Whoops, are a few basic errors here.<p>He has two assumptions:<p>- You can make a profit in the industry of your advertisers. This is a huge if, and is impacted by scale, expertise, management focus, time/maturity, branding and many other factors.<p>- The return on investment you can make in industry X is higher than the return on investment you can make by expanding your operations in your current industry. This could be true for social sites, where increased investment (i.e. programmer time) might not get them many more users, but they still have to compare the possible revenue to the increased profit from firing some programmers and going into maintenance mode.<p>These to are the main reasons why you see companies outsourcing non-core activities (like cleaning and even product development), the markup they now have to pay on the service is lower than their internal cost of capital.
This is very silly. It's a well-known concept in the business world that companies should stick with their core competencies. Ones that try to do too many disparate things at the same time generally fail. Facebook's core competency is not selling mortgages or credit cards.<p>Also, if mortgage brokers are only willing to pay some portion of 14 cents CPM there, that means Facebook is creating very little value for them. Which also means that if Facebook got into the mortgage selling business, they could probably capitalize off of it in much better ways than just advertising it on their relatively worthless site.<p>So in essence, the only industries Facebook would benefit from entering are ones that already pay them a high CPM. But if people were paying them a high CPM, they wouldn't be in this predicament.
I agree that social networks need better business strategies in general, but if the advertisers are making more money than the social networking sites, why make the SN site in the first place? Why not just try to beak your way into porno, gambling, credit repair (the list goes on) business and just sell adds like everyone else?<p>I think the answer is that we believe SN sites <i>should</i> be able to make more money than these other businesses. The person who figures out how to make that happen will be rich, but I don't think the answer is to just add another business onto your SN.
I have recently had the same idea and tried to execute it with as an astonishingly great failure. I have a real estate site with high traffic, I sell adverts and have adsense too. I suspected I could see directly to these visitors with another spin off that I controlled. So I built an e commerce site selling organic wine (which I suspected would be of interest to the same clientel) and advertised it prominently on the real estate site. Hardly any traffic has resulted from the advert. The bottom line is, if the advert is not on topic with the mode de operation of the user at that specific time it will be ignored.