

Phase 3: Profit - mqt
http://mattmaroon.com/?p=349

======
dpapathanasiou
Search engine style ads don't work because people login to see what their
friends are up to, not because they're open to buying something.

Ultimately, the answer may lie in some kind of customized event sponsorship:

 _e.g._ you're planning a poker game with your friends, and facebook allows
its clients (beer and snack companies for this example) to offer you a deal on
those products.

Or something else entirely.

Either way, I agree with the blog post that they haven't found that something
yet.

------
run4yourlives
The biggest problem with facebook, imo.

All the lovers will come and razz Matt and this comment, but none of them will
be able to provide any evidence that facebook is doing anything but spending
capital.

~~~
alex_c
My suspicion is that Facebook will have to change how online advertising
works, or die.

Look at Compete data: average stay of 15 minutes * 350 million visits/month =
87.5 million hours / month in the US. That is coupled with decent demographic
data and ability to target. How much would that much attention be worth in TV
or newspaper advertising? A lot more than Facebook is currently getting, I
suspect.

If it can convince major brands that Facebook eyeballs are worth the same as
traditional advertising (in effect sell them CPM, not CPC - "Facebook is the
new TV"), then Facebook will do quite well. That's a very tough sell for
smaller players, but it might not be impossible for Facebook.

~~~
aswanson
They can convince major brands to advertise there. The problem is, unlike
traditional media ads, web based advertisers can quantify how much bang for
their buck they are getting (click throughs, etc).

Turns out that blanket, weakly-targeted advertising just doesn't perform that
well, and companies get explicit feedback from these networks on just how bad
the typical ad really is in terms of ROI.

~~~
shawndrost
Brand advertising (most of traditional media ads) isn't measured in click
throughs, isn't any easier to measure on the web than elsewhere, and can't be
dismissed without evidence.

~~~
aswanson
It wasn't a dismissal. I would strongly disagree with _isn't any easier to
measure on the web than elsewhere_ though. If I place an ad on a site that
results in 16 clicks which result in 4 transactions out of an audience of 32,
I have a mathematical percentage of the effectiveness of my ad placement. This
is possible on any ad placement on the web.

If I run the same ad on tv or print, I have nowhere near the ability to
accurately attribute any delta in sales activity to that specific ad run at
that specific point in time.

~~~
alex_c
That's not the point of brand advertising though. The point is to hammer the
consumer with a brand over and over again until they KNOW that's the brand for
them and go out and seek it on their own. Think Coke, Ford, etc. Facebook has
terrible click-through rates, so if they're going to make money from
advertising, it'll probably be this way.

~~~
aswanson
That was not the point being argued here. He stated that web ads cannot be
measured any more efficiently than any other form of advertising, and I
provided evidence on how they can.

You're probably right about that being the only form of ad they can monetize,
though. The question then becomes when do companies spend as much in that
space as they do on tv, if ever?

~~~
nostrademons
That doesn't measure what brand advertising wants to measure, though. If one
ad gets 16 clickthroughs that result in 4 transactions, that ad is inferior to
one that gets 0 clickthroughs but results in 8 sales when customers actually
go to the store.

Brand advertising works because most consumers rely on a recognition heuristic
when faced with the dozens of products in a store. They'll buy products they
recognize, even if they have no personal experience with the product. You
don't go out and buy an All-New Mercedes Benz immediately because you saw it
on TV - but when it comes time to buy a car, you're far more likely to buy it
because of all the associations that its name & image bring up. You can't
measure this with any existing web metrics - it may be years before customers
actually go out and make a purchase.

~~~
aswanson
Right, that is how brand advertising works. But given the structure of the
web, you can get an estimation of how effective it is by how users respond to
it (clicks).

Put yourself in the position of an ad exec who has $n dollars to spend on his
campaign and has to present to a superior how effective it was. If he has a
web ad placement, the execs in charge of the money are going to immediately
query him on what they got out of it (how much traffic they got from it).
Adsense has spoiled companies into being far more demanding on number metrics
on effectiveness. I can't think of 1 flash ad, branding or not, that does not
have the option to click and learn more about the product. They _are_
measuring the ad resonance, transaction driven or not.

The fact of the matter is, companies want a return on their web ads they can
quantify. They measure using stuff like this: <http://www.vizu.com/>

When they don't get it, branded or not, they leave:
[http://mdurwin.wordpress.com/2007/07/25/corporations-
leave-s...](http://mdurwin.wordpress.com/2007/07/25/corporations-leave-second-
life-we-never-knew-you-were-there/)

------
cglee
One easy way for them to make money is to charge some nominal fee (say $15/yr)
for premium services or ad-free experience. I don't use facebook myself, but
most of my friends do, and most of them would gladly pay a small fee to just
keep using facebook as is, nevermind premium features.

Mining the social graph is the holy grail of social networks, but facebook,
with its millions of addicted users, doesn't have to solve that problem to
generate revenue. It can do so with other means until they figure it out.

IMO, Google was in an even more precarious position before it figured out
advertising because people could switch easily. Facebook's got its hooks in
your life; you can't switch.

~~~
Xichekolas
I'd pay $15/yr to automatically block all Facebook Apps.

Sadly I don't think I'm alone. It was useful before, but it's gotten
increasingly spammy.

~~~
dangoldin
Facebook will keep on getting more and more users but it just seems that if
they want to get to the next level, they need to do something about this App
thing. Once they figure it out I don't doubt they'll be able to offer some
type of productivity software - they already have the social infrastructure as
well as the users in place for that.

When they launched the API and the apps I, as many others, were excited about
the entire idea of a facebook OS but it seems that notion is drifting farther
and farther away.

------
okeumeni
The difference between Facebook and Google is Technology, the value of goods
is define by its availability/scarcity. There's nothing spectacular about
Facebook technology, Fame alone is not enough to justify those billions if you
don't think so let see when they go public.

~~~
pchristensen
I disagree. Google's value is in the quality of its results and the speed of
search. Facebook's value is in 1) all the users (a social site sucks if your
friends aren't there) and 2) it's brand (people know about it and trust it).
Someone could buy equivalent technology but not the users or the brand.
Remember Google Video vs YouTube?

(fwiw, I think Facebook is valuable but if they can't monetize it, then
they're in trouble and it won't bode well for all the other social network
sites out there either)

------
wumi
Somebody should start a poll:

Facebook + Email + IM + Phone vs. HN + Email + IM + Phone

Which would you rather have?

I suspect this would provide some valuable information as to the near future
of the internet -- so many of us are on HN because it is specific to our
current interests -- whether hobby or professional -- and our desire to know
and bounce ideas off of similar minds.

Now for specific interests replace HN with (Popsugar, TMZ, Social Investing
sites, etc.)

------
nickb
Matt reminds me of this:
<http://en.wikipedia.org/wiki/The_Emperor's_New_Clothes>

------
zkinion
[http://www.outrunpoker.com/blog/2008/03/a-way-for-social-
net...](http://www.outrunpoker.com/blog/2008/03/a-way-for-social-networks-
to-a.html)

I don't think social graphs or other "hocus pocus" BS will get them much more
CPM than they are currently getting. I believe the only solution is to take
more of the revenue stream from advertising by starting some companies in
fields where it is possible, and ones that already advertise on FB. This is
the most direct approach, and takes the longest and most work, but the most
rewarding in the long run due to many reasons.

------
bayareaguy
I go to places because of the value they offer. Facebook offers me next to
nothing. I went there exactly once to peek at the Thrift documentation (you
can download the source without registering but the link to the docs is a
group).

I'd be there if there were some there there.

------
Mistone
From PG's latest: Why Aren't There More Googles "So what's the real reason
there aren't more Googles? Curiously enough, it's the same reason Google and
Facebook have remained independent: money guys undervalue the most innovative
startups."

------
rhiltd
Why do people keep repeating that FB is 'worth' $15 Billion?

Is it an American thing for self-delusions?

FB as a business has the same credibility as a Washington Mutual AAA rated
CDO.

~~~
mattmaroon
Because that's their market value based on recent investments.

~~~
tonystubblebine
I've never understood if the $15B valuation is real either (although I
understand that it's quoted by everyone as being real). The original $15B
number comes from an investment that Microsoft did for a share of the company
plus advertising consideration.

If you just valued the company on the share then it would be worth $15B but
since there were other considerations you can't know at all what the valuation
was.

I've heard of follow-on investments but I never heard any hard facts about the
valuation of those investments.

On the other hand, I've heard people who should know (actual VCs, TechCrunch,
press) say FB has a $15B valuation. I just don't understand how that's the
case. Is it bogus or what is the piece of information that I'm missing?

~~~
mattmaroon
Without knowing the details on the MS deal or the follow on funding, it's hard
to say. I would speculate, solely from what I've read, that MS's investment
values them at $15 billion while giving them the right to run ads for which
they'll have to pay a certain amount as well. So in the case, and assuming
other investors also valued them at $15b, that's their actual valuation.

~~~
staunch
I recall Zuckerberg admitting at SXSW they only valued it at that so that
Microsoft could invest their cash and not suck up a big percentage of the
company. That would mean not even Zuckerberg pretends its worth $15 billion.
It seems a bit lame to repeat this valuation as if Zuckerberg is running
around yelling "My company is worth $15 billion!" because he's definitely not
doing that.

~~~
Harj
_as if Zuckerberg is running around yelling "My company is worth $15 billion!"
because he's definitely not doing that_

well current hires are getting their stock at that valuation so the net effect
is the same

~~~
nostrademons
Confirmed or assumed? If this is true, it's a big point against FaceBook's
continued success, because it means current employees are underwater until
FaceBook's worth more than Ford. One of the big motivators for a startup
employee is seeing those options you got for pennies suddenly being worth
dollars; if those options won't be worth anything for the foreseeable future,
there's little reason why good employees would choose to work at FaceBook
instead of Yahoo or Adobe or any of the other mature tech companies.

~~~
Harj
i know it for a fact

------
chaostheory
I don't disagree with his main idea, but I really find it hard to believe that
AIM and most cell phones are open platforms; though someone can prove me
wrong.

~~~
mattmaroon
I know of many apps not built by AOL that use AIM. Meebo, Trillian, Pidgin,
Adium, etc. I don't think they meant it to be an open platform (until fairly
recently) but it became one.

I meant the phone system. Individual cell phones are not necessarily
platforms.

~~~
chaostheory
"open AIM" isn't really open, I think this was discussed in a past yc post;
there are a lot of terms and conditions that are more overbearing than
facebook's or google's terms/conditions \- like if you have x number of users,
you must feature AOL ads on your app (or something like that)

Until Google Contacts API came out, I don't remember any major company giving
third parties access to their users and their contacts officially. (ok Plaxo
did but they had a condition that you couldn't make anything for profit)
typically apps like Trillian got access when users gave them access to their
own login information which is far from ideal and still not open by choice -
more like 'broken into'

"I meant the phone system. Individual cell phones are not necessarily
platforms."

the problem is, the social graph (contact info and call history) is contained
and accessible from individual cell phones and not the phone system (unless
again you trust some company to your login information for your cell phone web
site account - still not open and a more dangerous than giving someone access
your AIM login).

individual cell phones may not be platforms themselves, but the OS's they run
on are...

------
Tichy
I suppose you are only looking for excuses so that your startup doesn't have
to create a Facebook app ;-)

------
Readmore
Excellent, I love the ZuckerGnome!

------
daniel-cussen
A minor nit-pick: only one d in 'adds', in the phrase 'video adds'.

------
Mistone
quick name the only company in the valley that scares googles mngt team?

quick name the only company in the valley thats harvesting googlers like its
October in Napa valley?

~~~
aston
If I were well-vested at Google, I'd definitely try my best to jump on the
Facebook train. Whether or not they're going to make me rich (again), it's
probably the most fun place to be in the Valley right now.

Doesn't mean Facebook is the next Google, though.

------
Mistone
so many fb haters - yet they keep growing users, keep launching features, you
can say they have no tech (baseless), they can't monetize (eer ask pg about
this one; build something people want - a business model will emerge) and all
the rest - yet you can say nothing about their growth and engagement.

~~~
SwellJoe
Matt's not saying they aren't getting a lot of traffic, or that a lot of
people don't enjoy using Facebook (nobody in their right mind would claim
those things). Matt's saying that it's a rare form of chutzpah that Zuckerberg
possesses that allows him to make up stuff like "the social graph" as
justification for his second-place social network being worth 30 times the
first-place social network (he's also saying some other stuff, but I think
that's the funniest/truest part). And, of course, it takes an astounding
reality distortion field for him to be able to convince half the people in the
valley that it's a done deal: Facebook is "the next Google".

~~~
aswanson
Facebook is not the next google for the simple fact that everyone is saying
that it is. The Next Big Thing usually slips under the radar until it becomes
completely dominant.

~~~
mattmaroon
Google did that for sure.

