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I don't think I'm saying that ad-based businesses are a fad at all. What I am saying is that ad-based businesses aren't stable enough to warrant the valuations

I don't think I'm saying that ad-based businesses are a fad at all. What I am saying is that ad-based businesses aren't stable enough to warrant the valuations that we're seeing right now. The core audience - the user - is not loyal enough to justify valuations that would take years of sustained behavior to see any ROI. The cause of Friendster's demise is irrelevant - it's the speed at which it happened that proves the point. 19 million users lost in under 2 years is fast even for web apps. Ads are a perfectly legitimate form of revenue.

pg 19y ago
> I don't think I'm saying that ad-based businesses are a fad at all. "Consumer loyalty is directly linked to the amount the consumer invests out of pocket." "With social networking sites the amount spent is zero - and the loyalty corresponds." "Facebook and mySpace are only as valuable as the next big thing. In other words: they are fads."
- run4yourlives 19y ago
  Paul, you're completely ignoring my main point by focusing on this idea that I'm suggesting ad-based models don't work. I'm not saying that. What I'm saying is that because consumers that don't invest out of pocket are fickle and that ad-revenue follows consumers, valuations of companies that survive solely on ad revenue should reflect this. Right now they do not, hence they are overvalued. When a company is overvalued, it's not a good time to invest. The fact that there continues to be a market is based on the fact that Facebook, or a site of equal stature hasn't actually had to justify its value. Once it does, the house of cards will adjust a little.
  - davidw 19y ago
    I think fickleness is more closely related to switching costs than sunk costs. In other words, I don't pay a dime for Gmail, but it would be quite difficult to move away from. Facebook probably doesn't have quite that much of a lock on your data, but I guess that depends on who you are and how you use it.
    - run4yourlives 19y ago
      That's a good point actually, but I think though that you can't discount the user's emotional attachment to sunk costs.
    - mojuba 19y ago
      Everyone would easily switch to a better mail system that offers some kind of a one-click migration/import from GMail, provided it is really better in some ways. In fact, however harsh it may sound, GMail can be ruined in a matter of months just because the majority of its user base is not loyal. Compare it with Apple in terms of loyalty, if in doubt.
  - abstractbill 19y ago
    "consumers that don't invest out of pocket are fickle" If consumers who didn't pay for stuff were not making investments in other ways, I suspect it would be easier to get users to register. Time is an investment, as is trust.
  - staunch 19y ago
    MySpace has justified it's $600M valuation, which you might have claimed was unjustifiably inflated, no? What makes you think Facebook can't justify a few multiples of MySpace given its trajectory?
    - run4yourlives 19y ago
      Let's assume that mySpace is making the $25M/month speculated. At a $600M, it would take 2 years of sustained $25M months to see a return. At 100 million visitors, $25M translates to $4 a month per user in ad funds. $4, per user, per month, sustained for 24 months. Just to break even. Those are insane prices at insane growth trajectories. You can call that justification of a valuation, but I call it unsustainable speculation.
      - staunch 19y ago
        Well if you think Murdoch made a mistake it's not surprising you think Facebook investors would be making the same one. The people who believed Google would monetize their business in a huge way seemed to do alright. I don't think Murdoch regrets his decision. I do think people should be cautious but you're going way beyond saying just that.
        run4yourlives 19y ago
        Well, although I think the mySpace deal is crazy, it's at least somewhat attainable. Murdoch has a bit of a history though of making bad moves in tech. He was nailed on Gemstar. Compared to the $11B he lost then, mySpace is peanuts. The money being talked about though for Facebook and others cannot possibly be recovered though unless a number of stars align, and that's too much for me. ;-)
        staunch 19y ago
        http://blogs.zdnet.com/BTL/?p=5899 http://blogs.zdnet.com/BTL/?p=5899 Still think it's crazy?
  - pg 19y ago
    You don't seem to understand refutation. I'm not claiming your main point was that ad-supported sites are fads. I'm claiming that follows from what you say. And if something false follows from what you say, what you say is also false.
sabat 19y ago
"What I am saying is that ad-based businesses aren't stable enough to warrant the valuations that we're seeing right now." What valuations? You mean profits? I honestly don't know what companies you're talking about. Google? You're predicting the downfall of Google? Get in line -- there's been one for years, right next to the one that predicts Apple will Die Any Day Now[tm].
- AF 19y ago
  Haven't we already discussed this? Google is not your regular old ad-supported company. They have a unique position being an ad provider. He can correct me if I'm wrong, but I don't believe Google was who he had in mind when he made that statement.

pg 19y ago

> I don't think I'm saying that ad-based businesses are a fad at all. "Consumer loyalty is directly linked to the amount the consumer invests out of pocket." "With social networking sites the amount spent is zero - and the loyalty corresponds." "Facebook and mySpace are only as valuable as the next big thing. In other words: they are fads."

run4yourlives 19y ago
Paul, you're completely ignoring my main point by focusing on this idea that I'm suggesting ad-based models don't work. I'm not saying that. What I'm saying is that because consumers that don't invest out of pocket are fickle and that ad-revenue follows consumers, valuations of companies that survive solely on ad revenue should reflect this. Right now they do not, hence they are overvalued. When a company is overvalued, it's not a good time to invest. The fact that there continues to be a market is based on the fact that Facebook, or a site of equal stature hasn't actually had to justify its value. Once it does, the house of cards will adjust a little.
- davidw 19y ago
  I think fickleness is more closely related to switching costs than sunk costs. In other words, I don't pay a dime for Gmail, but it would be quite difficult to move away from. Facebook probably doesn't have quite that much of a lock on your data, but I guess that depends on who you are and how you use it.
  - run4yourlives 19y ago
    That's a good point actually, but I think though that you can't discount the user's emotional attachment to sunk costs.
  - mojuba 19y ago
    Everyone would easily switch to a better mail system that offers some kind of a one-click migration/import from GMail, provided it is really better in some ways. In fact, however harsh it may sound, GMail can be ruined in a matter of months just because the majority of its user base is not loyal. Compare it with Apple in terms of loyalty, if in doubt.
- abstractbill 19y ago
  "consumers that don't invest out of pocket are fickle" If consumers who didn't pay for stuff were not making investments in other ways, I suspect it would be easier to get users to register. Time is an investment, as is trust.
- staunch 19y ago
  MySpace has justified it's $600M valuation, which you might have claimed was unjustifiably inflated, no? What makes you think Facebook can't justify a few multiples of MySpace given its trajectory?
  - run4yourlives 19y ago
    Let's assume that mySpace is making the $25M/month speculated. At a $600M, it would take 2 years of sustained $25M months to see a return. At 100 million visitors, $25M translates to $4 a month per user in ad funds. $4, per user, per month, sustained for 24 months. Just to break even. Those are insane prices at insane growth trajectories. You can call that justification of a valuation, but I call it unsustainable speculation.
    - staunch 19y ago
      Well if you think Murdoch made a mistake it's not surprising you think Facebook investors would be making the same one. The people who believed Google would monetize their business in a huge way seemed to do alright. I don't think Murdoch regrets his decision. I do think people should be cautious but you're going way beyond saying just that.
      - run4yourlives 19y ago
        Well, although I think the mySpace deal is crazy, it's at least somewhat attainable. Murdoch has a bit of a history though of making bad moves in tech. He was nailed on Gemstar. Compared to the $11B he lost then, mySpace is peanuts. The money being talked about though for Facebook and others cannot possibly be recovered though unless a number of stars align, and that's too much for me. ;-)
        staunch 19y ago
        http://blogs.zdnet.com/BTL/?p=5899 http://blogs.zdnet.com/BTL/?p=5899 Still think it's crazy?
- pg 19y ago
  You don't seem to understand refutation. I'm not claiming your main point was that ad-supported sites are fads. I'm claiming that follows from what you say. And if something false follows from what you say, what you say is also false.

sabat 19y ago

"What I am saying is that ad-based businesses aren't stable enough to warrant the valuations that we're seeing right now." What valuations? You mean profits? I honestly don't know what companies you're talking about. Google? You're predicting the downfall of Google? Get in line -- there's been one for years, right next to the one that predicts Apple will Die Any Day Now[tm].

AF 19y ago
Haven't we already discussed this? Google is not your regular old ad-supported company. They have a unique position being an ad provider. He can correct me if I'm wrong, but I don't believe Google was who he had in mind when he made that statement.