
Facebook Advertising is Fool's Gold - msomers
http://behindcompanies.com/2012/05/facebook-fools-gold/
======
cletus
I agree with this and have posted numerous comments here to that effect,
particularly on the value of intent (with respect to the effectiveness of
online advertising).

Th attitude of "eyeballs not revenue" and finding that repeatable, scalable
formula are almost a religion on HN and in startups. It's generally a strategy
I approve of.

Even dropping 20% since the IPO (currently trading at just over $30 as I write
this; and bear in mind that even _Groupon_ \--at least initially--enjoyed a
nice IPO bounce), the company is trading at a huge P/E ratio.

I get why this is: it's speculative. FB is still viewed as a growth company
and the speculators feel that there is huge unrealised monetization potential.

I remain a skeptic regarding the value of "social" in advertising. The OP is
right: all this data just means--maybe--a slightly higher CTR, at which point
Facebook is just another display ad network and that doesn't justify their
valuation.

As an aside, IMHO Twitter is in this same "put up or shut up" boat. I don't
believe Facebook is doomed (IMHO Twitter is). I just believe the value of the
data silo they have is both overstated and transitory (at some point--one way
or the other--Facebook won't be the gatekeeper to your profile and social
graph).

Facebook has done a lot of things right as a business (the Like button being
foremost among those IMHO). Personally I believe their biggest mistake was
spurning Apple: Apple wanted to use Facebook for their Ping boondoggle.

Disclaimer: I work for Google in display advertising.

~~~
RegEx
I'm confused over the significance of the P/E ratio. It seemed like a big deal
when I was reading these stories about the FB IPO, but then I got to look at
other ratios in tech. Amazon's is much higher than FB's 93.72 at 175.23 [0]

[0]:
[http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0](http://www.google.com/finance?q=NASDAQ:AMZN&authuser=0)

~~~
loumf
Some interesting observations about Amazon's P/E ratio here
[http://www.mondaynote.com/2012/05/27/decoding-share-
prices-a...](http://www.mondaynote.com/2012/05/27/decoding-share-prices-
amazon-apple-and-facebook/) on Jean-Louis Gassée's "Monday Note".

Basically, Amazon forgoes profit to get market share, will push out all
competitors, build a huge barrier to entry with excellent execution and
logistics, and then raise prices to increase profit. Traders are buying now
and holding until that happens.

~~~
gamble
Supposedly. Everyone has been waiting for the big payoff since the 90s, but
Amazon remains a stubbornly low-margin retailer. Eventually people are going
to be forced to face the fact that there is no sinister Phase 2. Amazon is
just happy being a low-margin, high-volume Walmart-of-the-Internet with little
interest in its investors.

------
tomelders
For me, this is the strongest case yet for niche social networks being the
future of social media. FB is too broad and demographics tell you little about
the people you are speaking too unless you can inject some sort of context.

If (via a Distributed Social Networking Protocol) people were subscribed to
several social networks focused on their hobbies and interests, then I believe
Social Media Advertising would be more viable, and more useful to the
audience.

I also think that when you look past all the fanfare and hyperbole surrounding
social networking, what you're left with is really sophisticated bulletin
boards and forums.

I can see that from a marketing point of view, having one point of access to
that many people might seem like a dream come true, but the numbers are
suggesting that's not the case at all. Facebook is not the answer to an online
advertisers dream. I don't think it ever will be.

~~~
ajdecon
_For me, this is the strongest case yet for niche social networks being the
future of social media. FB is too broad and demographics tell you little about
the people you are speaking too unless you can inject some sort of context.

If (via a Distributed Social Networking Protocol) people were subscribed to
several social networks focused on their hobbies and interests, then I believe
Social Media Advertising would be more viable, and more useful to the
audience._

You don't need DSNP: niche social networks already exist. Ravelry and
GoodReads, as examples, seem to be making a decent go of it. Would love to
know how their advertising does.

~~~
tomelders
I think DSNP is essential. Imagine if you could only email someone with a
GMail account if you had a Gmail account.

Imagine if you could only check your Hotmail emails on the Hotmail website or
through one of the official Hotmail Apps.

That's how Social networking works right now. API's won't cut the mustard. We
need a DSNP.

------
kevinlu310
Facebook's advertising model is a simple classical displaying advertising
model. It need be disrupted seriously. Nowadays, the most popular marketing
model is displaying advertising model, which is actually an attention-driven
marketing model. However, no matter how good they are context-awared and
personalized, they are always guesswork, which can hardly achieve high
relevancy. It is extremely difficult to guess users’ actual intention for most
cases, even you may have a lot of information of them. For example, it is
super difficult to guess what an individual is exactly looking to buy when he
walks into a Trader Joe’s, no matter how much information you obtained on him,
like his income, profession, age, education and etc. Users’ intentions are
always dynamically changing from time to time. There are no general equations
that can perfectly predict people’s intentions. As a result, no matter how
perfectly a system can attract attentions, attention-driven marketing can
never achieve high efficiency and accuracy.

As a matter of fact, nowadays advertisement industry is the biggest bubble of
the world. Every year, trillions of dollars completely wasted by irrelevant
advertising unnecessarily. What is even worse is, the user experience is badly
hurt by ads and spams. Such marketing system can be called as attention-driven
marketing system. Everything is done to attract attentions. However, only a
few attentions are really attracted, but majority of the attentions may not be
finally turned into intentions. As a result, majority of the marketing costs
are totally wasted.

The future marketing systems will be built on intentions. Intention-driven
commerce systems need let every user to express his/her intentions freely and
help him/her achieve his/her intentions in highly optimized way by
socialization and crowd-sourcing. The future world needs to be a world without
displaying ads, but only pure relevant information that matches users'
intentions dynamically and real-timely. This is the very objective of my
current startup project as well.

~~~
alain94040
How do you promote events in your non-bubble view of the world? An event can
be in person (imagine TechCrunch Disrupt for instance), or a new TV series
launching...

I can imagine very well how I would target people who like the series 24 if
I'm launching a new thriller. Or readers of Hacker News for a tech conference.
Etc...

~~~
kevinlu310
If we have such a system, everybody can input his/her intentions. I would
input my intentions of attending startup events, and set the expiration date
of this intention to for example 10 years. Then whenever there is an event
like TechCrunch Disrupt, I will receive a notice with a short list of such
events. All users who have set up similar intentions will receive such notice.
Meanwhile, TechCrunch Disrupt organizers will receive a list of all users who
have such similar intentions. As a result, they can directly send mails, or
emails, or even phone calls to these users for highly targeted marketing
instead of blindly broadcast their event to the whole general public.

~~~
alain94040
Your system doesn't sound realistic. Here's a version that works today: once
several of your friends sign up for TechCrunch Disrupt, then I'll start
showing you ads for the conference. No need to pre-enter any kind of vague
intent into some omniscient system.

~~~
kevinlu310
My system will be very realistic in 5 years. You're still talking about
socialized and context-awared ads. It is actually based on very old Attention
Economy, which is dominant probably in the past thousand years just because
there is no Internet. Now with the help of the Internet, Intention Economy is
coming to dominate, because it will optimize the world very much.

------
glesica
Seems reasonable to me.

Facebook is gathering what amounts to a static picture of each user then
selling ads based on the pictures. There really isn't a time component in the
data (though perhaps they can add one now that the service has existed for
many years).

On the other hand, Google has more or less assembled a bunch of archetypes
based on behavior (people who search for X later purchase Y, etc.). Then they
match queries to these archetypes. The time component is front-and-center here
because the archetype match was prompted by a user action.

A purchase is really a time-related event that transforms the user in some
sense. By purchasing something you're changing "who" you are from the
perspective of an advertiser (e.g. a Chevy driver could become an Audi
driver).

So Facebook has a great picture of "who" each user is at a the moment, but no
real way of knowing "who" each user would like to become or when. Hence,
perhaps, some of their difficulty in selling ads.

Or not.

------
redwood
There are two primary types of ads

1) ones that give you what you want

2) ones that drive demand

Google dominates (1) and I assume Facebook is trying to dominate (2) which
includes a lot more display advertising (and TV, and billboards). Facebook
probably thinks a lot of demand-driving advertising can be accomplished
through viral online marketing through FB platforms and they are likely trying
to exploit these channels with services for paying customers.

Imagine paying Facebook to simulate something being trendy among people's
trend-setting friends. It'll be a fine line but this must be what they hope to
do.

Agree the $100B is too high, but certainly they're easily a profitable
company, long-term.

~~~
billybob
> 1) ones that give you what you want > 2) ones that drive demand

A big part of Google's success is that #1 is much easier to prove than #2.

"People bought our product more because they had become familiar with it over
the last month via newspaper/radio/Facebook ads" is a hard-to-prove claim.

"We got X clicks from Google ads leading directly to Y purchases" is much
easier.

------
mag487
Not trying to defend the viability of FB ads here, but this analysis seems a
little shallow. Falling within a certain demographic may not "make" you click
an ad, but the same could be said of performing a search on Google. If
circumstance Y makes one want to buy a product, then as long as falling within
demographic X is correlated with being in Y, targeting X could be a good idea.
It is (obviously) the reason why toy commercials air during children's shows
and not during basketball games.

------
helipad
I wonder what would happen if Facebook ran a scheme like AdSense.

Advertising on the Facebook site itself seems not to be working, but I could
foresee a situation where website owners allow Facebook to display ads on
their site for a fee per click just like AdSense. Facebook already has a
javascript presence on many, many websites already.

~~~
AznHisoka
Adsense makes up a minority of Google's ad profits. The billion dollar
business is in Adwords, not Adsense.

~~~
PelCasandra
Minority? It almost half of all Google ad profits.

~~~
mda
It is more like Adwords: 70% Adsense: 30%
[http://investor.google.com/earnings/2012/Q1_google_earnings....](http://investor.google.com/earnings/2012/Q1_google_earnings.html)

------
CookWithMe
I agree that Google can target alot better IF you have a product that solves a
problem people search for. IF.

> What researchers discovered was that people bought milkshakes as a breakfast
> replacement because it was entertaining during a long, boring commute, and
> would keep them full until lunch.

How do you advertise for them on Google? If they search for "breakfast
replacement for long, boring commute"?

For anyone who can match their product to search queries, Google is the way to
go, agreed. But not all products can, because people are not actively looking
for solving a problem/need that your product solves.

If I look at my current facebook ads, these are not things I actively search
for, e.g. drinks, shavers, parties, facebook games, ... If I had to spend
marketing $ on these, I'd probably choose facebook ads over AdWords as well.

------
kelvin0
Ever since FB has gone public, I've noticed so much 'negative'
stories/comments, and I really wonder why these are only coming out now... FB
has been around for a long time and nothing has changed in its marketing
strategies since it seems.

Personally, I don't have a FB account, or own any stock but this targeted
'bashing' seems useless and has the smell of targeted anti-FB propaganda. Why
don't we focus on the real issue being people rights to privacy and the shady
practices of FB?

More focus on the real issues please, do not get distracted by the 'anti-hype'
of the week.

~~~
tatsuke95
> _"Why don't we focus on the real issue being people rights to privacy and
> the shady practices of FB?"_

These things are all connected. The public is being sold the idea that this is
a $100BB company, one of the biggest in the world. Yet when some of us look at
it (yourself, even) we see a great tool that doesn't justify the price _as a
business_ : as cletus says at the top of the thread, Facebook may just be
another ad network that depends on its massive, engaged user base. Yet FB has
problems with how it actually treats those users, through privacy issues and
shady practices..

~~~
kelvin0
I don't think that anyone who did their homework would have bought FB stock as
a 'sure thing for long time investment'. FB didn't fool anyone who wasn't too
greedy for their own good. Obviously I'm not saying FB is not a hugely
successful product with an immense user base, but obviously the fact that this
IPO is not 'going as predicted' by it's underwriters was clear to me waaayyy
before the stock hit the markets ...

------
antidoh
I am so glad that email didn't depend on advertising to eventually support
itself "sometime in the future." Email is useful to me as email, and useful to
my providers as a billed service.

Yes, they're different things.

------
alain94040
I call survivor bias. Historically, the only player in online advertising is
Google, which is 100%-focused on intent-based advertising. So the article,
logically concludes that intent is the only way to advertise (despite decades
of TV and radio ads).

Some products do great with intent-based advertising. Other products (that you
didn't even know you needed) need other forms of advertising.

------
pbharrin
Google's ads are better because you have intention when you are searching.
That's not true when you are checking into Facebook to see what other people
are doing. Are there other times when people use Facebook and they have some
intent? Planning an event, or asking a question, those come to mind.

------
colinshark
This argument continues to come up, but I don't buy it- At least not without
some data.

My personal anecdote: Facebook ads are the only online Ads I click with any
regularity. They are targeted to my interests, such as programming. They also
hit me at a time when I am mostly bored and clicking around on anything that
interests me.

When I find myself on Google, I am on a mission for very specific information.
Even if I am shopping, I do a research phase and a purchasing phase. Ads in
the research phase don't woo me. I google straight to trusted sources. Once
I'm in the purchase phase (shopping for best price), I am not wooed either
because the ads are too broad. E.G, I want the D3100, not just any camera in
general.

I completely understand Google's strategy of "intent" based ads. I just think
Facebook's user data is even stronger.

------
ma2rten
You are mistaken to think that the search-engine show-people-what-they-were-
searching-for-anyway kind of advertisement is the only kind of advertisement
that can work on the internet.

I used to work for Hyves, which was until a year ago or something the biggest
social network in the Netherlands. Hyves lost to Facebook in terms of number
of users, but something that they did do right was modernization. Hyves had an
in-house sales team and studio, which sold custom viral campaigns to cooperate
advertisers. These campaigns could usually go together with a TV campaign
and/or other media.

For some products search engine advertisement is the right kind of
advertisement (parrot secrets, maybe cars, I don't know), for others not such
much (food stuffs for example).

------
amitvaria
But consider Facebook's "friction-less sharing". Facebook now knows you just
listened to a song, read and article, took a trip, had a baby, got married....

Now think of the targeting you can get there.

~~~
tomelders
You sell cars.

I listen to Donovan, The Beatles, The Stone Roses, Mozart, Au, REM, Dj Shadow,
Handsome Boy Modelling School, Chopin, Ludovico Einaudi and Daft Punk (to name
but a few).

I've liked pages for five star greek hotels, the burger place on the corner,
the guy who sells awesome falafel's on Hoxton market. You know I saw this
video of a talking dog that I thought was totally awesome.

Just this month, I read an article on the Greek debt crisis in the economist,
an article on David Beckham in the Daily mail website, I shared a wikipedia
page about Rommel, I liked an article about continuous integration with
node.js and Jenkins.

Now sell me a car.

I actually like Volkswagens and Volvos, but you won't find that anywhere in my
Facebook data.

~~~
cageface
_I actually like Volkswagens and Volvos, but you won't find that anywhere in
my Facebook data._

I'd bet there's actually a pretty high correlation between many of the things
you just listed and a preference for VWs and Volvos. It doesn't really take
that many data points to start filling in the blanks.

But I think this kind of targeting is going to be more useful in selling you a
product you don't yet know about but are likely to want than it is a car that
you are almost certainly already aware of.

~~~
planetguy
Yeah, the preferences listed may not indicate a preference for Volvo over
Audi, but they're certainly consistent with someone I'd target for near-luxury
European cars rather than giant Chevy pickup trucks, Korean mini-vans or tiny
econo-boxes.

Daft Punk? You're 30-ish. Mozart and Chopin? College graduate. Like a 5-star
Greek hotel (but not _that_ many other luxury items)? Shit, I've narrowed down
your disposable income into a fairly narrow bucket. I can also tell that you
don't have any children. I would target the _shit_ out of you for Volvo,
Volkswagen, Acura, Infiniti, Mercedes, BMW and Audi.

And that's just my own guesstimates. Backed up by proper data I'm sure I could
do way better.

~~~
tatsuke95
> _"I would target the shit out of you for Volvo, Volkswagen, Acura, Infiniti,
> Mercedes, BMW and Audi."_

And why not Lincoln, Cadillac, Lexus, Saab and Jaguar? In fact, Volkswagen
isn't a luxury brand (no more than Honda, Nissan, Toyota), and hardly fits
among the brands you mentioned above. Yet it's a preference of the OP. So, I
think you've proven his point; your targeting hardly tells us anything.

~~~
planetguy
Sure, maybe those too. Except perhaps Saab, which last I heard was broke, and
Jaguar, which I'd probably target at a slightly older crowd.

Lincoln and Cadillac maybe not, too -- perhaps Americans who holiday in Europe
are much more likely to buy European cars. If I had more data I could draw up
some correlations and tell you exactly how _much_ more likely they are to buy
European cars and whether it's still worth waving a shiny new MKZ in front of
our Volvo fan.

There's always exceptions to any of these correlations between stuff we like
and other stuff we might like. In fact we're all exceptions; we all like
things which are anticorrelated with other things we like. But that's not a
big problem -- your targeting algorithm doesn't have to be perfect, it just
has to be significantly better than random scattershot... and ideally, better
than Google.

In an ideal world, I'd only serve Acura ads to people who:

a) Are buying a new car soon

b) Are certain to buy an Acura if they see an ad for one, and

c) Are certain to not buy an Acura if they don't see an ad for one.

but failing that I'll settle for targeting people who are in vaguely the right
age group and income bracket.

Actually, I think car sales are a bad example; if I wanted to sell cars I'd
use google ads, because people buying a new car already know they're buying a
new car, and are probably out there doing research on the subject of new cars.
Whoever posted the milkshake example had the right idea for facebook ads.

Google ads can sell you stuff that you're looking for, Facebook ads (if
implemented properly) can sell you stuff you don't yet know that you want.

~~~
tomelders
Yesterday I created a paste bin with the brand of footwear I prefer. Go!

------
fakhrazeyev
It does seem obvious. There is just a wall of hype hanging. And factor in the
fact that it was reported that approximately 40 % of all social network
accounts are created by spammers.

------
torstesu
Cached version for those getting the 509: <http://tinyurl.com/c7ozldn>

~~~
xero_cuil
Thanks for this!

------
mikecane
So basically this is saying that Facebook needs a search engine to be
effective at advertising. Is DuckDuckGo up for sale?

~~~
3lit3H4ck3r
Why would they buy DDG when they (FB) already have Bing? Oh...yeh. Is DDG for
sale? :)

------
mbailey
Was just reading the JTBD literature a few weeks ago. An obvious concept, but
so oft ignored.

