
Why Facebook will never make a significant profit - uptown
http://qz.com/49528
======
tokenadult
I'm old, and I have seen predictions come and go over the years, but this is
my prediction about Facebook, and I'm sticking to it: "Facebook will go the
way of AOL, still being a factor in the industry years from now, but also
serving as an example of a company that could never monetize up to the level
of the hype surrounding it."

If I had serious money, and if I thought that the time frame fits the Long
Bets website

<http://longbets.org/>

time frames, I would put up this prediction (tightened up for specificity)
there. But I actually think that Facebook fulfilling this prediction will be
on as short a time frame as AOL's eventual collapse into irrelevance.

AFTER EDIT: A kind and thoughtful reply wrote,

 _Facebook has way better engineers than AOL did, though, and an extremely
engineering-oriented culture._

That could be a strength, as you claim, but it could also be a weakness. A
great many of my friends and one of my children are strong programmers, and
some of those people have strong social skills too. But I would suggest that
while Facebook beat MySpace early on by imposing a "house style" on each page,
so that the users couldn't make their own pages off-puttingly ugly, Facebook
has also muffed more than once meeting user expectations of how their social
interactions will proceed in Facebook's mechanized environment, because
Facebook engineers thought like engineers rather than like people building
social networks. Facebook is not off-putting to me: I use it even way more
than I use Hacker News. But I can't figure out any sound way for Facebook to
monetize that will not become off-putting, and user exodus can happen very
fast once people feel put off enough to leave. I will follow my friends where
they go, even if I have both trust and like for Facebook myself.

~~~
minwcnt5
I think Facebook has way better engineers than AOL did, though, and an
extremely engineering-oriented culture. The infrastructure they've built up
already is also very valuable; only a small handful of companies can match
them there. I think those two factors will be their saving grace. Even if FB
as a social networking website never becomes highly profitable, their talent
and infrastructure should let them easily pivot into other areas and remain
relevant. I would never bet against a company that has a few thousand of the
best engineers in the industry, and ambitious management.

~~~
hkmurakami
Not just ambitious management, but ambitious management that is not afraid of
ignoring the whims of Wall Street Analysts.

I'll always be happy to back companies led by Wall Street defying, long term
oriented founding CEOs: Costco, Amazon, Facebook, etc.

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novum
Sheesh, talk about a hostile reading experience. Dismiss the overlay:

    
    
      document.getElementById("overlay").style.display="none";

~~~
nwh
It's not just the permanent "loading" overlay that makes it feel hostile. I
feel genuinely uncomfortable reading that website; nothing stays still, the
content is jammed in the corner and the scrolling physics have been messed
with.

It's somehow the epitome of claustrophobic design and interaction.

~~~
rachelbythebay
I mechanically translate "qz.com" into "don't even look at it until I hit
View->Page Style->No Style". It's still ugly, but at least the content isn't
fighting for space with all of that other... what is all of that stuff,
anyway?

I wonder if there's a way to make that stick for all pages on a domain.
(Firefox)

~~~
ck2
adblock extension goes a long way to fixing that (block by element id) and
stylish can solve the rest

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jgon
Oh look! Another website that fails to display properly in the latest Firefox
(Firefox 19 beta) and doesn't work that well in opera, but works perfectly in
Chrome.

Don't worry web developers, there are no rendering engines out there except
for Webkit. We have never had to deal with the fallout of designing sites that
only work with one rendering engine before. Continue forward, do not attempt
reflection on your practices, and do not attempt cross browser testing. Apple
and Google can be trusted for all time.

~~~
chimeracoder
I agree with your point, but I should point out that an increasing number of
developers (those in their early-mid twenties and younger) literally never
experienced the first browser wars.

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ig1
The article feels like it's been written by someone who's never bought
advertising before. Anyone in advertising could tell you about FBX.

FBX among other things allows Facebook to offer retargeted ads which have been
shown to convert at a significantly higher rater than regular ads. As
retargeted ads roll out to more users Facebooks ad revenue will go up with
Facebook having to do practically nothing.

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rayiner
"Pundits often make the argument that 'surely with all that personal data,
Facebook must be able to do something.' A great many startups have launched in
the hope that if only they get enough data about their users, they’ll find a
way to make money from it. But looking at the history of Facebook and related
companies like Google, there’s little to back that up."

Most pithy way of describing the dangers posed by the advertising industry
companies like Facebook and Google.

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RyanMcGreal
Arrgh. That damned website has such a horrible UI that it renders the page (no
pun intended) essentially unreadable.

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austenallred
A graph that shows a company "only" makes $5 annually for every user aren't
exactly laughable when you have over 1 Billion users, yet the article, in an
awfully hand-wavy fashion, brushes over this on its way to concluding that
"Facebook hasn't changed much since its founding" (it's "hard to argue," see).

Anybody who dismisses Facebook as a website where you can stalk your college
friends would obviously be bearish on Facebook. If you think Graph Search is
"just another way to sort your news feeds," then of course you wouldn't expect
Facebook to grow. If you don't even mention the fact that Facebook is a
platform that is interwoven with every part of the Internet, I wouldn't expect
you to understand how Facebook will make money.

~~~
niggler
"Facebook is a platform that is interwoven with every part of the Internet"

That's just not relevant: As soon as FB charges for logins or for using their
platform as a user mechanism for their site, there will be a mass exodus.

The reason it is so interwoven is because it is free, and in order to make
your argument you have to explain how they can turn a profit from the
ubiquity.

~~~
austenallred
The point is it's working on an advertising platform that will be just as
interwoven. If it converts better and can track readvertising, it will change
everything in advertising.

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k00pa
Well this site is just awesome, can't even scroll down.

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Taylorious
Typical tech punditry. Small minded, short sided, and bandwagon hopping. I
particularly like the fact that there is a "share this on Facebook" button a
the end of the post.

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rodolphoarruda
"Facebook is a large, inefficient engine for transforming electricity and
programmers into a down-market place to sell low-value advertising"

"Low value advertising"? Well, not to my business at least, as it currently
represents the second best ranked referring website. Customers who come to my
shop always talk about the things we post to our FB web page.

~~~
commiebob
Right, things you post to your Facebook page, not ads you are actually buying
from Facebook. You get to advertise for free by creating a page for your
business and getting people to like it. It has a ton of value for your
business, but you're not purchasing anything directly from Facebook.

~~~
rodolphoarruda
We buy FB ads too. We attack in all fronts to drive traffic to our website.

~~~
commiebob
Do your analytics allow you to differentiate traffic driven by your Facebook
page vs. Facebook ads? I would be interested to know which was more impactful.

~~~
rodolphoarruda
We use Facebook's own analytic tools for that. But we don't go down to the
very detail of what each number there represents. We work one of two levels
above discussing how we are going to invest our online advertising budget
across the different websites (facebook, uol.com.br and alikes, and some
bridal specific portals). Surprisingly enough, Facebook generates more results
than the sum of all the other bridal portals we have our ads on. I'd say 10
times or more of each individual bridal portal.

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dasil003
> _It’s hard to argue that the company has done anything particularly
> innovative since its founding; all the updates to Facebook since then come
> down to tweaks to the core experience of reading through a stream of updates
> from your friends._

This speaks far more to Facebook's ubiquity than it does to Facebook's lack of
innovation. Anyone in web tech whose been around and actually remembers what
Facebook was like in 2004, 2005, 2006 and 2007 would make such a stupefyingly
ignorant comment as this.

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rmah
While I don't think Facebook is all that great of a business model, its
financial performance is FAR better than say Amazon.

Over the last 12 months, FB has done $6B in revenues and $500mil in earnings
(aka profits). That's a net of 9% or so and is decent but not stellar.

Amazon in contrast has done $61B in revenue but lost $40mil. In it's _best_
quarter, it only showed a net income of 1%.

Honestly, to say that "Facebook will never make a significant profit" is just
silly since it's been doing that for a few years now.

~~~
ameyamk
You can't compare amazon with facebook. Amazon is fundamentally low margin
business. FB can at achieve/ maintain profitability levels of high margin
google like ad business. Both companies are investing heavily for the future,
and that reflects on their bottom line. The more important metric is revenue
growth, and unless bottom line is not too red, generally speaking market is
only paying attention to the top line growth.

~~~
dasil003
Why should social be high margin? How do we know it's not fundamentally low
margin like Amazon's business?

This is the disconnect between Silicon Valley and Wall Street. The OA says
that Facebook's profits will never be "significant", yet is completely
dismissive of the fact that Facebook has claimed more user time than probably
any single company's creation in the history of mankind. If they can do this
and making 9 or 10 figure profits then I think it's one of the greatest
success stories in the history of capitalism. That is, the theory that
capitalism is a way of allocating capital to create _value_. Ah but if the
investors who bought into Goldman Sachs' hype machine don't see their cash
return then Facebook must be nothing more than another failed attempt to
create something "significant".

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DavidBradbury
Wow. I simply cannot navigate this site. In Firefox, the content isn't
loading. In Chrome, every time Is scroll down the page bounces all over the
place. Why in the world would anyone make a site whose focus is articles and
content, but make it so difficult to access any of it? So I turned off
JavaScript and got this:

>"Your browser doesn't support Javascript or has it disabled. QZ.com works
best with Javascript enabled."

Nope. Your site worked much better without JavaScript actually. Ugg.

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snowwrestler
I'm old enough to remember when people appreciated the great search results of
Google, but wondered how they would make money with a search engine. After
all, everyone knew search engines didn't make money--that's why Excite and
Altavista were pursing content portal strategies.

I don't know how Facebook will make big money, and maybe they don't yet know,
but I think it's hard to bet against assets like 1 billion users and more time
on site than anyone else.

------
gesman
Google users are people who actively searching for answers and information.
Hence delivering relevant advertising to them that is addressing their real-
time needs is so efficient.

Facebook's users are people who are mostly bored, time wasters and
procrastinators. Facebook certainly does better to target ads based on person
interests and connections, but facebook's userbase is way more passive and
apathic to respond to ads.

~~~
jre
This makes me wonder : a lot of FB users are always logged in, even when they
aren't on FB (to use the like button and other stuff). Shouldn't Facebook be
able to offer something like AdSense with much better targeting capabilities ?

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rm999
I'm curious to see how facebook's external advertising network plays out. It
would have, for example, been silly to judge google's potential profitability
before adwords was established. Facebook's data isn't as valuable (from an
advertising perspective) as google's, but it still has untapped potential.

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vividmind
A title just below that article (if you scroll down) - "Facebook is a goldmine
in the making"

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OGinparadise
Facebook has a few things up their sleeve, a version of Adsense could be one.
600 million users check in daily, there's value in that, just need some
creativity.

I am not sure if Google is worth a 24PE, their pages are already full of ads.
For how will that go? They're begging to be disrupted by a Google without the
(current) need to put 5-20 ads before real results. Before you even say it:
"Relevant" isn't best

~~~
latraveler
I agree, I'm kind of surprised we haven't heard much of anything on the ad
network front from FB. I think an Adsense competitor and a Paypal competitor
are the two big items they could have.

~~~
zevyoura
On the paypal competitor front, FB payments (formerly credits) can be used in
mobile apps as well as FB platform apps, so the infrastructure is largely in
place. That's a tough space though; Google Wallet and Amazon Payments are both
more established non-Paypal players already.

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jbverschoor
Omg this is so shortsides that I almost was not going to post.

~~~
ios84dev
Why do you feel that? What did they miss?

