

Could this explain the Instagram deal? - somid3
http://www.privco.com/breaking-news-facebooks-admits-mobile-shift-damaging-business-faster-than-expected

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tomgallard
I think this issue with mobile users (harder to monetize) ties into the big
problem for Facebook over the next 5-10 years.

To turn into a profitable company, valued at (say) a hundred billion dollars,
they need to start making more money.

Now, there are two main ways they can do this.

1.) Increase number of users.

2.) Increase average revenue per user

They can attempt to increase their number of users by focussing on countries
with low penetration. The problem with this, is that these users are harder to
make money off (on average poorer, advertisers less interested in their
eyeballs). In fact the article claims that these users are loss-making for
Facebook at this time. There is (I guess) little scope for absolute user
growth in the US, UK and European markets, in fact, its been suggested that
user numbers are tailing off here.

Revenue per user: Given the constraints on users mentioned in the last
paragraph it becomes really hard to increase your revenue per user. Especially
if they're shifting to mobile which is harder to monetize. Any new users are
probably going to harm this metric even more (as they'll tend to be poorer
than existing users)

So, if Facebook want to say double their revenues how are they going to go
about it?

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Tloewald
All good points. The next step — pay a billion dollars for a company with lots
of users and no business model — is still not leaping out at me though.

It seems to me that, say, three years ago building an absolutely kickass
mobile client, or just iPhone client, should have been a major priority
(versus, say, randomly thrashing the timeline interface over and over).

~~~
sp332
Paying for lots of _engaged_ , _loyal_ , and _happy_ users is a very different
thing from paying for eyeballs.

~~~
malandrew
I think paying for eyeballs is a stupid strategy as well that undervalues the
network of users dramatically.

Advertising is largely the art of throwing shit at a wall and seeing what
sticks. Yeah, with a lot of tools and the information Facebook has about their
users, we can perfect the art of how to make shit stick.

This is the classic failure of big media: treating your users like an audience
(eyeballs). Facebook understands its users interactions, designs around them
and is doing brilliantly at keeping them engaged, then they bring in people
from the advertising world and treat them like an audience.

They should be monetizing the edges, not the nodes.

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NZ_Matt
The shift to mobile has potential to be a major issue for any web service that
currently relies on display advertising in the browser. Sooner or later these
companies are going to need to find a way to monetize mobile app users.

Third party mobile apps will also become an issue as consumers shift to
mobile. For example Facebook, Twitter and Reddit all have very popular third
party applications that bring in zero revenue for them. This is fine when the
name of the game is all about increasing the number of users, but eventually
they are going to need to increase the revenue per user.

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debacle
No, but it explains how the bubble is going to deflate. Within two years,
Facebook will be MySpace. We just haven't discovered what the replacement will
be yet.

~~~
Jgrubb
I assume the downvotes are for the bubble comment, but I agree with you on the
other point. Social seems like an inherently fickle business to be in. The
ficklest. So much of it is basically style and fashion and trendiness - things
come into fashion and things go out of fashion. MySpace did, and imho Facebook
will to. I mean really, what's to keep people there if something else that all
your friends were using came along? I think a lot of people like joining
something new, and social web apps scratch that itch. There's almost zero cost
associated with leaving - maybe figuring out what to do with that chunk of
your day that you have back now.

Anyway, not surprised at all to see this report.

~~~
debacle
People don't leave the social network scene. They simply move to a new social
network. As a social network moves to monetize, it becomes increasingly more
intrusive and less functional. This reduces its utility to a point where
another social network, which may not be to the monetizing 'step,' will have
higher utility and thus will see an explosion of users, investment, etc.

~~~
Jgrubb
"As a social network moves to monetize, it becomes increasingly more intrusive
and less functional."

Well put. We agree. I don't have the link handy, but there was a post floating
around on here a couple weeks ago about having customers, not users. Point
being, social et all might be the sexy thing to be into, but from a business
perspective it's basically a distraction. The real money is and probably
always will be in the enterprise, government, health care - sectors where
costs of acquiring, adapting, and leaving technology are all significant and
so are the profits to be made.

Anyway, that post made an impact on me.

Then just after that our 3rd boy was born in Morristown Hospital in New
Jersey. Supposedly voted "the best hospital in New Jersey". I was pretty
amused to see that the state of the medical art that was networked all over
the hospital was still running largely on Windows 98. I have to guess the
contract to upgrade that software when it does come along will be worth what?
Half a billion dollars? For one hospital? Anyway, I digress...

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hef19898
If it was that, it's actaully a smart move. FB didn't pay in cash so they tied
the value of the two companies together. The deal has the potential to remedy
at least some of FBs mobile user issues. And it created a lot of media
coverage, always good before an IPO.

But one thing I never really got is how you can actually make money in the
social space.... But that has nothing to do with the Instagramm / FB deal.

~~~
malandrew
There are a ton of money making opportunities in the social space if you can
transparently insert your product or service in the path between two people
partaking in a social activity together on which they are spending money.

The money is there. It just isn't trivial to extract just like drilling for
oil in deepwater.

~~~
gaius
It seems like this is such an obvious way for FB to make money. E.g. if I am
planning a party or other event, FB should somehow be making it easier (other
than managing RSVPs) and taking a commission. The deal that makes sense is
Facebook and Papa John's, FB and Ticketmaster, etc etc.

~~~
malandrew
Yup. The same goes for places like meetup.com.

I help with the SFJS meetup and we spend a bunch of money on food and beer
(paid for by our lovely sponsors of course), but this is a completely missed
opportunity by Meetup.com.

A startup like ZeroCater should be pitching Meetup.com for the opportunity to
provide 1-click catering to meetups that want that handled for them.

Between knowing the number of people, ratio of men to women in an audience (us
men typically consume more) and the time the event begins, meetup.com has all
the info they need to get the food to the event in a semi-automated fashion.
All that should be left to do is choose what kind of food. Facebook could do
the same for its events.

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josefonseca
> Facebook, Inc. just filed a new amendment to its IPO prospectus (S-1)
> tonight which offers new transparency into its weak Q1 results

Amazing what an IPO can do for transparency. This is the sort of thing you'd
never find out about a limited risk small company.

~~~
aristidb
Amazon shows that even a public company can be highly intransparent. Nobody
even knows how many Kindles they sold...

~~~
josefonseca
But it's probably easier to find out than if Amazon was not publicly traded. I
am no expert on this, but I am sure that major stockholders have means to find
out everything they want about Amazon's Kindles sales.

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chris_wot
As a side note: the Facebook iPad and iPhone apps are really badly designed.
It's very hard to use them - comment panes are small, their side menu systems
not that good, features are missing from groups (like docs) and if you post a
Facebook URL in a group when you click on it it takes you into Safari to view
the link... You have to log in to Facebook while logged into Facebook.

My point being - I'm not sure they get mobile apps. Which seems odd to me!

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revorad
I would be surprised if Facebook is not working on their own mobile OS. All
those amazing designers they acquihired can't be working on plain-looking
webview apps.

~~~
lechris48
The idea of a (widely adopted) Facebook OS really scares me...

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tnash
This is why the pervasive ideal company line in Silicon Valley is wrong. The
"Lots of Users + ? = $$$". Can you imagine the same being applied to anything
else?

"Yes, today we'll be pitching a restaurant. We give away food for free! In a
couple months/years when we have millions of people coming in for free food,
we'll figure out some way to make money off of them. Probably advertising.
Investment please!"

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conductr
Just charge for the app already. Facebook has become so deeply integrated into
most peoples lives they aren't going to care about sending $0.99 their way.
Hell charge that annually and no one would care

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ragmondo
If you watch the roadshow video, Zuck even makes a point that they are "real
soon now" making these advertising platform mobile friendly. Now it seems
obvious why they had to emphasise this.

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samstave
I am 100% sure they will produce a phone and it will be a huge hit and it will
be so integrated with facebook that it will make this all moot.

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moron
I have read before that FB does not make any meaningful revenue from its
mobile users. But, Instagram does not generate any revenue either.

~~~
Stenerson
I agree - It's not that people aren't using Facebook mobile, it's that they
can't monetize Facebook mobile. I'm not sure how buying Instagram fixes that.

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unreal37
I think they can monetize Instagram easier than they can monetize Facebook
Mobile.

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tyree732
How? If Instagram charges for anything or adds ads to their interface people
will shift to different photo sharing service, plain and simple.

