Here's my take on Facebook (disclaimer: I work for Google, these opinions are purely my own and not representative of the company, yadda yadda yadda).
Display advertising works best when you have sufficient, quality inventory (publishers whose sites serve ads) such that you attract advertisers in sufficient quantity and quality. Targeting in display ads works because from the publishers, the intermediary has information to figure out what your interests are and so on. A common misconception from fearmongers is that your data is being sold. It is not. Advertisers are paying to have their creative put in front of a particular audience.
The most important strategic move Facebook made in the last few years (IMHO) is the Like button. Whether or not you "Like" things is irrelevant. The main purpose of that "Like" button is (IMHO) as a tracking cookie. Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that. Just make no mistake why the Like button exists.
Facebook also has a wealth of information in terms of who your friends are, what your interests are, your relationship status and so on. It's this alleged treasure trove that people point to as the real value of Facebook (combined with the network effect).
I disagree. I think that information is largely useless for a number of reasons:
1. Because of social games and the like who your friends are on Facebook loses a lot of meaning. In the very least Facebook has to filter that information and determine who your real friends are (which it probably does anyway for News Feed filtering and so on);
2. Where people go and what people do is far more accurate than what people will tell you about themselves. As House says--or used to say--"people lie". When you ask someone their interests or opinions it will pass through various filters of what that person thinks you want to hear, what they want the world to believe, what they themselves wish they were and so on. It's a distortion.
It's a bit like dating or job hunting. You look at any online profile or CV and you'll see lies, distortions, omissions and so on. As Chris Rock said, for the first 6 months you're not dating them, you're dating their representative.
Facebook has no search engine. Whatever you say about the size of display ads, search advertising is still far bigger. With search you have intent. People want to find things by their actions. On Facebook ads are an annoyance.
It's the difference between wandering the streets shouting "does anybody want ice cream?" versus putting an ad in front of a bunch of people who have already told you that they're looking for ice cream.
Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft. Mobile (IMHO) poses an existential risk to Facebook, which in part explains the exorbitant price tag paid for Instagram (it has nothing to do with any alleged "bubble"). Much of the engagement on Facebook is because of games. Those games are increasingly going mobile. This is bad for Facebook.
At $100B IPO valuation that put Facebook being worth half of Google with 5-8% of the revenue and significant strategic risks. Of course it was overvalued. It's still valuable but it will take some time to figure out exactly how much it's worth.
"Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that"
I understand that you work for Google and that not holding this opinion would mean that you have to conclude that your employer is also very much in the wrong. But how do you justify it?
It's clearly not information that people have chosen to give to Facebook. Facebook is basically taking advantage of a technical trick in order to obtain information about their users which their users neither gave them permission to collect, nor know they are collecting. It just seems highly unethical to me. But you "have no problem" with it... How is that possible?
The thing that annoys me about it is that the browser vendors could prevent this hidden tracking quite easily. By either disabling third party cookies, or by tying them to the domain in the address bar. Hell, Safari blocks third party cookies by default, and Apple is all about usability, so it can't cause that many problems... On the other hand, why would Google and Microsoft modify their browsers in such a way as to increase our privacy at the expense of their profit.
That's a decent chunk of minified js. Seems like quite a bit of code just to be able to tell FB whether or not you "like" something.
My biggest problem with it is that consumers have no clue whatsoever that they're being tracked that way. Even typical web site owners don't really realize that the little piece of code they copy/pasted to get the FB Like button exposes their visitors to so much intrusive js.
I don't have a problem with people being tracked if they feel that they're getting reasonable value out of the relationship, but the current situation is just very sneaky.
There are different levels of "block third-party cookies".
Safari blocks _setting_ third-party cookies by default. It does not block _sending_ of third-party cookies, last I checked.
Firefox's third party cookie setting blocks setting and sending and doing that _definitely_ breaks some sites (e.g. some e-payment systems). Hence it not being enabled by default.
The problem is that the Safari approach is not good enough to prevent the tracking issue where Facebook is concerned: As long as you visited Facebook directly so that it got a chance to set a cookie, that cookie will get sent every time the Like button is fetched. So at that point Facebook knows who you are (via the cookie) and which site you visited (because the Like button itself has access to that information).
The Safari approach _does_ help deal with tracking via ad networks that you don't have any kind of first-party relationship with, since those would never get a chance to set a cookie to start with. So it's definitely a good idea, and I wish more browsers would adopt it. But it doesn't help with the Googles and Facebooks. Unless, of course, there were some sort of requirement that the "user-facing parts" and "ad parts" of those organizations use different domains. Would be pretty hard to get something like that written down properly, even.
Agreed on all points, but websites that feature Like buttons or Analytics are complicit in this dubiously ethical behaviour. Webmasters should also be doing more to protect the privacy of their users. Sadly, even the ones that are supposed to be operating within FERPA or HIPAA restrictions in the US ignore this duty.
Are there better alternatives? (I ask this question honestly)
As a web master of a very small, personal site, I find that running AddThis or something similar to be vital in generating traffic. Giving users a one click option to share my pages makes it much more likely that they will. Without that option, I have to resort to spamming message boards, Twitter, Facebook, etc manually, in order to drive traffic. I am not opposed to that option, as my site has no way of generating revenue and likely never will... I'm just looking for engagement from readers and ways to generate more readers.
This makes me wonder if there is value in someone creating a Facebook Like button, Google +1 button, etc. widget set that doesn't keep any tracking data and only sends information about a user to Facebook, Google, etc. when a user explicitly clicks on the button.
Yep! The question is whether to give it away or try to find a way to monetize it. I'd buy it, but I'm not sure how much I'd pay for it.
I don't give a crud about the analytics of AddThis, and their menu is full of options that most will never use. The key point is sharing for the lazy. The vast majority of Internet users are never going to open their Facebook, write a wall post about something and copy/paste my link in their post. That same person, however, may be really interested in it and be willing to hit a little button that does all that stuff for them. That's all I want. I don't want to jeopardize people's privacy.
Heise developed this last year. They made a two-stage like-button which is disabled by default and sends no data to FB et al. When you first click on it, the real button loads and you can then share what you want.
That's really interesting. I like the concept, but would most users only click once because that's what they are used to? The interface doesn't seem to be that obvious for a non-technical person.
I guess this blocking by the browsers will eventually happen. But then it is not impossible to move the tracking to the server of the web site, instead of the client. I guess that is what would happen over time, although I admit it would require more effort by the site owners.
After using NoScript for while, I realized that it was painful to whitelist every website I visited. My goal was different, I only want to block tracking scripts and cookies. This is why Ghostery is best suited to my needs.
Request Policy is really annoying for daily use. Lots of sites use multiple domains to load images or CSS or other static content faster. Using the Readability plugin helps. Just tap ` and the missing CSS doesn't matter anymore.
I feel bad running on adblock, and then gorging on cyanide and happinesss, xkcd, smbc, etc... One day I just might click on an add and make them some money.
You don't even need to log in – just visiting a URL sends it to google. I'm not sure if you can even disable that despite all the predictive/protective/suggestive checkboxes in config – I couldn't figure out how to stop my dev domains from being leaked to google until I moved to chromium.
Keystrokes are sent to your default "search provider", so if you configure chrome to point elsewhere it will send your keystrokes to someone else. You can add custom URLs as "search engines" so just put in a non-existant domain, or DuckDuckGo, and it won't tell on you.
Did anyone actually try to investigate if or to which degree this happening? It should be actually be possible to see if there is some correlation between the site you visit and the advertising you see.
"A common misconception from fearmongers is that your data is being sold. It is not."
I'm calling "Srawman" on this.
The correct conception is that it could be sold and the Market Economics Fairy has predicted that it will be sold as soon as a willing buyer and willing seller agree on a price. Indeed, if Facebook fails, all their data will almost certainly be sold along with the rest of their assets.
Likewise, Google has an increasingly strong incentive to sell user data as its perceived value increases and the cash flow per "unit" decreases. That Google sees this as a distinct probability is clear from their privacy policy which gives them the right to use user data "to develop new services." No one should be surprised by this because failing to reserve rights to a potential revenue stream would be irresponsible behavior by Google management.
If the thesis of the article is correct, sale of data is increasingly likely as the online advertising model pivots away from personalized advertising and the attractiveness of creating alternative revenue streams from the data increases.
Google wouldn't even consider selling that data unless they were losing money, and they'd probably consider a good many things before they'd resort to selling it even in that case.
Right now, Google has that data and nobody else on planet earth does. That's strategic. A couple million dollars isn't worth changing the game.
There are companies that sell browser data, it's anonymized, and it's much smaller than what Google or Facebook presumably has.
We just hold different opinions regarding under what conditions it is likely to occur. Google or Facebook's proprietary access to the data they have collected only makes strategic sense so long as there is strategic value in exclusivity. Given that there already are a variety of ordinary existing circumstances in which exclusivity is not strategic - e.g. subpoena - the argument that it is only in extraordinary business circumstances that the data might be sold needs a stronger case made in its favor.
We are not talking about a few million dollars, but several billion or more. Just look at patent portfolios for a parallel way in which the market may suddenly revalue intangible assets. Particularly consider the case of Nortel and if Facebook could experience a similar demise over the next twenty years. Even if Facebook stopped collecting data today, most of it would still shed light on living people.
I'm saying it's very low on the list of possibilities. Most of the data is of transient value (browser cookies last around 30 days on average). If Google is whittled down to a shell of its former self, to the point where they'd consider selling that data, presumably what data they have at that point isn't really that valuable.
On the one hand, I find it hard to believe that Google is not extracting data from cookies and looking at it over the long term.
On the other hand, I know that much of the data which Facebook is collecting will be pertinent twenty, thirty and forty years from now...e.g. my cousin will still be gay in 2036.
Finally, the notion of Google selling their data only seems remote given the current state of affairs. If Facebook starts selling direct access to their data, it makes Google far more likely to follow suit not only based on a need to stay competitive but also because the standard of acceptable behavior has been lowered and a new status quo has been created.
One need only look at the speed at which telephony has changed over the last five years or the music industry over the last ten to realize that business models of established companies can change rapidly.
>On the other hand, I know that much of the data which Facebook is collecting will be pertinent twenty, thirty and forty years from now...e.g. my cousin will still be gay in 2036.
I think Google could probably guess most gay people are gay from their searches, and the pages they visit.
>The correct conception is that it could be sold and the Market Economics Fairy has predicted that it will be sold as soon as a willing buyer and willing seller agree on a price.
Mmmmm... unfortunately, I think YOU'RE the one with the strawman argument here. The misconception that he's talking about is the notion that "the purpose of collecting your personal data is to sell it to the highest bidder". That IS a misconception. The purpose of collecting user data is to rent out the aggregate value of it to advertisers. The fact that the collector might someday be forced into receivership and the user data may end up on the auction block as part of their assets is not actually relevant, because a purchaser of such is ALSO not interested in selling the data for profit, but rather collecting rent on the aggregate value of the data from advertisers.
My premise is that once Facebook's assessment of the net present value of exclusive use of its data is less than a willing buyer's assessment, the likelihood of a sale is significant (it is also a premise that this also holds for Google).
A second premise is that companies which own data may have that data acquired through dissolution, merger, or acquisition; and that in such circumstances the asset may be monetized differently than it is currently.
This may be pessimistic, but betting on the benevolence of corporations is not supported by history.
I'd be interested to hear any insights as to why Facebook hasn't yet pushed to build a display advertising network for third party publishers (a la DoubleClick). That way it could leverage the assets that it does have (behavioral profiles) against an asset it doesn't (users with direct purchase intent).
On a side note - I'd take issue with your suggestion that the information on Facebook is largely useless to an advertiser.
There doesn't have to be any explicit "truth" to the action being measured (whether it's what a user happens to press Like on, or some abstract measure like their ratio of likes to logins), all that matters is that it's a measurable predicate of some other behavior that advertisers care about - like the language you're likely to respond to, what stage in your life you're at, your self image, what the rest of your peer group is into.
In many ways this a lot like a first date as well, in that the things your partner may embellish or overcompensate for might actually tell you quite a lot about what sort of person they really are.
It is clearly their plan to do this, and in line with their stated intent to form the "identity layer" for the web. It's unlikely to work though, because the web has a great tendency to upset the plans of those who want to basically control the whole thing. It's sure that some kind of identity layer will come into use, but an open system (maybe a descendant of OpenID, maybe not) will always have the advantage of allowing myriad people and (importantly) companies to do different things with it. And that's the kind of evolutionary openness that saw off AOL in the 90's in favour of the web.
I expected Facebook to announce plans for an ad network to coincide with their IPO. I'm a little flummoxed that we haven't heard anything yet. It seems like an obvious outgrowth. I wonder if concerns over a privacy backlash would push them to keep this project on the back burner?
(Though I don't personally see any privacy issues with such a project)
The botttom line with Facebook is that it went public far too early. It doesn't have its footing on solid ground as far as revenue growth, stability, and profitability are concerned. Its advertising model, dependent as it is on these much-maligned targeted display ads, is promising -- but has a lot of kinks to be worked out. The more I look at the Facebook IPO, the more I don't see the conventional narrative, i.e., that the company itself is a flop, or that its ad model is inherently flawed. Rather, I see a company that was forced to IPO before its time, by taking on too many private investors and too much private funding. Furthermore, I see a bunch of the people behind that private funding basically giving Facebook as shiny of a paintjob as possible in order to make its public debut. But the paint was applied hastily, and it's all flaky and spotty at the big show.
To me, this cautionary tale is every bit as much about VC funding bubbles as it is about advertising bubbles. Sure, Facebook could never have been bootstrapped to its current scale. But it could have stopped taking on such massive amounts of funding, and, instead, opted for more organic growth until it found time to perfect its ad products and business model.
When we talk about the Dotcom Bubble of the mid 90s, we talk about a frenzied funding (and IPOing) of companies with little more than userbases and unproven (or occasionally nonsensical) business models. Facebook is not that, exactly. It's more userbase than business, but that doesn't necessarily have to be the case. Unfortunately, it was funded (excessively) in Dotcom Bubble fashion, and forced to IPO in Dotcom Bubble mode: grow insanely fast, worry about profitability later.
That it happened to benefit, temporarily, from a misguided advertising bubble is material, but also somewhat incidental.
So by saying that you think they went public too early, you are maybe implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate.
Are either of those things true? Is there some other difficulty?
"implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate."
I'm implying both. First, if they'd have shrugged off the early pressure to take on too much VC money, they wouldn't have been propped up with an indefinite runway and would have been forced to get creative, and quickly, with monetization. They'd probably be in much stronger shape today, because they'd have had to scale up profitability in line with operating costs and userbase. (At least to some greater extent than they were).
Second, because they're now public, they're having to crash-develop profitability while still being held to the fire to make quarterly projections.
I'm aware of the apparent contradiction in what I'm saying here, i.e., does it really make a difference when their feet are or were held to the fire to grow revenue? At least in my preferred scenario, they'd have been forced to deal with it early. Before growing to 1 billion users -- all of whom expect the service to be 100% free -- and going public to the equity markets -- who expect those users to be monetized pretty much overnight.
Not so sure that Facebook's strategy would be in-line with early monetization.
Their business strategy was clearly to rapidly gain default status and solidify the barrier to entry of being the de-facto social network... by monetizing you either piss off or scare away users, or decrease your eyeballs (that you can sell in-aggregate to advertisers).
That's been their strategy, yes, but the problem with not finding a way to monetize as you grow -- by putting off monetization -- is that you risk pissing off users even more when you suddenly introduce it, and at such large scale as to satisfy the needs of public shareholders. It's sort of like burying a mess under the rug: it's out of sight for awhile, until it festers, rots, and really starts to stink.
Sooner or later, Facebook was always going to have to monetize. Its deliberate strategy of putting off monetization until it became a de facto standard social network was a gamble. It seemed reasonable at the time to many inside and outside of Facebook. But my point is that, knowing what it was gambling on, Facebook shouldn't have taken in so much money that it was forced to go public before its gamble was ready to pay off. Now, it's going to have to start monetizing quickly and massively, come hell or high water -- at a time when it still doesn't quite know how to do so without pissing off its userbase. It's in a worst-of-both-worlds scenario, which could have been avoided regardless of its user growth vs. monetization strategy.
> "Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft."
A majority of non-techy types I know bought smart phones because they "do facebook". There is a deeply symbiotic relationship there, and woe is the mobile maker that couldn't provide a Facebook app.
> A majority of non-techy types I know bought smart phones because they "do facebook". There is a deeply symbiotic relationship there, and woe is the mobile maker that couldn't provide a Facebook app.
I finally decided to upgrade my iPhone 3 a couple of months ago when the Facebook app stopped working for some obscure reason and I couldn't update the app anymore. I'm a programmer, but probably not a "techie".
Also, I think it's kind of wrong to continue making this distinction between "real life" and "FB-life" or "internet-life", as in "real life friends" (which are ok) versus "Facebook friends" (which presumably are just a "lie" or "fake").
I think the distinction is still useful to draw a line between those you legitimately interact with and those who are your social networking 'friends' solely because there's social pressure to accept them.
e.g. former coworkers, old high school friends, friends of friends, etc.
Sure, but did you notice how they use Facebook? I've watched (and asked) several of my non-techy friends and there reaction was always the same: "Yeah, I just update my feed, look for updates of my friends and that's it."
I don't see how Facebook wants to make money of such an usage pattern, so at the moment it doesn't help them very much that people have smart phones to "do facebook".
Quite the opposite, in my experience. I can read my feed on my 'phone, with a better UI than the website (turns out native app beats webapp, even when it's tiny screen vs. desktop), so why would I ever bother going to the website?
Most of my FB friends seem to use the mobile app mainly for uploading photos, if my feed is to be believed. From that POV the Instagram acquisition makes sense. How they're going to make money from it I'm not sure, but location-based ads and third-party apps come to mind. Though I still have a hard time imagining the developer appeal for their hypothetical but inevitable mobile app platform.
> "Facebook has no search engine. Whatever you say about the size of display ads, search advertising is still far bigger. With search you have intent. People want to find things by their actions. On Facebook ads are an annoyance."
Exactly this.
I don't have any feedback on your post, but I'd like to thank you for writing this. Very insightful.
1. Your social games argument is really weak. People may play some social games with random people, but they mostly like, comment, have common friends, appear in photos together, go to weddings with real friends.
2. Your second argument is contradictory to your observation that Like buttons across the web are mainly cookie carriers.
And as far as lying is concerned, people don't just lie virtually with Like buttons and comments. They also lie by spending real dollars. Even if you know squat about F1 racing, buying that red Ferrari jacket is a pretty good social signal to send to your equally clueless peers.
I'd be really surprised if Facebook is not working on a mobile OS or browser. They will probably also make a big direct play in ecommerce (see Karma purchase).
Predicting failure for Facebook purely based on its desktop web app ads seems shortsighted and naive.
He wasn't actually predicting failure for Facebook. The last thing he wrote was "It's still valuable but it will take some time to figure out exactly how much it's worth". Don't be so quick to lash out at people because they're not sitting in front of you or because you didn't read the comment.
>"1. Your social games argument is really weak. People may play some social games with random people, but they mostly like, comment, have common friends, appear in photos together, go to weddings with real friends."
Go to any message board for a popular Facebook game; it will be filled with people saying "add me!". This is one of Facebook's dirty little secrets. These games have warped the network. They already had to reign the games in by cutting off viral channels. 1 BB registered users? I've seen people with 20 active accounts trying to "game" the games.
Again, this doesn't make FB worthless, just worth less.
1) Facebook might be able to distinguish real friends from social gaming faux friends, but advertisers aren't given that information today. They can target "friends of friends" of people who appear to have a particular target interest (for example), but that's going to have a lot of noise because of the social noise.
2) When people lie by spending real dollars, at least their spending real money. And they are actually saying something. Maybe it's not "I'm a race car driver", but "I'm interested in race cars". The trick is understanding what it is they are saying.
Agree with everything BUT if you screen "does anybody want ice cream" down Venice beach in the middle of the summer, I'm sure you'll get some customers. lol
I can imagine two future timelines where facebook turns out big. Facebook could do either:
1. Figure out when people want something and what they want. And insert suggestive ads in people's streams in a way that is not creepy. Or gamble that beyond a token uproar, they will not disturb their equilibrium enough to allow a competitor's toy to slowly siphon their users.
Facebook could also figure out when people are looking to give gifts and aid in that arduous process with targeted coupon/ads.
2. Lobby to become the premier centralized digital consolidated identity provider once governments start to require this due to some misapprehension of how much security such a requirement would bring. With this toehold, Facebook would have more room to control your stream and could insert creepily timely targetted ads. The facebooks of the future may become the synthesis of insurance and big media companies of today.
facebook is already offering facebook offers. Its a great idea.. they know when people's birthdays are on your friends list and some of their relationships. They should offer a personalized deals at these times, dinner or online coupons.
> The main purpose of that "Like" button is (IMHO) as a tracking cookie. Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that. Just make no mistake why the Like button exists.
Yeah, probably; still, please remember that it would be the same what ("IMHO") Google Analytics (since ~2005?) + Google AdWords (since ~2000? ah, yes, and this actually makes money as well) do for Google. (Plus a few others, like Customized Search and the "recent Google +1 widget".) Personally, I'm amazed every time I look at my NoScript list and see that on ~99% of the Web google-analytics.com is watching your every click.
great analysis. So following your argument it seems as if facebook realized quite a while ago, that the information it collects is not (relationship status, location, etc.) is nowhere enough to deduct targeted ads. hence they came up with some sort of tracking cookie disguised as a like button. I gotta give them credit for that, that is ingenious.
Facebook will only be really valuable once they find a way to combine interest with intent and location.
This can primarily be done on the mobile but even google haven't really found a way to be that profitable with mobile so the real question becomes can they improve it?
A minor note about point 1. It seems very easy to figure out who the real friends are through activity -- e.g., the people whose posts you comment on or whose pictures and profiles you view. So this information doesn't lose much of its value.
Imagine an apartment. Google is like the copy of the yellow pages by the telephone. FB is like the photo-album in the closet. People generally do not open these two books for similar reasons. They have very different usage. One is recreational, the other is not[1]. But FB believers do not want to accept this difference. And it's this difference that makes FB a dud compared to Google.
The question I have is what is going to come out of Bing's integration of FB?
1. The other is a directory where you look up businesses that offer products and services.
While I agree with your point, a part of me can't help but wonder about the possibilities that would open up if we had the capacity to extract enough semantic information from a photo:
If I'm looking at my old holiday snaps and reliving the good times I had, I might be tempted by an ad for cheap flights to a similar destination.
If I'm looking at recent photos of my relatives' adorable children, I might be tempted by an ad for children's toys to send them.
If I'm looking at a friend's photos from an event they attended and enjoyed, I might be tempted by an ad selling tickets to that or similar event.
If I'm looking at a photo of myself from a time when I was in better physical shape, I might be tempted by an ad for a gym membership.
etc...
I doubt Facebook will ever be able to get to a point where they can make predictions as accurate at that, but given the trove of personal data and image analysis algorithms they have, if anyone could do it, it'd be them.
FB and its believers think that the chances are high enough to make big money, or at least that they can make them high enough.
In actuality they aren't. You might think about booking the flight, but the chances of you actually reaching for the credit card based on idly looking at photos are too small to do worthwhile targeted ads.
The idea that FB can just tune their algorithms until they know exactly what you're thinking is a fantasy based on...
1. an overly optimistic estimation of the SNR ratio of the info people put into FB, and
2. on the hilarious fallacies of the aforementioned Market Economics Fairy which assumes that everyone is always a rational actor, and that everything people do has definite reasons behind it which can be traced and understood, and their future behaviour predicted from, and crucially that these reasons can be modelled with traditional reductionism. This is plainly not true.
Admittedly my opinions here are based on guesswork, just like FBs are, but I contend that I have the benefit of drawing my conclusions without a hundred billion dollars worth of wishful thinking clouding my vision.
And that's why the message to Harvard graduates[1] (purportedly America's brightest rational minds) makes deliberate reference to a man[2] who has consistently proven this to be false. The message also is centered around another pillar of rationality: the idea of "luck".
1. A link to this was recently posted here on HN.
2. One who was "lucky" enough to be awarded a Nobel Prize.
Even if they could do all that it is still wild guesswork with too many possibilies. And the effectity of that fantasy also assumes that there is endless supply of advertisers from all different industries. The reality is that if, for example, only some dating sites and hosting companies are willing to pay for ads that match your profile then it is only dating and server hosting ads that you will see.
This is the trap. This is what FB employees keep telling themselves everyday. This has to work. It just makes sense.
You can keep saying the data is valuable. No one is going to question that it is. We all have imaginations. And advertisers will be curious. They will try advertising on FB.
But there's just a big difference in human behavior in the two examples I gave. They are different. Not because I can make argument based on reason for the difference. But because it's what the facts show. There is a long history to this that predates the web. You might say it's been thoroughly tested.
So, you can make all the arguments you want that people should behave a certain way, and maybe you draw on examples of your own behavior or that of others you know, but when it comes down to making money and growing like Google does, it matters more what people actually do in real life. As opposed to how we think they should behave.
Yellow pages and photo-albums are things that have been around for a very long time, long before the web. If people looking at photos (FB) are at the same time looking for products and services, then why didn't photo-albums before the web have heaps of advertising in them? The answer is because there was a different book where it was more appropriate to advertise.
Read the article on the MIT or Harvard blog again. What you are describing, especially a tactic like image analysis, is exactly the type of approach he is saying is just too invasive. This kind of approach to advertising removes anonymity and violates people's privacy when it's counterintuitive to do so, according to the article.
I'd say Facebook is more like the front of your fridge (cool pictures of your friends/kids), plus your kitchen notice board (that wedding invitation from last year, that save the date card for next year etc) - the shoebox that you put all that stuff in, and never really sort, plus the photo album ;-)
I know plenty of people with really interesting things pinned to their fridge. It often takes them a while to remember anything about pictures that have been staring them in the face for years. Why? Because, you go the the fridge to get food. People are terrible multitasking which is why Facebook advertising has such a low click-though rate and a high accidental click rate.
Hungry. Get food. How much thinking is involved in that?
Do you know what has a very high clickthrough rate on FB, probably their highest CTR ever (but which is no longer allowed)?
Pop-up styled ads for "party poker".
Not much has changed since the 1990's in this regard. Web advertising is still much the same. And anyone who has been using the web since then, such as the author of the MIT article, sees and knows this.
But do the kids with advanced degrees being hired by FB at $100K/yr know it? Nope. They believe that watching your every move and analysing who your friends are is a path to riches.
I'm not sure what's worse. The knee-jerk response of web users to blinking poker ads, or the blind allegiance of otherwise intelligent young people to a sociopath who thinks destroying privacy is a "goal" worth pursuing.
News flash: Communication on and above the scale of FB is possible without destroying privacy.
OK, so if your wife says to you, e.g., "Swannie, we need [description of rarely purchased, high priced product]. The old one has stopped working." Do you check the front of the fridge, your kitchem notice board, the shoebox and then your photo album to find the contact information for who sells [product description]? Maybe you have the name of who to contact in one of those places? Or you need to call your friend to get a recommendation? Anything is possible, but what do you think is what people do _most of the time_?
FB is the next Pets.com
But it's going to be a slow, painful decline. They have raised billions to stay alive.
Solution for FB: Build a search engine and put it where the display ads are. Keep people inside the walled garden by removing any possible reason for them to leave. Like 1990's "framing" reborn. FAIL.
The whole notion of FB is utterly absurd. Tell us who all your friends are and we'll "enable" you to communicate with them (even though it's trivial to do yourself without us). We reserve the right to analyse all the information you give us and monitor everything you do on the FB site and elsewhere on the web to _try_ to make money, in various sneaky, deceptive (but really clever!) ways. FAIL.
Google is a tool and Facebook is entertainment. If you look at the history of advertising, entertainment companies have done far better than tool companies. Who made more money in the 20th century--the magazine publishing industry or the Yellow Pages?
Think of Facebook like a magazine. When people read through National Geographic, are they looking to buy a camera right then? No. And yet all the camera companies advertize heavily in Nat Geo because having their ad next those photos creates a positive brand association.
Facebook is developing the ability to show ads that are contextual to whatever you're reading or talking about on Facebook. Their success won't be measured in clicks, but in the same way companies have valued brand ads for decades--by statistical research.
I agree with you entertainment is a cash cow. But FB is _free_ entertainment. As is your photo-album and the discussions you have with your friends.
You appear to be referring to future success. It's like Microsoft talking up "vaporware". It gets people's attention, maybe it convinces some to believe and some to invest, but it offers them nothing. Only a promise of some future of which no one can be certain.
We have almost two decades of web display ads and their effects on building brands. Advertisers are not too impressed. They have waited patiently for something that compares to a magazine ad. And no one has delivered. Maybe solving the context problem might not be so easy. Maybe a website is not a magazine.
Meanwhile people are looking for products and services via the web, with their credit cards in hand. And Google has been there to help advertisers reach them.
That's not some promise of the future, that's the here and now.
Facebook has real power for influence. And some of that can no doubt benefit corporations. But what Google offers is something much more direct and efficient. And it's not a pie-in-the-sky promise, it's proven to have worked year after year.
Facebook has no business model. They only have everyone's curiousity. And that's mainly because the "content" on FB is everyone's friends and family, not the type of packaged, commercialised "entertainment" you get from a magazine. FB is not a magazine. It's a photo-album. More specifically, it's a collection of personal photo albums.
It does have some added "features" to the traditional photo album. It comes with tacky, invasively personal display ads in the margin. And it comes with a team of "engineers" looking over your shoulder to log every photo you look at and every comment you make. And it's exposed to viewing by millions of strangers (this is totally unnecessary). I think we can have photo albums without all that cruft. And I think we will.
Facebook made almost a billion dollars in profit last year on gross margins of around 25%. They obviously have a business model and it's obviously working pretty well. Now--could they fail? Of course, but I don't see any reason now that they must fail, based on what we know now.
I find it kind of funny to see the complaints about Facebook's financial future...I'm old enough to remember when Google was a cool new free technology, but no one knew how the heck such a simple search engine was going to make money.
It really isn't "free" entertainment. There are many companies making lots of money (zynga for instance) selling virtual goods on facebook with FB credits. FB gets 30%. I'm not trying to say it's the same amount of money that google makes, but that alone is in the millions of dollars per month of gross profit.
Display advertising works best when you have sufficient, quality inventory (publishers whose sites serve ads) such that you attract advertisers in sufficient quantity and quality. Targeting in display ads works because from the publishers, the intermediary has information to figure out what your interests are and so on. A common misconception from fearmongers is that your data is being sold. It is not. Advertisers are paying to have their creative put in front of a particular audience.
The most important strategic move Facebook made in the last few years (IMHO) is the Like button. Whether or not you "Like" things is irrelevant. The main purpose of that "Like" button is (IMHO) as a tracking cookie. Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that. Just make no mistake why the Like button exists.
Facebook also has a wealth of information in terms of who your friends are, what your interests are, your relationship status and so on. It's this alleged treasure trove that people point to as the real value of Facebook (combined with the network effect).
I disagree. I think that information is largely useless for a number of reasons:
1. Because of social games and the like who your friends are on Facebook loses a lot of meaning. In the very least Facebook has to filter that information and determine who your real friends are (which it probably does anyway for News Feed filtering and so on);
2. Where people go and what people do is far more accurate than what people will tell you about themselves. As House says--or used to say--"people lie". When you ask someone their interests or opinions it will pass through various filters of what that person thinks you want to hear, what they want the world to believe, what they themselves wish they were and so on. It's a distortion.
It's a bit like dating or job hunting. You look at any online profile or CV and you'll see lies, distortions, omissions and so on. As Chris Rock said, for the first 6 months you're not dating them, you're dating their representative.
Facebook has no search engine. Whatever you say about the size of display ads, search advertising is still far bigger. With search you have intent. People want to find things by their actions. On Facebook ads are an annoyance.
It's the difference between wandering the streets shouting "does anybody want ice cream?" versus putting an ad in front of a bunch of people who have already told you that they're looking for ice cream.
Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft. Mobile (IMHO) poses an existential risk to Facebook, which in part explains the exorbitant price tag paid for Instagram (it has nothing to do with any alleged "bubble"). Much of the engagement on Facebook is because of games. Those games are increasingly going mobile. This is bad for Facebook.
At $100B IPO valuation that put Facebook being worth half of Google with 5-8% of the revenue and significant strategic risks. Of course it was overvalued. It's still valuable but it will take some time to figure out exactly how much it's worth.