
Facebook is a Ponzi Scheme - ljlolel
http://www.jperla.com/blog/post/facebook-is-a-ponzi-scheme
======
patio11
The core feedback loop that would make that analogy mostly coherent doesn't
exist. Facebook ads do not convince people to buy Facebook ads.

A better argument would be that Facebook's valuations are being driven by
large amounts of investor money injected into the Zynga symbiote, who throws
nine figures a year at Facebook to continue identifying new pieces of brain
matter to feed to their mad cows. I don't think that is a great argument, both
because Ponzi schemes are not the kind of racketeering one should be worried
about if one is worried about there, and because I think that Zynga is
probably sustainable. They may be the only business on Facebook whose
advertising is sustainable... but that would, by itself, justify a gigantic
valuation for Facebook. (Perhaps not any particular valuation.)

~~~
ljlolel
Hey patio11, thanks for the thoughtful analysis of my article.

Your logic makes sense, assuming in fact Zynga does have sustainable profits,
which might be true (although I guestion whether simple web games are a
defensible business, competition easily cuts it).

But, assuming that is true and you are right, does that still justify
Facebook's valuation if it is entirely dependent on one company, Zynga? I
would conclude that Zynga would be worth quite a lot, but that would make
Facebook's position quite a bit weaker, do you agree?

Also, the feedback loop is that Facebook's valuation and success spurs people
and investors to start companies and then advertise them on FB. This has been
my experience talking to many (not all!) would-be entrepreneurs and investors
in new york and the valley. I'm interested in learning about different
experiences you may have had.

~~~
greatreorx
"(eMarketer estimates Facebook took in) $740 million coming from major
marketers like Coke, P&G or Match.com... Interestingly, Google itself was the
fifth-biggest advertiser for the same period, as it was looking to market its
Chrome web browser. " <http://adage.com/digital/article?article_id=148236>

It's very hard for me to look at a company doing $740 million in revenue from
the likes of Coke and Proctor & Gamble and say that it's not sustainable. I'll
admit it's possible they are all just blowing their money away, but that seems
less and less likely.

~~~
shasta
Right, I think the article misses one of the purposes of advertising. Coke
doesn't target ads at people googling "soft drink". Facebook seems like as
good a place as any for the kinds of subliminal advertising that Coke does.

------
nervechannel
"It is fundamentally different from the ad platform that is Google. People go
to Google to find something they need, possibly ready to buy, which a good
percentage of the time can in fact be solved by someone's ad. Facebook ads, on
the other hand, annoy users. They yield no real value, and thus no profits. "

Err -- television ads also just serve to get in the way and annoy users, when
they want to sit and relax and do something completely different from hunting-
for-stuff-to-buy.

But last time I checked, most TV channels are still running ads, 50+ years on.

~~~
philwelch
TV doesn't run ads to the extreme right margin of whatever else on screen you
happen to be watching. If it did, TV advertising wouldn't be worth any money,
either.

~~~
corin_
a.) Not really relevant, the point is that TV shows that adverts can work even
if they're not being shown somewhere where viewers are actively looking for
something that might be advertised.

b.) There are plenty of websites out there which are profitable through
advertising without the logic of "viewers came to the site to look for
something". Maybe that's a better example. Again, you could argue that
facebook adverts aren't identical to those found on most sites, but that
doesn't change the fact that website advertising _can_ (and often _does_ )
work.

~~~
philwelch
Advertisements work when they get people's attention. Google advertisements
get people's attention because they're relevant to what the user is looking
for, TV advertisements get people's attention because they take up the whole
screen and are often funny or dramatic in themselves, Groupon emails get
people's attention because they're actionable coupons that users really want
to get, and "GOLDENPALACE.COM" painted on the back of a streaker at a
professional sporting event gets people's attention because, hey, a streaker!
Facebook ads are virtually hidden in a margin on the edge of the screen where
users are more or less trained to ignore things.

~~~
corin_
I completely agree that Facebooks adverts are very badly implemented.

However, that doesn't take away from the fact that it is _factually wrong_ to
say that adverts don't work on websites where the users aren't already looking
for what the adverts are promoting.

------
JoeAltmaier
Ponzi scheme is overheated rhetoric. That refers to an investment scheme where
new investors pay off old ones.

Nobody pays Facebook advertisers anything. They only pay Facebook. Its a
pyramid scheme, but thats a horse of a different color.

~~~
ljlolel
It is not _literally_ a ponzi scheme, as I state very directly in the article.
The point is that it is bad in exactly the same way that false returns in
ponzi schemes are and through similar mechanisms.

Paul Graham takes the same line of reasoning in declaring that Yahoo is a "de
facto ponzi scheme". <http://www.paulgraham.com/yahoo.html> .

Finally, and I didn't write this in the article (yet), but it's clear that
it's acting much more like a literal ponzi scheme with the recent Goldman
investment. Accel partners has mostly cashed out to new investors
([http://techcrunch.com/2010/11/19/accel-facebook-chunks-of-
st...](http://techcrunch.com/2010/11/19/accel-facebook-chunks-of-stock/)), and
I personally know of some major top investors who have cashed out of most of
their stock in Facebook. They rode the wave and have sold on to new investors.
Goldman is (literally) banking on the public investing later at an even higher
valuation at the IPO they will be running themselves.

~~~
Prisen
_One reason they were excited was Yahoo's revenue growth. So they invested in
new Internet startups. The startups then used the money to buy ads on Yahoo to
get traffic. Which caused yet more revenue growth for Yahoo, and further
convinced investors the Internet was worth investing in._

Facebook doesn't have this feedback loop.

~~~
varjag
Farmville & friends?

------
biznickman
This is definitely way off base. He's taking a sampling of people who don't
know how to optimize ads on Facebook and suggesting that they perform poorly
for everyone. There's a reason that his ads were unprofitable: someone else is
making money (profiting) and able to bid higher because they can monetize the
same market segment he was targeting more effectively.

~~~
TomOfTTB
Do you know that people are making money off Facebook ads for a fact?

I'm not necessarily agreeing with the author as much as I'm trying to point
out the fallacy of believing every ad platform is effective. Your argument
seems to be "if the ad is failing it must be the ad that's ineffective". But
that logic only works if we're sure the platform itself is an effective ad
delivery system.

This author's theory is that Facebook is not an effective ad delivery system
and your comment doesn't really offer evidence to disprove that.

------
tomerico
Facebook may have not yet found its cash cow, but it has a huge potential. A
few ideas from the top of my head:

* They could compete with Groupon (Or buy them). Groupon is an inherently social business, and Facebook can enjoy it. * They could compete with Skype and other VOIP service. Perhaps replacing telephony. Almost everyone has facebook, and you already have you friends inside, seems like a pretty direct step (After all, people come to facebook to communicate). * They could replace photo sharing websites (Flickr, Picasa...) if they just improved their photo's app (e.g. being able to view high resolution images). * They have the potential to become the internet ID for everyone, so that you could log in to almost any site with facebook.

I can probably come up with many more... I think the real question is whether
Facebook can execute or not.

~~~
kunjaan
You are simply listing all the internet services and arriving to the
conclusion that people will use it because they already have a facebook
account.

They will not replace Flickr. Anyone who cares anything about photo sharing or
has slightest knowledge about sharing photography will not diminish the value
of services like Flickr. First of all "just being able to view high resolution
images" is not as easy as you think it is. Can Facebook truly scale providing
support for it? Will people who share pictures on facebook even care for those
things? Wouldn't you rather have ease of album creation over viewing exif
data? Flickr and Facebook are different. I think Flickr cannot be replace.

They have the potential to become the internet ID but would you want to create
a Facebook profile to have an ID? Many people would rather support things like
OpenID. And would you want to login to sites using your Facebook ID, where the
website could really scrape info about you?

They can compete with Skype just as GTalk is trying to or countless other
messengers are trying to. But I am sure there are many who prefer Skype over
these services in the offices and at home.

~~~
tomerico
While I agree with your comment, note the following

All the problems you have mentioned are engineering problems.

------
tokenadult
Facebook is a way I can have pleasant conversations with my friends. I post to
them links on Facebook security and ad-blocking (with hat tips to HN, fairly
often), and we all lock down our privacy settings tightly and ignore ads and
time-wasting games. We have fun conversations together, mostly about submitted
links, rather like the best comment threads on HN except with a broader range
of topics that fits the commonalities that can be found among my diverse group
of friends. (The HN participants who are on my friends list have seen
examples.)

I can't figure out how Facebook will monetize, long-term, just as I couldn't
figure out in the 1990s how AOL would monetize, long-term. AOL has been a
dying property for a long time, but it was the platform on which a lot of free
riders formed lasting friendships that have turned into real-life, face-to-
face friendships. I'm perfectly content to be a free rider on Facebook on the
same terms. Monetizing Facebook is a problem for Facebook's investors--it is
not my problem. When Facebook eventually dies, as it surely must unless it
comes up with an appealing way to monetize, I will move on with hundreds of
good friends to the next new Internet thing.

------
ErrantX
Inside a somewhat breathy post there is a superb point about why "stick some
advertising on it, that worked for Google" is not always a solution:

 _People go to Facebook to interact with their friends. It is fundamentally
different from the ad platform that is Google. People go to Google to find
something they need, possibly ready to buy, which a good percentage of the
time can in fact be solved by someone's ad._

~~~
ljlolel
Hi ErrantX, thanks, I hope it's not too verbose. It's actually pretty dense
for how many points I cover.

What ends up happening is that people repeatedly bring up the same strawmen,
so I try to address the most relevant justifications and opposing viewpoints.

You're right, the _fundamental_ difference between search ads and social ads
can be a whole interesting blog post on its own.

------
elbrodeur
Anecdotes like this ("$100 in ads bought 1 book! It's the ad platform, not my
product!") are slightly annoying, and saying 'ponzi scheme' 4 times in the
first two paragraphs doesn't make it so.

Our startup has had a large amount of success with Facebook ads. Their
segmentation makes it easy. In fact, Facebook ads are so successful it's
becoming a danger. To some extent, we are reliant on them as a lead source and
that's a really bad situation to be in.

But yeah, post a sensational title, reinforce that title 4 times in the first
two paragraphs and then at the end say something like this:

>> Yet, their value and growth continues because they can use that money to
grow their user-base more and assert profitability (in this sense it's not
quite entirely a ponzi scheme, but there is no closer idea). It's possible
that they do not even realize that they are like a Ponzi scheme.

What? It's not quite entirely a ponzi scheme?

There's a difference between an ad platform that doesn't fit your customer
acquisition model and a ponzi scheme.

~~~
neilk
What sort of business are you in?

------
imkevingao
I think even tying Facebook to Ponzi is insanely absurd relative to what
Facebook has done for users. Surely the high valuation is bubble like and I'm
not a particular fan of its valuation either, but Mark Zuckerberg's team
continues to contribute to the online community with easier way to connect &
share, and that's ultimately priceless. In my opinion, if Facebook wanted to
monetize, it can tenfold its revenues easily considering the amount of users
it has. But the company continues to place users before hand and refuse to
compromise user experience for money, and THAT IS VERY DIFFERENT , or opposite
if you will, from the Ponzi Scheme. Ads are not suppose to be 100% effective,
and that's the foundation every marketer needs to know. They have to be
prepared to throw lots of money into a marketing strategy, and accept the fact
that it might fail. Facebook ads deliver relevant adds that might interest
users to add values for users. It delivers what it promises. The effectiveness
is just a downside that all marketer needs to consider when they advertise.

------
ivankirigin
The technical terms you're looking for are demand generation vs demand
fulfillment. The former is that pepsi ad where you suddenly feel thirsty, and
the latter is the coupon in your spam snail mail. Facebook is the former and
Google is the latter.

What you might not know is that demand generation spending is 10X demand
fulfillment. You should definitely take that into account when assessing
facebook.

Also, the reasons users like facebook is unrelated to their ad platform. I
would say that alone makes it not a ponzi scheme.

------
jespi88
While I don't think I would go as far as to call Facebook a "Ponzi scheme", I
do agree that Facebook has been lackluster about monetizing their huge user
base. The author is right in pointing out that people rarely go to Facebook to
research or buy a product. Unlike Google or Amazon, Facebook is not about
consumption, it's about reconnecting and taking a break.

While I am by no means an expert in the field, they need to remember what they
are and focus on that. Far more promising a prospect is the revenue sharing
they do with companies such as Zynga. This model exploits all that Facebook
does well: high retention to the site, and a high return rate. They need to
stop focusing on ads as a form of revenue and monetize their social aspect
creatively.

~~~
huherto
Why is this down voted? It seems a thoughtful comment that brings interesting
ideas to the discussion. This is not the only case, other good comments are
below 0 in this thread.

------
adolph
_Facebook promises big returns on ad spending, but delivers nothing. Yet,
their value and growth continues because they can use that money to grow their
user-base more and assert profitability (in this sense it's not quite entirely
a ponzi scheme, but there is no closer idea)._

In other words: not a Ponzi scheme, just an ad platform that is ineffective
for some kinds of campaigns.

------
ig1
When I started with Facebook advertising, I was getting a CTR of 0.01, after
spending about 6 weeks trying out various optimizations my average CTR is
around 0.12, my best CTR for a campaign has been 0.4.

On my site the bounce rate from Facebook clicks is 25% lower than the site
average, and the the average user visits 4 pages per visit.

And I'm targeting software developers. A group more likely to be ad-resistant
than many other groups.

You have to know how to optimize a Facebook campaign in-order to be able to
make an effective one. Facebook's problem is that they make it easy to run an
ad campaign, but not easy to run a good campaign.

------
eddieplan9
The big assumption of this article is that Facebook has to rely on Google-
style in-the-margin ads as its major revenue source. I believe Facebook has
the potential to bring a new form of online ads, for example, a new
interactive game-like campaign that virally spread across the friend network
with those participants given incentives like Facebook credits.

It's rather limiting to think Facebook as an advertiser like Google. The real
potential of Facebook is way beyond this. Facebook is not just connecting
people to their friends. It is a middleman - a platform that connects
customers to vendors, fans to artists, and gamers to game developers, and
there could be much more than these. Think iOS as a platform that connects
mobile users and app developers and how it has worked out - and would have
worked out even it was a standalone company. Maybe someone will develop an
Amway-style direct selling platform on Facebook. Maybe someone could develop a
CRM and compete with salesforce.com for SMB. Or maybe a Priceline clone with
social features would emerge. And good thing is Facebook does not need to do
all these. It just need to inspire a developer community around it and evolve
its platform to support new possibilities.

It's gold rush again, and like last time - it wasn't the gold miners that get
rich; it was the people who sold the miners and other gold rush followers the
tools and supplies they needed.

------
risotto
I'm quite tired of these posts, but HN appears to love them.

If you don't like a company, don't invest in it, and don't use it's products.
But it's not your duty to scare other people away, especially not by reading
tea leaves.

First, any ad buy is a gamble. Perhaps investing $100 in ads on Facebook can
result in $1000 in sales. But the payoff here has everything to do with your
own business, and nothing to do with the Facebook platform. Literally: mind
your own business.

Second, I am interested in the thoughts of long term Facebook/Twitter/etc
employees. These are people with actual knowledge of the roadmap, revenue, and
vibe inside a company. Everyone I personally know at Facebook is extremely
happy and bullish about their career there. Ask a friend that works there if
it is a Ponzi scheme and watch his reaction.

I am interested in constructive advice about how you are building a successful
startup.

I an not interested in these hit pieces from casual observers. I think the
small portion of bloggers, commenters, etc. that try to knock Facebook down
are having sour grapes. Are you really more confident in your own business
acumen than Zuckerberg's? Is your business model perfect, with bubble free
growth unto eternity?

But ultimately, there's nothing constructive here. What am I supposed to take
away from this article?

The PG Yahoo article is a totally different beast. He was inside the machine
and is offering his intimate business knowledge. This article is useless. Yet
HN eats it up for some reason...

Disclaimer - I am not at all affiliated with Facebook but I was at the YC at
FB event last week and it was fun.

------
ubercore
I'm not sure how much this adds to the conversation, since I think it's a
pretty common experience, but I honestly can't recall a single thing
advertised in facebook. I don't have AdBlock running, I've just developed a
complete blind-spot for the right margin of facebook. I don't see how this
could be very effective long-term. Conversely, I have clicked on ads in Bing,
Google, and Reddit.

------
jeroen
This has been discussed before, 267 days ago:

<http://news.ycombinator.com/item?id=1293119>

------
simonsarris
It seems that the author is attempting to make a case against ads themselves.
I'm not convinced there is anything in the post that is Facebook-specific, or
couldn't be swapped out with 'Adwords' or 'radio ads' or even 'billboards.'

He makes a case that they are not like Google's ad platform and then goes on
to only account for a small subset of Google's ad platform (the part that is
on Google.com search). Facebook ads are really much closer to Google's ad
platform on (for instance) gmail.com or any non-google website, but he ignores
these.

Most of his post could have replaced "Facebook" with "Billboard" or "radio ad"
and be written in 1920.

As an aside, I have clicked on Facebook ads. Mopeds are listed as one of my
interests, and two months ago there was an ad from Honda for the new Elite
110cc. I had no idea that they brought the Elite back. Targeted Facebook ads
actually _informed me_ of that.

It goes without much saying that the vast majority of ads are never clicked on
or even noticed. But that's the case with Facebook, adwords, billboards, and
so on.

~~~
TomOfTTB
I think you missed his point (though I can't really blame you because he has a
peculiar writing style).

The way I read it he has two basic points.

1\. Facebook ads are different than Google ads (or other web site ads) because
you go to Facebook to interact with friends while you go to the rest of the
web to find information. So ads can fulfill the user's purpose on Google by
providing information but they're just getting in the way of the user's
purpose on Facebook.

2\. Facebook's growth hides the fact that the ads don't work. Because from a
revenue standpoint its hard to distinguish return customers from new customers
and only return customers signal a successful platform. So people see Facebook
successfully selling ads and assume the platform works when in fact its being
driven by a stream of new customers who try it and fail.

~~~
crocowhile
*Facebook ads are different than Google ads (or other web site ads) because you go to Facebook to interact with friends while you go to the rest of the web to find information.

This is a false argument. If I interact with friends I talk about stuff I am
interested about. There you have your connection with ad. Even just mentioning
someone's look or hair color could immediately trigger an ad for something
related to it and commercially interesting.

~~~
TomOfTTB
Well it isn't a "false" argument it's an argument you disagree with. But your
circumstantial evidence (that you click on ads) is no more or less compelling
than his circumstantial evidence ("that he doesn't"). The question boils down
to which of you more accurately represents the public at large.

------
steadicat
This is an old article. Looks like the date is wrong, or he republished it:
<http://news.ycombinator.com/item?id=1293119>

------
cpr
As one of the sibling responses points out, it's not a Ponzi scheme.

But it's certainly a completely useless advertising medium, from my limited
experience with them for a few months. We spent hundreds of dollars of
advertising on an iPhone app, and I don't think even moved the needle once.

~~~
smokinn
I wouldn't call it useless.

I remember in university we could reserve a small budget (25-50$ to advertise
our events for software students (SOEN/CS) and spend it on Facebook because of
the amazing targeting. We could ask that the ads only be send to people from
our school who had their majors put in and hadn't yet graduated. That's
perfect targeting and it actually worked pretty well. Better than papering the
university walls with flyers that's for sure; no one ever read those.

~~~
cpr
Yes, it's certainly well-targeted, and we used their demographic targeting to
the ultimate degree. It still didn't do us any good.

Do you have any sense that people saw and acted on your ads?

~~~
smokinn
Yes. Most events would have 1-2 (out of maybe 50 or so that showed up) that
were new and we'd ask them how they heard about it. Most was from word of
mouth, a small amount from Facebook and I don't remember anyone saying it was
because of a flyer.

Though one thing I don't remember asking was whether "Facebook" meant Facebook
ads or the other strategy for promotion on Facebook: create an event, invite
everyone and tell all those people to invite everyone else.

~~~
shock-value
If you spend $25 to advertise on Facebook and get just one conversion (new
event attendee in your case) that wouldn't really be effective advertising at
all unless you would be making at least a $25 profit from that conversion (not
including the advertising expense). I realize that in your case you aren't out
to make a profit, but you can see how from a business standpoint advertising
on Facebook makes no sense in this scenario for most products.

------
lallysingh
What's with attacking the big boys at HN these days? First a wave of
Google's-on-the-ropes, now Facebook?

Honestly it may be interesting news to hackers, but that's a lot of bandwidth
that could be spent talking about startups. Just sayin'.

------
blackysky
this is the most BS post ever... I know many people that made a fortune with
facebook ads... Maybe his friends lost money with facebook ads but that does
not mean it is a ponzi scheme or anything evil... learn to optimize and split
test your ads to reduce your cost then come back with something smarter to say
...

~~~
rlpb
> I know many people that made a fortune with facebook ads...

by acting as an intermediary, as in the example given, or by actually selling
goods or services that Facebook users want to buy?

------
kenneth_reitz
The author is making the false assumption that no one is successful with
Facebook ads, no one is. I know many people who have been extremely successful
with Facebook ad campaigns for pennies on the dollar.

------
achompas
Author makes a false assumption that Facebook will never improve their ad
platform.

As it stands right now, sure, Facebook ads suck. They're all the way to the
right, and they're tiny and unremarkable.

But right now FB is focused on growing their platform. Why wouldn't they be?
It's not like they're beholden to any public shareholders. Once that changes,
and those shareholders begin to pressure them, FB will turn their attention to
ads. How could any sane business owner ignore that?

EDIT: Deleted my sub-response to Tom b/c it wasn't phrased well. I'm not
interested in the author's _contention_ , because whatever point he's making
assumes that FB won't improve their ads. He even says:

"Mark Zuckerberg might have a fit of brilliance and then announce a
revolutionary ad platform that somehow actually works on social networks. My
guess is not."

FB is a company with 1000 bright engineers and a strong data team. I'd be
shocked if they didn't know how poorly their ads are performing, and I'd also
be shocked if they weren't working on a better ad platform right now.
Dismissing a company with FB's user base, funding, and engineering team with a
ridiculous quote like above isn't a compelling argument.

~~~
TomOfTTB
Actually the author's contention, true or not, is that Facebook will never be
able to improve their platform because people don't go to Facebook looking for
information they go there to interact with their friends. So Facebook ads will
always be something that's "in the way" and more of an annoyance than a
benefit.

------
jessriedel
So...anecdotal evidence that the ads run by the OP and his friends aren't good
on Facebook. I guess that's better than nothing for a company which isn't
publicly listed, but my estimation of Facebook's value didn't change much
based on this data.

------
wolfrom
"Mark Zuckerberg might have a fit of brilliance and then announce a
revolutionary ad platform that somehow actually works on social networks."

I'm not sure it would be altogether brilliant for Facebook to improve their
advertising to be action-oriented as opposed to passive. People use Facebook
for events and will soon use it more for Q&A and eventually "what ___ should I
buy?". I think it would be common sense at that point to have ads targeted to
a user's planned action, just as in the past ads have been targeted to very
specific demographics.

------
robk
Google had the same issues with AdSense in the early days but was able to tune
the product to normalize value to an acceptable rate. For example, at the
network level you can apply discounters per site depending on the ROI of ads
on this site vs network-wide to reward the higher quality sites on the
network. I'd guess that Facebook will make a move towards advertiser value at
some point and find some way of discounting around performance, or allowing
for differentials based on the demographic being targeted.

------
Straubiz
Big brands like P&G have begun buying lots of Facebook ads, and they seem
quite satisfied with the results of their campaigns (at least satisfied enough
to ask for more...).

------
mbesto
"They spend hundreds or thousands or more on Facebook ads. At the end of the
first run, they see bad ROIs."

I've heard this argument but have yet to see any substantial evidence.

------
mattmiller
Facebook's real potential is getting their ad platform on other peoples
websites. It's advantage is how easy it is to target specific demographics.

They have already started getting their code onto other people sites with the
Like button and all the share buttons; the next logical step is a Facebook ad
platform like Ad Sense that can target specific demographics. This will make
lots of money.

------
PaulHoule
I know a group of affiliate scam artists who were making great money with
facebook ads two years ago. I still the ads they run, so I assume they're
still making money.

There are plenty of people who drop $1k on Google ads and end up with nothing
to show for it too. Just because it doesn't work for some people doesn't mean
it doesn't work for others.

------
jonbischke
"Now, it is possible that some extremely niche businesses have found limited
utility from ads (for example, BustedTees and social games may be the lucky
few)."

Um, I don't know that I'd refer to to social games as an "extremely niche
business". Also, social commerce/group buying sites have received incredible
ROI from advertising on Facebook.

------
ck2
When I saw the article title I thought maybe it referred to how Facebook is
slowly tricking you to turn over all your friends contact names and emails and
then you convince them to turn over theirs, etc.

Soon Facebook will know more names and email addresses than gmail and unlike
Google it has no problems selling them to advertisers.

------
ry0ohki
AdSense ads could arguably be put in this same boat (when I'm reading a blog
am I looking for products?), and yet they provide more click-throughs. Why?
Because they look like natural links on the page to many people. Perhaps
Facebook needs to make its ads less obviously ads like Google does.

------
kreek
I think depends on what your selling. If it's an item that's related to a
user's profile (location, favorite bands, movies, etc) you can do quite well.
I always click on adds for new albums or concerts for bands I have listed.
Much easier for me than setting up alerts on a third party site.

------
erikstarck
There has to be a better business model than simple display ads for something
as amazing as the social graph of all humans. The question is: what?

The Facebook Credits virtual currency stuff also has huge potential but I just
don't think Facebook has found their "AdSense" yet.

------
heat_miser
The ad model is truly dying, and I agree that facebook's current revenue model
is a placeholder, but facebook has so much cash that they can buy a real
business when one comes along. Perhaps that is the idea...

------
shimi
This is a bit harsh, FB got a good traction and its run by some very smart
people. I actually see them as a force in the communication space.

------
tybris
Windows is a platform for desktop applications.

iPhone is a platform for mobile applications.

Facebook is a platform for social applications.

Why would the latter not be marketable?

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faramarz
In my opinion this argument is flawed because of one important false
assumption. The Facebook of tomorrow will not be or function as the same
Facebook of today.

Do not make a mistake in thinking the same model or whatever you define as a
_social network_ will function the same in the future.

Facebook will do everything it can to preserve large cash stable and market
leverage so it can morph its business into whatever it deems necessary or
market demands of it, again and again.

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ax0n
In that whole thing, there's no numbers or names to back anything up. There's
one hyperbole ($100 spent in ads to sell one book) and a bunch of really vague
"people I know..." rhetoric.

Also, the author does not know what a Ponzi scheme is. Facebook Ads might be
unsustainable, but it's not a bona-fide confidence trick of any sort, just
like the VC dot.bomb burst at the turn of the century wasn't a confidence
trick.

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davidu
Facebook ads perform well for me. So your argument that they don't perform is
not true for everyone.

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dustingetz
maybe the people viewing your ads don't care about your book!

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snorkel
Wall Street is a Ponzi scheme. Facebook is just overvalued.

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dadkins
See Google, circa 2003:

"Those little ads? Nobody clicks on those!"

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AppDev054
This guy could use the same argument that all online ads are ineffective. Why
focus on Facebook? Because it's hip to do so?

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gtzi
disagree - awareness may have different metrics but definitely is valuable

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alnayyir
I jokingly asked a friend of mine that works in finance if he could securitize
a pre-IPO company for the purpose of shorting them.

He immediately understood that I meant Facebook and after chuckling he
actually paused thoughtfully.

Fingers-crossed, but I think his current fund is too conservative for that
sort of thing.

~~~
davidamcclain
I don't understand any of that (finance n00b). Can you let me in on the joke?

~~~
ljlolel
Goldman will soon be offering the public the ability to, basically, buy
Facebook stock through an intermediary.

The author would like to make a similar investment, but make it a short,
basically sell, bet that the value of the stock will go down, through an
intermediary.

~~~
morganw
In Michael Lewis's _The Big Short_, some of the people buying CDSs
(unregulated "insurance") on mortgage backed securities that they didn't own
did the trades with brokers that had never done it before, but figured it out.

All it takes is a willing accomplice with the right connections.

