments, not in store, mobile payments. Need to pay back a friend for dinner, split the rent, pitch in for a co-workers gift? FB is a natural place. These type of payments could make people very used to paying with FB as well, potentially opening the door for use in more traditional payment scenarios. Year after year I've been surprised that nothing like this has emerged on FB.
- 14y ago

rbn 14y ago

Here are some opportunities: Social graph is their biggest asset. 900million users. A number of companies have been built only because of this network. I can easily see them charging large sites in the future. Spotify, Pinterest, Tumblr are just a few companies using the social graph to build better products and all of them are billion dollar companies using Facebook for free. Google maps now charges large sites for API calls, Bing is now charging for API calls. Facebook will too. Payments is an amazing opportunity for them. One click, Purchase With Facebook. The payment processing game is all about the network effect. Dwolla is innovative but they need an "eBay" for them to gain massive usage. Facebook doesn't need it. Facebook can destroy eBay by creating a marketplace + their own payment processor. Facebook is the only company that can break eBay's monopoly of the online marketplace and payments. This field is ripe for disruption and in the game of network effect Facebook is unstoppable. I can see them moving into enterprise too. Maybe teaming up with Micosoft's Office 365 to create an awesome enterprise social network with Office 365 built in. Online gambling laws are starting to become loose. This can be huge for not only zynga but for many, many other massive companies who would love to use the social graph for the gambling. Example: BetFair and Bwin.

kitsune_ 14y ago
About your first part: I recently thought about a couple of app ideas that centered around integrating different web applications (facebook, dropbox, soundcloud, youtube). One of the red flags was what you described. The external service providers can pull the plug whenever they want. They can steal your idea, they can charge you for using their API. Of course, if you are lucky they might buy you, but I don't foresee too many 1 billion dollar acquisitions from Facebook in the future.
- rbn 14y ago
  I think charging for the API in inevitable. As for stealing the idea. I personally never worry about people stealing my ideas because if an idea is good enough it will be stolen and copied %100.

tytso 14y ago

Even if Facebook collapses, it doesn't mean it will take the rest of the web down with it. It just means that perhaps a place where you are shooting the breeze with your beer-drinking buddies isn't the best place to sell some, perhaps even most, goods and services. If that's the case, and the price for putting an ad on FB decreases, it doesn't following that the price for running an ad on another website will also be lower. The author making the fundamental mistake of assuming that all web sites are the same, and that's obviously false. Just because Facebook is (in his view) a ad-supported website doesn't mean that it is interchangeable with any other ad-supported website.

josefonseca 14y ago
> Even if Facebook collapses, it doesn't mean it will take the rest of the web down with it. The WWW was here before Facebook. To even raise that possibility shows people completely lack a sense of proportion. Facebook and Google can disappear from the WWW and the WWW will stay there just like it was before these companies came along.
SideburnsOfDoom 14y ago
If Facebook collapses, sites that do semi-private chat with comments and images among groups of friends will rejoice. So will sites that allow you to create events and invite people to them.

JumpCrisscross 14y ago

»At a forward profit-to-earnings ratio of 56 56? Profit-to-earnings?

josefonseca 14y ago

It was a wrong move for Google to have gone into the social media business IMO. It took focus from their search, which has arguably lost quality, and injected search with too many diversions and "noise". The level of interest in Google+ reflects "the fallacy of Facebook" as well, it is the same effect: why would people continue to expose themselves like that? Social media with a purpose, like LinkedIn and similar, are good for business contacts. Facebook and Google+ simply aren't a business environment. The purpose of Facebook and Google+ is to mine data and sell ads. IMO that is a broken business model, because at some point privacy will inevitably become a barrier.

AznHisoka 14y ago

This is why the Demand Media model (the massive production of content part) makes some sense. Google wants publishers to make high quality content, but they don't understand that the ROI for that model is often piss poor, and very unfeasible for small, beginning publishers.

majani 14y ago
Thank you for saying this. As a small publisher myself, I am slowly being forced to go the Demand Media route, ever since I discovered that my articles earn about 1 dollar a piece. Got to get them done for less than that if I'm to stay in business.

bluelu 14y ago

Facebook has so many options: E.g. Imagine you could also sell goods and open a shop on facebook. No need to leave facebook anymore, or visit another website on the web.

drcube 14y ago

I think Facebook needs to get into the business of selling my data to companies I personally trust to have it. Imagine letting me auction off my corner of the Facebook graph to companies that bid for it and I trust to sell it to. I get paid, Facebook gets a cut, and everybody is happy because I retain control over my data and the company who gets it knows they have a valuable, trusting customer and not just some apathetic eyeballs. I don't think this is realistic at all, but it would be a way to calm privacy fears and revolutionize web advertising. As it is, most people I know just use adblock, because internet advertising is absolutely terrible. But -- and this is saying something from somebody like me who despises ads -- it doesn't have to be.

chaostheory 14y ago

I wonder why no one mentions surveillance? Facebook may not be a perfect platform for advertising, but it is an awesome Big Br0 2.0. It's a lot more efficient and effective than anything that the N5A, C1A, or any other major intelligence agency have ever concocted directly. Like it or not, Facebook is here to stay. Whether it generates revenue from advertisers or governments is another story. I strongly feel that C1SPA will be a strong part of Facebook's financial future.

shmerl 14y ago

I'd phrase it differently. It'll collapse because it blatantly disrespects users' privacy.

drumdance 14y ago

The earth-changing idea is that we are all connected electronically by a few degrees. A lot of companies have tried this but Facebook has come the furthest.