After Facebook fails

I have no idea if Facebook is valued correctly or not, however I think this misses a vital point. Facebook is not nearly the same as other web ventures. It's ability to target ads seems secondary to this:<p>From <a href="http://www.kenburbary.com/2011/03/facebook-demographics-revisited-2011-statistics-2/" rel="nofollow">http://www.kenburbary.com/2011/03/facebook-demographics-revi...</a>, slightly out of date, but still useful:<p><pre><code> - Average user visits the site 40 times per month - Average user spends an 23 minutes (23:20 to be precise) on each visit - Global users 629,982,480 (I believe this has passed 800 million now) </code></pre> So, <i>on average</i> hundreds of millions of people are spending about 1/2 an hour looking at Facebook.com <i>every day</i>.<p>As much as their ability to target ads is hyped (or derided), does it really matter? Isn't targeting just a way to charge a premium, or drive click-thru on <i>massive</i> volume?<p>Facebook isn't competing with other websites for online advertising. It's competing with the entire entertainment sector for all advertising, everywhere. That isn't going to change soon.

Every time I read about how online targeted ads have poor returns for advertisers, I think to myself:<p>"These advertisers know that the ads have low ROI because things are <i>measureable</i> online. How (in)effective would traditional advertisements prove to be, if they were as measurable as their online counterparts? How (in)effective would traditional advertisements prove to be, if they didn't interject themselves into the medium in such grotesque, user-experience destroying ways?"

He points out some of the terribly targeted ads that Facebook pushes on users. I think this is a huge issue that's not discussed enough.<p>Facebook has all the data but no real targeting. This stems from two core issues: 1) they don't seem to use their immense datasets as effectively as Google does and most importantly 2) they rely on the advertisers to target their ads. Advertisers, even when handed the best demographic tools in the world, seem to get it horrifically wrong. This means people are exposed to bad advertising and learn to ignore it. This also means that advertisers will complain that Facebook doesn't give them the bang for the buck that they're after. Facebook don't mind however -- they still get their revenue.<p>In the long run Facebook need to work out how to target ads. The longer they leave these horrible ads in place the more desensitized their userbase will become. They're poisoning their revenue stream by allowing any and all ads through, regardless of quality or accuracy in the target market.

This essay reads like an advanced lifeform encountering, and misunderstanding, the average human consumer.<p>Two quotes stick out:<p>(1) That he goes "on Facebook. . . as infrequently as I possibly can."<p>This statement disqualifies his entire experience.<p>Hundreds of millions of average-consumers use Facebook DAILY.<p>These users update their content, they integrate more of their life. They click the like buttons. They share.<p>This in turn creates more specific opportunities for advertisers to target more relevant ads vs. the junk broad market ads he uses as examples of their failure (credit cards, dating, classmates known to be JUNK-CPM offers that work everywhere).<p>(2) That his perfect model is inclusive of "Vendor Relationship Management" that lets people manage their vendors, vs the vendors managing the people.<p>I might use VRM along with my HN brethren but average consumers won't adopt VRM because it requires them to choose.<p>Advertising works because people prefer to be told what to do.<p>This article fits nicely into the "FB is destined to fail" cannon, but I find the author to be grossly misinformed by his own experiences.

Unlike some I'm not convinced that facebook will fail. However, I think the risk that they will lose a lot of their userbase and/or they will fail to massively increase per user monetization over the next, say, 10 years is pretty high (maybe 50/50 as a SWAG).<p>The advertising revenue risk is a big one, but there are bigger ones I think.<p>First, we may be nearing the end of an era where monolithic social sites make sense. Social Graph as a Service and federated social networking just plain makes sense. I think the biggest risk to facebook isn't necessarily the one big competitor (like google) but a thousand tiny competitors who offer the same full suite of services as facebook but are more targeted toward a particular social niche.<p>Second, as technology advances the ease with which someone can bootstrap a company that has 10 million, 100 million, or even a billion regular users drops dramatically. Right now supporting a billion users takes over a thousand employees and data centers around the world. How will that change in 5, 10, 15, and 20 years? In 2022 it might be possible for a site with the same usage load as facebook to be supported by a company with less than a hundred employees and other expenditures on the same scale as payroll. When, not if, that happens it'll open up facebook to a much greater degree of competition. It also fundamentally changes the game, because then you will have situations where "fad" sites rise up and then evaporate away in a matter of only a few years, months, or days and yet still have gigauser popularity at their peaks.<p>Third, related to the other 2 points, social is just plain going to change, a lot, over the next several years. Anyone who thinks that the way social on the web works today should be set in stone and never changed is either clueless or evil. There is a lot that's missing and a lot that's broken today. Facebook has so much work to do just to be able to increase its monetization to a level that justifies their stock price, but they will also have a tremendous amount of work to do to fix and change social networking. If they do one and not the other they are doomed, but their competitors can get away with doing only one and they'll eat facebook's lunch.<p>Either way, it'll be exciting to watch what happens.

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).<p>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.<p>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.<p>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).<p>I disagree. I think that information is largely useless for a number of reasons:<p>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);<p>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.<p>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.<p>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.<p>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.<p>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.<p>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.

Whilst I agree with pretty much everything he says about Facebook and targeted ads, I'm surprised that the article makes no reference to Amazon - which is the one place that, at least for me, targeted advertising works brilliantly.<p>There's a few reasons why it works for me<p>- I'm going there to buy or at least thinkg about buying something, and when it comes to things like books, I like to browse for something interesting so being prompted to look at books that I might be interested in seems entirely appropriate<p>- they are entirely open about why a particular product has been recommended to you, and you are able to pretty easily fine-tune those recommendations.<p>- when I buy something from them, or even browse on their site, I'm not particularly shocked when they remember that next time I visit. They don't seem to be secretly collecting stuff behind the scenes, sniffing around what I did on a random 3rd party site etc.<p>Facebook, and Google mostly (although they are at least slightly better off on the first point than FB) fail on all three of these. They are giving me messages about things that I'm not currently planning on doing, based partly on some secret info they've gathered from god knows where.

If internet advertising is a bubble that's going to pop they might as well retitle this article:<p>After Google, Yahoo and most web properties fail.<p>I guess all we're going to be left with is craigslist and basecamp, also there won't be any newspapers because they're dead because of the internet, and all their replacements are dead too because internet advertising doesn't work. (according to the OP)

&#62;&#62; Robert Scoble likes Orchard Supply Hardware<p>That is not an ad for a hardware store, its an ad for Scoble. Just "like" as much stuff as you can, and people will constantly see your name and are reminded of you for free.

Yes, they massed up the IPO, Facebook doesn't have a true value as Google or Apple, ads do not work and user growth is finished. I have doubts too that Facebook will match expectations but I am a sick of reading every other day why FB fails or what happens after they fail.<p>I don't like Facebook either and stopped using it actively but I know for sure that Zuckerberg is a very smart and talented guy just looking at how he build this company, kept power the entire time and with 16B$ he'll find sooner or later a way how to get money from all those Facebook addicts.

I think a lot of the analyses of Facebook's advertising model miss one important point. Sure, their CTRs are not even closely comparable to Google's numbers. However, when people search on Google, they're often actively looking for certain products that lead to high CTRs on these targeted ads. In Facebook's case, people want to socialize and generally don't want to be disturbed by ads.<p>Basically, Facebook currently uses an advertisement model that is not very natural to its product (and not very well targeted for a number of reasons). But Facebook just doesn't care at this point, because they still generate sufficient revenue through the sheer number of users.<p>So the real question is whether Facebook can come up with an advertising model that is truly natural to its product (e.g. actual product recommendations by friends in conversations etc.). To conclude that Facebook is doomed to fail because their advertising model is suboptimal seems to be a little premature.

If he put that he was married on the site, he wouldn't get the dating ads. I just checked my facebook (for the first time in awhile) and 3 of 4 ads where things that made sense and were interesting to me.<p>I personally don't think Facebook is worth nearly as much as their current valuation, but as long as they have 900 million users who average a 1/2 hour a day on the site they are worth quite a bit. As for the targeted ads, I'd much rather have ads for things that are interesting to me than for things that aren't.

Interesting... I was just going through the phase of unsubscribing from all of the legitimate info/news sources I had subscribed to over the years to try to reduce my daily Inbox levels, and it got me to thinking about reversing the tables so I could announce when I _wanted_ to partake and for what reason, and THEN get appropriate emails, links, ads, etc.

Marketing used to be about information, letting potential customers know your product exists. Then it morphed into manipulation, but I think that has run it's course - even young children now know when they are being manipulated, and are resistant to it.<p>Because of this, my company concentrates entirely on providing remarkable services for remarkable prices, so our customers do our marketing for us by telling other potential customers. In our experience, this strategy works magnificently - we're doubling our revenue every year without spending a cent on marketing.<p>Back to Facebook - I see Google ads as informational marketing, and Facebook's as manipulative marketing. And currently Facebook is horribly bad at it - I think I've "liked" two products ever, because I think most of my "friends" would think I was really lame for endorsing anything that isn't truly exceptional. Having said that, our services have thousands of likes...

I'm amused when intelligent people like Doc don't even show enough curiosity to hack Facebook ads to their own advantage. I hate ads with a vengeance, but I like using Facebook. And just like Doc, I kept seeing stupid irrelevant ads.<p>So I decided to fix it. I started liking Facebook pages of things I <i>really</i> like - Arduino, Raspberry Pi, Ubuntu, Sphero, Android. And lo and behold, I've started seeing ads which I actually like and even click on.<p>Facebook critics offer a strange bipolar argument - on the one hand, they say Facebook ads are so badly targeted even with the wealth of personal info they have. On the other hand, they question the valuation. Where's so much growth going to come from? Better ad targeting is definitely part of the answer, but more importantly, I think Facebook will come out with some killer new products in mobile and ecommerce.

For some reason the Facebook IPO reminds me of when Steve Case sold AOL to TimeWarner in 2000.<p>From the AOL wikipedia page :- "AOL is best known for its online software suite, also called AOL, that allowed customers to access the world's largest "walled garden" online community and eventually reach out to the Internet as a whole."<p>At the time it was held in high regard for getting such a massive online user base (around 34 million) - which is a bit paltry by today's standards.

First of all, it's not clear that social media advertising is going to fail, just because the author is not happy with results he gets. It was announced today that Oracle purchased Vitrue <a href="http://techcrunch.com/2012/05/23/more/" rel="nofollow">http://techcrunch.com/2012/05/23/more/</a> a company with close to 100 million a year in revenues. Presumably, for many people, it works.<p>Secondly, the title of the article is After Facebook fails - which implies it will fail and will do so because it's advertising model will fail - but who says facebook primary business model has to be advertising? If they continue to grow to over a billion users - who says that the "like" button on sites all over the web now shouldn't be charged for? who says users shouldn't be charged for premium services? more photo filters on instagram - just pay!<p>the possibilities are endless, and advertising, for now, is just one of them. my gut says it will become less and less important as a revenue generator over time. and personally I will welcome that change, cause with all the ads adjacent to the chat bar, the site is looking pretty messy.

I don't know if Facebook is necessarily going to completely fail anytime soon, but he does have a lot of good points, like how bad the targeted ads are, and that the whole concept of targeted ads is not great.<p>I think that Google is parsing gmail a lot more closely than we might be comfortable with, and I would not be surprised if an even more intelligent system eventually was applied to Facebook conversations and used to create targeted ads, with or without our consent.<p>The idea of "intentcasting" what you want to buy at the advertisers and then having control over their responses is a great idea and something I would like to experiment with at some point if I have time.<p>Within two or three decades, I think there are going to be major, major changes, not just with social networking, but with computing and even the overall nature of computing and even human society.<p>Yes, we do want, should and shortly will have more control over our personal conversations and data etc., but it goes beyond that. I think that non-commercial distributed but at the same time more private content oriented networking will become a big thing within the next decade or so, and that network will be even more difficult for commercial interests to take advantage of. And it won't be hosted on a giant commercial centralized system.<p>Beyond the private distributed social/content networks etc., you will see artificial general intelligence that blows Google's gmail parsing and everything else out of the water. I believe that personal data and conversations will generally be stored more privately and that people will voluntarily take advantage of these AIs (AGIs) to act as agents and assistants.<p>I also think that these powerful artificial general intelligences are going to put the nail in the coffin for the current infinite growth consumer driven "economic" model, which will be replaced by a more sophisticated and humane descendant.

People saw value in Facebook, otherwise they wouldn't have purchases shares last week. Yes, well overvalued but investors are willing to pay a premium for the associated and perceived value.<p>1) The main value is the sunk cost people have in Facebook. The vast majority of your family and friends are on the platform. You unwittingly have built up a scrap book of your past few years - photos, messages, relationships...<p>2) The other value is the time people spend on Facebook plus the large user base. You just need one or two mechanisms to extract revenue from this position and you are winning.<p>There are plenty of risks, some may be:<p>1) The Government cracks down on privacy or advertising standards.<p>2) An alternative arrives that makes it easy to transfer your profile. You can always download your Facebook profile.<p>3) Suffers the MySpace factor. Facebook is left behind due to better and more exciting offerings.<p>For now, Zuckerberg has shown his ability to compete. Until people stop spending hours on Facebook, they are very far from failure.

Absolutely right.<p>There is yet deeper issue that applies to all advertising, in the form of a simple natural law:<p><i>There is a limit on the amount of BS a person can take before taking steps to actively avoid it or at least 'tuning it out'.</i><p>Current business 'thinking' assumes that increasing advertising is always good. It does not acknowledge this saturation effect at the 'receiving end'. It essentially ignores the fact that everyone else will also advertise more and more, for diminishing returns.<p>The trouble with advertising is that it is like a shouting match: occasionally someone with a strong voice will obtain a temporary advantage but in the long run nobody can be heard properly, least of all modest people with something useful to say.<p>On a more prozaic level, dividing the FB valuation by its number of active users gives about $170. I doubt very much that an average active FB user is buying enough value from FB ads to justify this kind of advertising budget.

I didn't get through the whole post as it's kind of disjointed and meandering, but its initial assertions seem shaky.<p>Personalized ads do have business value. After looking at some videos about Native Instruments audio gear on YouTube, I started getting a lot of Native Instruments ads pretty quickly. Unlike television, I am being shown ads for something I might actually buy rather than ads for things I will never buy. If traditional advertising is effective, then I don't see how this more targeted advertising can't be more effective.<p>As for "uncanny valley", what's "icky" now won't be icky in 10 years. You can get used to anything and kids growing up with the "uncanny" will quickly see it as normal, whether this is a good thing or not.

Facebook will figure out the ad problem - and that's the problem.<p>They're seemingly profitable now on ads (not 100B worth), and through innovation, testing, &#38; learning revenue will grow or at least not disappear. Advertisers will understand how to use Facebook effectively as an advertising media.<p>The major problem is lock-in. Facebook's users attract other users, which all attract advertisers. Once Facebook and advertisers uncover a breakthrough in effective social advertising, competition for users becomes critical. What will Facebook rely on to keep others from eating their lunch?<p>Simplistic, but, Google has search and apps. Facebook has....reluctance to change? Which might just be enough, until its not.

Is Facebook going to be the next AOL, left in the dust by a new innovator?<p>The chances of that happening are excellent, in my opinion.<p>However, consider the following revenue streams Facebook could generate using a paid membership model:<p>Facebook Personal - $10/year (no ads)<p>Facebook Pro - $100/year (small business)<p>Facebook Private $200/year (full privacy controls)<p>Facebook Enterprise $500,000/year (enterprise social network built on top of Facebook)<p>All of these ideas are plausible, and there are plenty more the readers of this site can surely come up with. All of them together could generate a billion dollars per year, or more. Of course, they depend on a shift in Facebook's culture, from privacy invasion and destruction; to actual privacy enhancement.

It occurs to me that instead of being an advertising platform facebook would be better off as a marketplace platform for real goods. e.g. stop competing with google because you don't have intent and start competing with amazon and ebay because listing real products that people can instantly buy would be much more compelling. People don't like ads no matter what their content, everyone <i>does</i> like a bargain/deal on something they're interested in. Facebook knows what we're interested in, it can offer us deals on that stuff directly and it can immediately show off our purchases to all our friends and the deal that we got...

Isn't this the same Michael Wolf that Loeb, the activist hedge fund manager, picked for Yahoo's board? If this is how he feels about businesses driven by online ads I wonder what he thinks of Yahoo's odds.

Facebook has a clear monetization model. If Facebook releases a product like AdSense - which shows content relevant ads as well as targeted ads will be a great blow to Google.<p>Also, as far as mobile is concerned there are apps like Karma (<a href="http://getkarma.com" rel="nofollow">http://getkarma.com</a>) and TagTile that Facebook recently acquired - and they showed a great way to monetize using Facebook data.<p>There are some many apps that have crossed millions of users just because of Facebook integration.<p>Haters gonna hate but Facebook is here to stay for a long, long time.

A bit off on tangent - I believe the real potential for "the game changer" in advertising is in the following quote from the article: <i>"If, for instance, frequent-flyer programs and travel destinations actually knew when you were thinking about planning a trip."</i><p>Hey, if you create a medium where I can proactively request offers of particular kind, then I'm all yours. Provided I have control over what I request - I can set a time limit on a query, revoke it, etc.

There's actually some interesting stats regarding how much FB gets per user in the US vs other regions. It's much higher in the US, which does indicate growth potential in other areas.<p><a href="http://techcrunch.com/2012/05/03/stats-facebook-made-9-51-in-ad-revenue-per-user-last-year-in-the-u-s-and-canada/" rel="nofollow">http://techcrunch.com/2012/05/03/stats-facebook-made-9-51-in...</a>

I have a crazy idea, why doesn't Facebook charge for premium accounts?<p>They would really only need to get what? Maybe 10% of their users to sign up to some kind of premium subscription service to justify their valuation. It's funny how this option is rarely ever mentioned, as if selling a service to consumers is some kind of taboo for internet companies.

I think Facebook will decline for a much simpler reason: whim.<p>Facebook was cool when I was in college and it was only for college students. Now my dentist wants me to "like" him on Facebook and get entered in some kind of drawing.<p>Lame.<p>"I wonder if there's a social network that's only for cool people like me," thinks the user.

Wow, that header really reminds me of the circa-2006 Facebook design, with “the facebook guy” in the top left. Screenshot here: <a href="http://joshvandervies.com/is-the-old-facebook-better-2/" rel="nofollow">http://joshvandervies.com/is-the-old-facebook-better-2/</a>

One thing I've noticed while reading the article is that my banner blindness is so strong, that I even had to force myself to look at the image full of ads being discussed in the article. I guess the author has a point.

Why do posters in Hacker News constantly confuse a disclaimer with disclosure.

He leads with an extraordinarily false claim:<p>"The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter"<p>The value of Google's ad network, including the average cost per click, increased for 14 years in a row, roughly speaking. Google certainly isn't suffering from any supposed value decrease per quarter, and if that effect were actually in place, their business would be nearly worthless by now.

FB has bought itself some more time with this IPO. How much time does $15BB buy? Even if advertising executives and industry analysts give up on FB, FB stil has the cash to sit and wait for their muse to appear (like Google's discovery of ad feeds in search). Given that FB no matter what they do, no matter how much they fail to perform, is now subsidized with $15BB, will they drive the ad market down?

And what about when all TV is served over the internet? Or when all billboards are controlled over the internet? Or all magazines are displayed on epaper via the internet? 95% of advertising <i>will</i> be done over the internet, and if the author is too short-sighted to see that well then that speaks poorly on him. Of course if he had any insight maybe he'd be building something and not whining about it. He just sounds bitter because he's getting left in the dust.

Original source: <a href="http://www.technologyreview.com/web/40437/" rel="nofollow">http://www.technologyreview.com/web/40437/</a>

I could see facebook being replaced by nothing more fancy than a web design app with a social webring gizmo.

It's sad when old people get bitter about change