
The Facebook Fallacy - Without an earth-changing idea, it will collapse - kibaekr
http://www.technologyreview.com/web/40437/
======
jerf
Many people suggest we're in a bubble, and usually call it a social media
bubble. I still find myself wondering if we aren't in an _advertising_ bubble
instead, with social media a rider and not a driver per se of the trend.
Advertising is and always shall be a very important part of the economy, but
there's also this sharp bound on exactly how much money it can move around
since it needs to result in net profit for the advertiser. Google definitely
has demonstrated they have a superior platform. I'm not sure anybody else has.
Not just Facebook, anybody else.

If there's any element of this bubble that reminds me of the previous it is
that there are still an awful lot of startups out there who are trying to
simply acquire as many users as possible with vague plans to figure out how to
make money later... and they all seem to come up with the same, "Uh... shove
ads at them, I guess?" plan in the end.

~~~
unalone
Advertising student. Advertising's not in a bubble; some very rich and
formerly successful advertisers are just doing an awful job at adjusting to
the change in society that's now been twenty years in the making. Dumbasses.

Here's how advertising works from its creator's point of view. There are a few
principles abstract enough that you can apply to any piece of advertising.
Good advertising positions itself within a market, develops a brand image,
establishes its product as a good product (not even necessarily better-than:
as long as you look trustworthy and people know your name, you'll sell). The
bulk of ad research, meanwhile, goes into studying individual forms. TV ads.
Product placement in films. Radio spots. Magazine spots. There's a series of
long-tested techniques which advertisers rely on. Even these techniques
usually fail, because plenty of advertisers are fucking idiots who don't get
that ads are a creative medium, and if you're formulaic rather than creative,
you'll sell jack shit.

The challenge of the Internet is that every web site has its own unique form.
Most of these forms weren't even _designed_ for ads (Facebook at least knew
how they wanted to sell ads; Twitter still has no clue). To sell on Twitter is
different from selling on Facebook is different from selling on Reddit or
Tumblr or Pinterest or Instagram. There's no formula. And some of these sites
are so limited that advertisers simply have no clue how to push their shitty
little message out to suckers, ahem, consumers.

The fix, of course, is that instead of selling a brand you start interesting
conversations, create dialogues that engage people with the thing you're
selling, even start communities of people who revolve around your product. But
advertisers aren't bright enough or genuine enough or ambitious enough to do
this the right way. Community-building especially: nobody wants to join a
forum for a product that isn't a car. Yet some people persist in thinking that
if they build it, fans will come.

One future of advertising looks like the Deck Network, where people so trust
the advertisers that they'll click on the ads willingly. One's the model
Facebook is still struggling with: connect super-small businesses with
precisely the people who want to buy their product. These anti-Facebook ads
stories recently only show that you have to be smarter advertising on Facebook
than you'd have to be in a newspaper. The really good Facebook ads get friends
talking about them, because they really are something that those people enjoy.
But that runs counter to how advertisers think about their sheep, goddammit I
mean targets, no wait that doesn't sound nice either.

The real bubble is: stop treating people like products, start treating them
like people. That means fewer start-ups designed to sucker people into wanting
some bullshit connection they never really needed (YC has some exactly like
this), fewer advertisers looking down at the masses like they're ripe for the
picking, fewer businesses geared toward herding people up and selling them
wholesale. The more freedom you give people w/r/t how they consume media and
how they express themselves, the harder it is to trap them in your crap.
Ultimately it becomes more profitable to just treat them like human beings,
and act like a human yourself. But plenty of products will die when this
happens because plenty of products were never intended for human consumption
in the first place.

~~~
mattmanser
I'd like to propose an alternative.

Personally I think the problem isn't people doing an awful job, it's
attention. On the TV they frequently interrupt your program but you'll endure
it as the content is longer than the ad. Same with Radio. In Magazines and
Papers they constantly jiggle around all the content so you have to at least
scan the page to see if it's an advert or an article which means they have at
least a chance to grab your attention.

Web ads cannot grab your attention because the content they surround is bite-
sized so any attempt to interrupt is so much more jarring. They tried a few
different ways and generally they failed. The worst new one is the put an ad
in the middle of the text, but that too is incredibly jarring and confusing.
Another example is the attempt to monetize funny videos by putting a 15 sec ad
clip in front of it. But quite often this is as long as the content! Do people
even try and endure the ad? I'd love to see the numbers. If I click play on a
random video and an ad starts I usually skip to the next article rather than
watch the ad.

Also when you get into something like Facebook the adverts sit in the same
place every time. Which you learn to skip automatically very quickly as you're
usually not interested in them. You never have to play hunt the article apart
from the very occasional site that has the full page popups which generally
means you will start avoiding that site.

But worse for advertisers, if they make them too intrusive people _can just
turn them off_. Brilliant!

The only ad I've recently seen that made me think, hmm, this could work are
the occasional full page background adverts they run on IMDB.

Also Facebook didn't used to have ads, they just added them to the side of the
page at one point. And I doubt the future of ads does look like the Deck
Network, it's just another advertising network. They seem to be teaching some
strange ideas at your college, I'd be interested to see the data that backs it
up.

~~~
nollidge
> Deck Network, it's just another advertising network

Doesn't seem so to me. I always run Adblock, but after looking around a bit at
some DECK-served sites (there's a list on <http://decknetwork.net/>), I might
whitelist their ads. They seem unobtrusive and mindfully-designed.

You seem to be saying that advertising networks could never work, but don't
back that up with data (which, ironically, is what you're asking unalone for).

> the occasional full page background adverts they run on IMDB

I hate those. They ruin a consistent website experience, and then piss me off
when I accidentally click the giant margins. The AV Club does this also - or
used to, I don't know, I blocked 'em.

You started off by saying:

> I'd like to propose an alternative.

But never did so. What's the alternative?

~~~
mattmanser
I'm not saying they're a bad ad network or intrusive. I just mean their ads
are functionally exactly the same as everyone elses. Their ethics doesn't make
them more effective.

I actually meant alternative explanation to the parent's observation that all
advertisers seemingly have suddenly all become idiots.

------
joeguilmette
Everyone always seems to talk about Facebook for payments.

Am I the only one that finds this hard to believe? Why is Facebook in a good
position to authorize payments? They have very few credit cards on file.
Besides FarmVille, et al, who exactly is giving their credit card info to
Facebook?

In what context am I supposed to use Facebook to pay for things? If we're
talking about mobile, then we're talking about smartphones. What exactly makes
you think Google/Apple are going to lay down and give the keys to the mobile
payment castle to Facebook? Google and Apple already have our credit card
info, we all already buy things through Apple and Google, and it is a logical
step that I would use that same process for buying something with my
smartphone in a store.

I don't think it is a logical step for me to pull out my smartphone, open my
Facebook app and use it to pay for something, anymore than it makes sense to
use my Twitter app to pay, or Instagram for that matter.

In fact, if we're going to use a third party app to pay for things, I have an
app from my bank, why not use that?

I just don't see Facebook getting in to mobile payments...

~~~
nckpark
I picture a payments system on Facebook being geared to person-to-person
payments and web payments, not in store, mobile payments. Need to pay back a
friend for dinner, split the rent, pitch in for a co-workers gift? FB is a
natural place. These type of payments could make people very used to paying
with FB as well, potentially opening the door for use in more traditional
payment scenarios. Year after year I've been surprised that nothing like this
has emerged on FB.

~~~
joeguilmette
But what about _Facebook_ makes them positioned to do this? They're Contact
list? That's openly available to devs.

If I'm paying a friend, why not use PayPal, or Bump, or just cash?

~~~
nckpark
The contact list, consumer trust, and appropriate context. A third-party
developer offering this has the significant challenge of making users trust
them with a payment. People know Facebook and (most) trust them. PayPal or
Bump are options, but are distanced from social interactions. I'd be
interested to see the usage numbers from younger consumers, as I also imagine
(with no data to back me up) that not many teenagers or college students use
PayPal. As for cash, again it's an option, but it's pretty clear the world is
going plastic. There's a reason Square is a big deal.

~~~
joeguilmette
The contact list is part of Facebook's open API. They give it away for free.

As far as Facebook being trusting in terms of commerce, well... I don't buy
it.

[http://threatmetrix.com/study-reveals-only-a-quarter-of-
cons...](http://threatmetrix.com/study-reveals-only-a-quarter-of-consumers-
trust-facebook-storefronts-to-prevent-fraud/)

Also - anyone remember Facebook Marketplace? Me neither. It's been stagnating
for years.

------
PaulHoule
(1) I don't think that digital ads are less effective than old TV and
Newspaper advertising. In the bad old days, nobody could measure the impact of
advertising and people assumed ads were worth more than they are.

Once it became possible to measure the effectiveness of transactional ads
online, it became a lot harder to justify the cost of display ads.

The advertising apocalypse won't just affect the internet, it will affect
traditional media. On the few cases where I watch cable or OTA TV I'm shocked
that the ads are 5-10% relevant to me -- it seems like much of the industry is
kept alive by ambulance-chasing lawyers, credit repair services and the
medicare economy.

(2) Facebook has other ways to make money, and in a pinch, they'll develop
them -- it's believable that they could increase revenue 2-3x in a year or two
if they really had to... Largely because they haven't had intense pressure to
increase revenue. Facebook Credits, for instance, could be a gold mine if you
could buy more things with them.

------
conanite
The article proposes that the ad-supported web will collapse along with FB
after prices have dropped to beyond unsustainable ... what would the post-ad
web look like? I'm looking forward to all the content farms, endless
plagiarism, and constant attention-seeking going away; what else will happen?

~~~
personlurking
I haven't a clue but both CL and, for some reason, the São Paulo gov't banning
outdoor adverts come to mind (perhaps the world gov't one day will ban all ads
everywhere). Also Star Trek where you'd do things because you are good at them
and wish to contribute to society, no money needed.

------
jinushaun
All of the theories on the death of Facebook are all based on the premise that
Facebook won't pivot. That the only way out is to monetize mobile. If you
asked me 10 years ago, I could've never predicted AWS or the Kindle, but look
at Amazon today.

~~~
saturdaysaint
In a way Amazon is an absurd object lesson - their P/E ratio isn't far from
_double_ Facebook's and Facebook was five times as profitable as Amazon last
quarter. If anything, Amazon shows that as long as you're profitable and
retain a controlling stake in the company, the media's and Wall Street's much-
vaunted expectations aren't worth a damn.

~~~
InclinedPlane
P/E isn't everything since earnings can fluctuate for a lot of reasons.
Amazon's market cap is only about twice their annual revenue, compared to 28x
for facebook.

~~~
ScottBurson
But I think you have to admit that there's an expectation built into Amazon's
market cap that they will eventually find a way to improve their margins.

Compare HP, whose market cap is around 1/3 annual revenue at the moment.

~~~
InclinedPlane
Not necessarily. AWS and Kindle/eBooks are already proven businesses with high
margins, if the current growth rate on those businesses is maintained then the
overall profit margin across all Amazon will improve. And in both cases Amazon
is the leader in those fields (PaaS and eBooks). Also, Amazon has been
spending a lot of money lately on expansion and hiring, once that's stabilized
their profit will go up as well. Overall I'd say the bet that AWS, Kindle, and
Amazon's retailing business will sustain double digit growth rates over the
next several years is a pretty safe bet.

Also you need to factor in that Amazon has about $25 billion in assets, so
their net market cap is only about $75 billion. Anyone looking at Amazon's
revenue growth and the diversified foundations of that company can't be too
upset at the seemingly high P/E ratio of AMZN. Facebook is also growing
revenue like crazy, but their market is much different and there are a lot of
open questions on whether or not they can maintain that growth (or even retain
their user base). That doesn't mean that facebook is a bad investment, it just
means that there's a lot of risk there and the stock price doesn't seem to
reflect any of that risk.

Consider: Yahoo has nearly as many users as Facebook (700 mil vs 900 mil),
higher total revenue, just as many experienced developers, and a similar
business model (ads). Almost all of facebook's valuation lies at the feet of
their reputation, not at any sound business fundamentals, and that's a pretty
big burden.

------
kayoone
Facebook Connects the world...almost everybody i meet is there and i can write
messages from my phone to them for free. Add to that their giant app platform
for games and entertainment stuff. Soon you will be able to Pay with Facebook
Credits everywhere...i think they have plenty of ways to go apart from
advertising.

~~~
majani
By now, they've clearly shown us that their main game will be display ads. The
history of other public web companies tells us that anything else added on
will be small incremental improvements compared to the display ads.

------
rbn
Here are some opportunities: Social graph is their biggest asset. 900million
users. A number of companies have been built only because of this network. I
can easily see them charging large sites in the future. Spotify, Pinterest,
Tumblr are just a few companies using the social graph to build better
products and all of them are billion dollar companies using Facebook for free.
Google maps now charges large sites for API calls, Bing is now charging for
API calls. Facebook will too.

Payments is an amazing opportunity for them. One click, Purchase With
Facebook. The payment processing game is all about the network effect. Dwolla
is innovative but they need an "eBay" for them to gain massive usage. Facebook
doesn't need it.

Facebook can destroy eBay by creating a marketplace + their own payment
processor. Facebook is the only company that can break eBay's monopoly of the
online marketplace and payments. This field is ripe for disruption and in the
game of network effect Facebook is unstoppable.

I can see them moving into enterprise too. Maybe teaming up with Micosoft's
Office 365 to create an awesome enterprise social network with Office 365
built in.

Online gambling laws are starting to become loose. This can be huge for not
only zynga but for many, many other massive companies who would love to use
the social graph for the gambling. Example: BetFair and Bwin.

~~~
kitsune_
About your first part: I recently thought about a couple of app ideas that
centered around integrating different web applications (facebook, dropbox,
soundcloud, youtube).

One of the red flags was what you described. The external service providers
can pull the plug whenever they want. They can steal your idea, they can
charge you for using their API. Of course, if you are lucky they might buy
you, but I don't foresee too many 1 billion dollar acquisitions from Facebook
in the future.

~~~
rbn
I think charging for the API in inevitable. As for stealing the idea. I
personally never worry about people stealing my ideas because if an idea is
good enough it will be stolen and copied %100.

------
tytso
Even if Facebook collapses, it doesn't mean it will take the rest of the web
down with it. It just means that perhaps a place where you are shooting the
breeze with your beer-drinking buddies isn't the best place to sell some,
perhaps even most, goods and services. If that's the case, and the price for
putting an ad on FB decreases, it doesn't following that the price for running
an ad on another website will also be lower.

The author making the fundamental mistake of assuming that all web sites are
the same, and that's obviously false. Just because Facebook is (in his view) a
ad-supported website doesn't mean that it is interchangeable with any other
ad-supported website.

~~~
josefonseca
> Even if Facebook collapses, it doesn't mean it will take the rest of the web
> down with it.

The WWW was here before Facebook. To even raise that possibility shows people
completely lack a sense of proportion. Facebook and Google can disappear from
the WWW and the WWW will stay there just like it was before these companies
came along.

------
josefonseca
It was a wrong move for Google to have gone into the social media business
IMO. It took focus from their search, which has arguably lost quality, and
injected search with too many diversions and "noise".

The level of interest in Google+ reflects "the fallacy of Facebook" as well,
it is the same effect: why would people continue to expose themselves like
that?

Social media with a purpose, like LinkedIn and similar, are good for business
contacts. Facebook and Google+ simply aren't a business environment.

The purpose of Facebook and Google+ is to mine data and sell ads. IMO that is
a broken business model, because at some point privacy will inevitably become
a barrier.

------
helipad
If I can send a message to anyone I know or have met (in real-time,
asychronously, or by video), who will receive it on their phone or computer
immediately, without having to remember a number or address, I'd call that
earth-changing.

I don't know if Facebook will be a successful business, or if more convenient
ways of communicating will appear in the future, but the ability to let me
easily communicate with all my friends and family is as earth-changing as I'm
going to need it.

~~~
stef25
In that aspect Skype is no different: sender and receiver need an account, you
need to know whatever the FB name is of whoever you're messaging, you have to
have an app (mobile app or browser) running on your device to be aware of the
message. Main difference in messaging is Skype doesn't allow you to message
offline users, I think.

~~~
lmm
It does. My group of friends use it as a pure text IM system; crazy as it
seems, it works better than anything else we've tried (e.g. if you're signed
into Jabber from two devices, messages for you will only go to one of them).

------
chaostheory
I wonder why no one mentions surveillance? Facebook may not be a perfect
platform for advertising, but it is an awesome Big Br0 2.0. It's a lot more
efficient and effective than anything that the N5A, C1A, or any other major
intelligence agency have ever concocted directly. Like it or not, Facebook is
here to stay. Whether it generates revenue from advertisers or governments is
another story.

I strongly feel that C1SPA will be a strong part of Facebook's financial
future.

------
AznHisoka
This is why the Demand Media model (the massive production of content part)
makes some sense.

Google wants publishers to make high quality content, but they don't
understand that the ROI for that model is often piss poor, and very unfeasible
for small, beginning publishers.

~~~
majani
Thank you for saying this. As a small publisher myself, I am slowly being
forced to go the Demand Media route, ever since I discovered that my articles
earn about 1 dollar a piece. Got to get them done for less than that if I'm to
stay in business.

------
drcube
I think Facebook needs to get into the business of selling my data to
companies I personally trust to have it.

Imagine letting me auction off my corner of the Facebook graph to companies
that bid for it and I trust to sell it to. I get paid, Facebook gets a cut,
and everybody is happy because I retain control over my data and the company
who gets it knows they have a valuable, trusting customer and not just some
apathetic eyeballs.

I don't think this is realistic at all, but it would be a way to calm privacy
fears and revolutionize web advertising. As it is, most people I know just use
adblock, because internet advertising is absolutely terrible. But -- and this
is saying something from somebody like me who despises ads -- it doesn't have
to be.

------
drumdance
The earth-changing idea is that we are all connected electronically by a few
degrees. A lot of companies have tried this but Facebook has come the
furthest.

------
JumpCrisscross
» _At a forward profit-to-earnings ratio of 56_

56? Profit-to-earnings?

------
shmerl
I'd phrase it differently. It'll collapse because it blatantly disrespects
users' privacy.

------
zerostar07
How about just buying Zynga?

------
bluelu
Facebook has so many options: E.g. Imagine you could also sell goods and open
a shop on facebook. No need to leave facebook anymore, or visit another
website on the web.

