
Facebook is a Ponzi Scheme - ljlolel
http://blog.jperla.com/facebook-is-a-ponzi-scheme-0
======
dantheman
Obviously this guy doesn't understand what a ponzi scheme is. Perhaps if
facebook took some of the money from new ad buys to purchase goods from
slightly older ads so that they thought they were more successful a case could
be made for it being a ponzi scheme -- this is in no way one.

If in fact they are selling a defective or useless product then they are in
the lemon business -- a card dealership that sells crappy cars will stay in
business until everyone realizes they suck.

Anyway, I've never purchased ads on facebook so this in no way relates to
that; however, when you link to the definition of a word in your first
sentence -- by god, use it correctly.

~~~
ljlolel
Hi Dantheman, you are right. It's not a perfect analogy. There's not really
any closer analogy, though. I state this later in the post, if you read
through the whole thing (including saying "like a Ponzi scheme"):

"Yet, their value and growth continues because they can use that money to grow
their user-base more and assert profitability (in this sense it's not quite
entirely a ponzi scheme, but there is no closer idea). It's possible that they
do not even realize that they are like a Ponzi scheme."

Moreover, I recognize that Facebook isn't necessarily doing this on purpose
(whereas in a real ponzi scheme a competent accountant has to scheme
willfully).

Nevertheless, I hope you agree that the positive feedback, the bubble effects,
and the _deceptive_ illusion of growth all have analogs to Facebook (if you
assume the premise, of course).

I think you are right that I should have used "like a" Ponzi scheme throughout
the post, but the writing and the point would have lost a lot of its effect in
explaining that. The _metaphor_ is better than the simile.

My main motivation was to make people think about the reality of Facebooks
revenue. It may be less solid than social proof makes it seem.

~~~
gabrielroth
_I think you are right that I should have used "like a" Ponzi scheme
throughout the post, but the writing and the point would have lost a lot of
its effect in explaining that._

Yes, describing things in an overheated, sensationalistic way has a more
powerful effect than describing them in an accurate way. Congratulations on
figuring that out.

By the way, referring to a business as a Ponzi scheme is _prima facie_
defamatory. I don't think you have much to worry about, since I doubt Facebook
will bother to sue you on the basis of a blog post, but you might write
differently if you were more conscious of the fact that you're accusing
someone of a crime.

~~~
nailer
I think it's pretty clear to anyone who merely reads the title and has some
understanding of what Facebook is that the author isn't saying Facebook is
literally a ponzi scheme, any more so than I would if I said 'Lotus Notes is a
dinosaur'.

Everyone who uses Facebook knows it doesn't solicit, or give, money to/from
its audience. There is zero question that Facebook is literally a ponzi scheme
any more than it is literally a piece of shit.

The amount of comments here who say that the analogy is libel and which attack
the author on this without responding to the points made saddens me.

I doubt Facebook, even if they didn't like the article, would wish to draw
attention to the analogy contained therein.

~~~
gabrielroth
I use Facebook, and I did in fact assume from the headline that the author was
going to argue that it is a Ponzi scheme. It didn't seem like one to me, but
one reason I read articles on HN is to be informed or persuaded of things I
didn't initially believe.

By the way, I never called the author's accusation libelous. I called it
defamatory, which it clearly is.

~~~
nailer
_shrug_ So you know FB doesn't solicit funds or provide them, but you expected
proof that FB was literally a ponzi scheme in the article?

Libel is written defamation, as opposed to slander which is for transitory
statements.

I disagree that it's clearly defamation.

~~~
gabrielroth
_So you know FB doesn't solicit funds or provide them_

Facebook does, in fact, solicit funds -- from advertisers, and from users who
want to send virtual gifts to their friends.

 _but you expected proof that FB was literally a ponzi scheme in the article?_

No, I expected some argument to that effect.

 _Libel is written defamation, as opposed to slander which is for transitory
statements._

No, defamation is one of the conditions for libel, but there are others:
falsity and malicious intent being the most important.

 _I disagree that it's clearly defamation._

Allegations of criminal conduct are among the clearest categories of
defamation.

Shrug indeed.

~~~
nailer
Me> Everyone who uses Facebook knows it doesn't solicit, or give, money
to/from its audience. There is zero question that Facebook is literally a
ponzi scheme any more than it is literally a piece of shit.

Me again> So you know FB doesn't solicit funds or provide them?

You> Facebook does, in fact, solicit funds -- from advertisers...

You're not listening to me. So I won't listen to you.

~~~
gabrielroth
I assume you're implying that I missed the words "to/from its audience" in
your comment. But when I read the headline "Facebook is a Ponzi scheme," why
would I assume the author was claiming that the audience, rather than
advertisers, were the victims of the Ponzi scheme?

What's more, I wrote that Facebook solicits funds "from advertisers, _and from
users_ who want to send virtual gifts to their friends." You chose to leave
that last part out.

It's up to you whether you listen to me or not.

------
mnemonicsloth
<http://cdixon.org/2010/03/25/stickiness-is-bad-for-business/>

Chris Dixon posted on this recently:

 _Facebook is like a Starbucks where everyone hangs out for hours but almost
never buys anything.

...

The vast majority of money spent on intent-generating advertising — brand
advertising — still happens offline. Eventually this money will have to go
where people spend time, which is increasingly online, at sites like Facebook.
Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next
generation to buy their mostly commodity products. Expect the online Starbucks
of the future to have a lot more – and more effective – ads._

The problem, of course, is that nobody knows how, but we expect someone to
figure it out eventually.

So here's a fun question to overcome your status quo bias. What if brand
advertising is an artifact of one-to-many communications tech, and can't work
in a many-to-many environment?

~~~
njl
I suspect online advertising is undervalued precisely because it can be
measured. I further suspect that "brand advertising" is a scam for all but the
largest advertisers.

~~~
timr
The largest advertisers became the largest because they spend a lot on brand
advertising. So perhaps it's true that you have to spend a lot to make brand
advertising effective, but it's not a "scam" in any conventional sense of the
word. It is what it is.

If we're going to sling arrows at online advertising, I think we have to start
with the fact that there are a lot more _publishers_ than there were back in
the day, and virtually all of them have an undifferentiated audience of
"eyeballs". It's still possible to get high CPM rates, as long as you've got a
targeted audience and a sales team.

~~~
tokenadult
_The largest advertisers became the largest because they spend a lot on brand
advertising._

[citation needed]

A famous quotation about the effectiveness of advertising, by a business
person "considered by some to be the father of modern advertising."

<http://en.wikipedia.org/wiki/John_Wanamaker>

"Half the money I spend on advertising is wasted; the trouble is I don't know
which half."

~~~
pyre
That (sort of) substantiates the parent post's claim. If only 50% of your
advertising money is effective, then spending _more_ will still be more
effective, no?

~~~
tokenadult
If half is surely wasted, it still remains to be shown that the other half
provides a good return on investment.

~~~
timr
You're making an assumption of corporate stupidity that I find to be highly
unlikely. Large companies do not become large companies by tossing hundreds of
millions of dollars down dark wells without analysis.

I'm making the assumption that Coke and Nike, et al. are smart enough to have
at least rudimentary knowledge of the effectiveness of their brand
advertising. Is this an assumption? Yes. Is it a more reasonable assumption,
_a priori_ , than the alternative? I think so.

------
greg
I worked on Facebook ads for the past year so I know that some of the claims
in this article are just wrong, but I think the average reader can figure that
out for themselves.

> People go to Facebook to interact with their friends. It is fundamentally
> different from the ad platform that is Google.

All true, all what Facebook tells its advertisers. www.facebook.com/ads

> They spend hundreds or thousands or more on Facebook ads. At the end of the
> first run, they see bad ROIs.

Because advertising on Facebook is not typically about buying something, it is
often difficult to measure direct ROI in $. In this, it is like the _majority_
of all advertising.

> ...Facebook ads are worthless. Everyone I've talked to who has actually
> bought Facebook ads knows this

Have you talked to Zynga? They make Facebook games. It is speculated they are
making $300M+ a year. You can see their ads _all_ the time on Facebook. Either
they are incredibly incompetent, or FB Ads delivers positive ROI for them.
Search google for "zynga revenue estimate".

~~~
seregine
I always hear Zynga mentioned as the success story for Facebook Ads. If you
had to name an example other than Zynga, who would it be?

~~~
swivelmaster
As a PM at a company that uses Facebook ads extensively to attract users, I
can tell you with absolute certainty that Facebook ads are worth it and the
author of the article doesn't know what he's talking about. At all. End of the
story.

~~~
seregine
That's not quite what I was asking. I generally believe that Facebook ads can
be successful. I'm curious about what companies are effectively using them now
at a large scale.

I also suspect that the effectiveness of Facebook ads has a lot to do with the
nature of the product/service being advertised, and the ad itself (just like
any advertising).

Your comment applies your specific experience (unknown to me) as evidence for
an absurdly general statement ("Facebook ads are worth it") and an ad hominem
attack on the author of the article. Classy.

------
lotharbot
When I get on Google and search, typically there are a few ads keyed to my
search. These ads are selling real products, often the exact product I'm
looking for, from legitimate and well-established companies.

When I get on Facebook, my sidebar is filled with ads. I would estimate 50% of
them are scams. About 25% are for Facebook games, which I am not interested
in. The remaining 25% are legitimate ads which are rarely targeted toward
something I want, but even when they are, _I won't click on them because of
the 50% of ads that are scams_.

~~~
BRadmin
This is the interest v. intent paradigm.

Listing 'photography' as an interest on a social network and typing it into
google with the intent to research, purchase, learn, etc., represent
fundamentally different mindsets.

------
aresant
Facebook seems to overwhelmingly treat their users as just "metrics" instead
of individuals.

Their short term revenue has been supported by:

a) Small businesses - like this story mentions - buying into an ad platform
that performs on the low end of AdSense.

b) CPA scammers pumping rebill offers and breaking through FaceBooks meager
ad-clearance department to get anything they can on there.

c) Sketchy fly-by-night dating sites & apps that take advantage of lonely
hearts.

d) 25 - 35% of the ads are simply facebook app makers, who in turn sell users
"credits" in a model more akin to selling addictive narcotics to addicts than
anything else.

That's all bad enough, but the complete disregard for user privacy through
their continued "opt-out" policy is out of control.

Through each update of Facebook we've seen bolder and bolder violations of
user data , and I think that will ultimately be Facebook's undoing once people
recognize just how much your typical advertiser can uncover with your profile.

References:

Zynga - <http://www.businessinsider.com/gossip-2009-11>

Zoosk - [http://manybodytheory.com/777/ive-spent-over-5-million-
dolla...](http://manybodytheory.com/777/ive-spent-over-5-million-dollars-on-
facebook-and-all-i-have-is-this-t-shirt/)

~~~
patio11
_low end of AdSense._

I'd be freaking ecstatic if my Facebook campaign had performed on the low end
of my AdSense performances. Instead, I ended up paying about $50 for each
signup to my _free trial_ of a _$30 product_.

------
mixmax
Some data instead of "I have a friend who..." anecdotal evidence would be
nice. The author doesn't make a very strong claim as to why facebook ads don't
work which is the whole premise of the article.

~~~
rabidgnat
I lightly approve of anecdotal posts like these. Facebook controls all of the
data needed to make informed decisions, and they're not going to share if the
OP's claims are accurate. Lots of bad press about CPM and cost/click will
force Facebook to publish data proving the worth of getting Facebook ads that
transcend the 'case study' nonsense. If they continually ignore lots of bad
press, that's a big tell that the only party that benefits is Facebook, even
though it's not a smoking gun.

I've taken this approach with PayPal. I'd use them for person-to-person
finances, but I've heard so many small-business horror stories that I'd invest
the time to make a merchant account if I made a startup. It's not exactly
scientific, but PayPal's not exactly flooding the market with data either

~~~
ErrantX
I agree for the most part. The only problem I see in this post is that it
mentions one specific form of ad (and one example) and then vaguely expands it
to cover all forms.

It should be immediately obvious that the specific example mentioned is going
to have a _very_ poor ROI. Who sells on Facebook?

------
unignorant
> Have you ever bought a Facebook ad? I have. I have talked to many, many
> people who have. We have spent hundreds, many have spent thousands or even
> more, experimenting with Facebook ads. They are worthless. Nobody ever looks
> at them, and nobody ever clicks on them.

Somewhat damning, if true... Has anyone here had a different experience?

~~~
ephermata
Yes, I have had people click on FB ads. It's not clear to me if they are more
effective than alternative ads, but people are clicking on them. The ads are
not traditional, though.

I have an ad campaign running now on Facebook encouraging people to go to
<http://join.marrow.org/gosusan> . ("My sister has cancer. Help her and people
like her beat it by donating your bone marrow! Click here to sign up!" )

Short answer is I've yielded 6 people signed up out of ads from Facebook,
Myspace, and others. The signups could be improved, but it looks like at least
one of these methods is recruiting donors.

Overall Facebook campaign since 9 March 2010:

4,801,855 impressions 803 clicks CTR 0.017% Average CPC $0.99 Spend $796.99

My banner ads on MySpace ("A CANCER KILLA IS YOU! My sister has cancer. Help
her or someone like her kill it by donating bone marrow. Click this ad to get
started!") overall have these numbers:

973,774 impressions 452 clicks CTR 0.05% Average CPC $0.45 Spend $203.00

At first blush MySpace looks like a better deal (compare the CTR). The thing
is, for targeted geographies, I am seeing a lot more clicks, faster, from
Facebook than from MySpace. That is, while the clicks from Myspace are
cheaper, I'm seeing fewer of them.

My most recent campaign is targeted to south Ohio and south-east Ohio. (Turns
out this is where a lot of people with similar heredity as me and my sister
live. Therefore I expect these people to be more likely to have a matching
bone marrow type). The Facebook ad for this geography has yielded 95 clicks in
the last two days. The MySpace ad has yielded 10 clicks.

~~~
TotlolRon
Maybe I'm outdated - but I find it disturbing that such a cause should be
promoted in such a way.

~~~
rbanffy
Serious?! I thought it was real good out-of-the-box thinking.

~~~
TotlolRon
Serious. It is good out-of-the-box, but that's not the point.

What I find disturbing is that the burden of enlisting potential donors falls
on the shoulders of those in need and that they are forced to use such
inefficient mechanism. Sorry if it wasn't clear.

~~~
ephermata
My apologies for not being clear: Facebook ads is far from the only method in
use for enlisting potential donors. Furthermore, families in need typically do
not need to do anything because of the resources available. In my case I
choose to do more because I am fortunate enough to be able to do so.

In the United States, the Be The Match Registry, operated by the National
Marrow Donor Program, employs full time recruiters to encourage people to sign
up for the registry. One of those recruiters, Magda Silva, has been tireless
in her efforts to find new donors for my sister and others. For example she
organizes marrow drives on at least a weekly basis where people can sign up to
have their tissue type tested. Immediately after hearing about my sister, she
worked to set up a drive a Noisebridge, a San Francisco hacker space.

In addition, transplant centers, such as the one at the Seattle Cancer Care
Alliance where my sister is being treated, have resources to find potential
donors. For example, because our family has significant Hungarian background,
the transplant center is reaching out to the Hungarian national donor program.
These searches are targeted for the patient in need and carried out by doctors
who are intimately familiar with the search process.

These efforts are amazing and have paid off for thousands of people in need,
including my sister. The Be The Match registry is a nonprofit, supported by
generous donations. The transplant center is supported by health insurance and
also by generous donations. Neither my sister nor I have been required to do
anything special to find donors with these resources.

Indeed, after I began the ad campaign, the transplant center found a partial
match for my sister. My family and I are so grateful that someone decided to
voluntarily donate their marrow for a complete stranger. We are also grateful
to the registry and our transplant center for all their work that made this
possible. (What's more, someone even donated cord blood that matches her,
which is another, more experimental alternative.) Thank you, whoever you are!

So why bother with online ads at all?

0) When I started, I didn't know if we had a match. I could do _something_ by
using these ads, and I was sure it would not duplicate existing efforts (see
below). I am lucky enough that I can afford it.

1) Targeting for my sister's marrow type. The existing recruiting is by
necessity broad-based, trying to bring in as many donors as possible from as
broad a spectrum of people as possible. To the extent there is targeting,
there is an emphasis on bringing in minorities because they are critically
under represented in the registry. If you are African American and need a
marrow transplant, you are likely in serious trouble.

In contrast, I can target ads to geographies which are most likely to have
people matching my sister's tissue type. For example, there are many people of
Hungarian descent in Ohio, our family has a heavy concentration of Hungarians,
so I can target ads there.

2) Potential to scale up. Despite the best efforts of the registry and
transplant centers since 1988, only 7MM people __total __are signed up in the
U.S. registry. The in-person drives I mentioned above typically bring in
between 30 to 200 people per drive. Roughly 12K sign up per month, principally
through in person drives, with a smaller portion through the web form.

This means if you don't find a donor immediately, the chances that a donor
will appear while you wait are small. The promise of online ads is that they
could potentially scale up better than in-person drives -- with a large enough
advertising campaign, we could acquire more donors per month than is feasible
with current methods. How large a buy is needed of course depends on the
conversion rate (i.e. signups for the repository) of ads. That conversion rate
is one of the things I am learning through this experience.

I do not mean to suggest that ads could or should replace the traditional in-
person methods. Certainly they will not. What they can do is offer an
additional tool to attack this problem (and hey, maybe an effective way for
some large advertising company to donate in-kind to a good cause).

Does that address your concerns? Again I'm sorry for not being clear that this
is not the only method available to our family for finding donors. Don't
hesitate to ask any follow up questions.

------
fizx
You can target facebook ads amazingly well. I can reach only under-30 single
programmers in San Francisco.

I have friends who've built businesses targeting exactly who they wanted to
reach, in a way that would have been prohibitively expensive (and less
effective) via AdWords. I'd love to share their specific stories, but I don't
have permission (yet?).

Edit: I guess I can elaborate a little. What these businesses had in common:

1\. You could nail down the interested demographic in facebook to reach ~0.01%
of the population who would be _immensely_ interested in your service.

2\. The service itself made sense in a social context. I don't know if
advertising a plumbing business would work, despite being able to drill down
into local married people of homeowning age.

~~~
stcredzero
_...What these businesses had in common:

1\. You could nail down the interested demographic in facebook to reach ~0.01%
of the population who would be immensely interested in your service._

So perhaps Facebook isn't bound to take over the whole of the Internet. It's
just bound to take over as advertisement infrastructure for the easily
categorizable subset of the Long Tail.

~~~
fizx
It's a good point, but we're all unique, so we all might be part of the
"easily categorizable subset of the Long Tail".

Take the most average guy you know, and he still has unique qualities, and
lives in a targetable location. Add any hobby or interest, and now he's part
of some long tail group.

~~~
stcredzero
Perhaps "easily categorizable" is the wrong way to put it. I suspect that
there are lots of long tail demographics that are online, but still
exceedingly hard to reach or market to unless you are an insider. In terms of
groups that I am a part of, Facebook doesn't broaden my reach. It only acts as
an address book. If Facebook advertising could effectively give access to a
lot of insider's address books, I'm still not home free. I still have to
figure out a message that will reach everyone without coming across
intrusively.

------
huangm
The author's thesis is that Facebook ads are bad because they can't harvest
demand the same way Google ads can (no purchasing intent), so once Facebook
has exhausted its share of 'gullible' or 'naive' businesses who give ads a
try, their profitability will fall like a house of cards.

This is flawed in two important ways:

1\. Just because people don't click on banner ads doesn't mean there isn't a
place for advertising.

2\. Facebook isn't only monetizing with ads. For example, they've proven
themselves to be a killer platform for social games and Facebook Credits seems
to have a promising future.

------
krschultz
I've been thinking this for years, glad someone articulated it.

1) Facebook's demographics suck. The people on there the most are broke
college kids and younger. Sure older people check the site, but your average
college kid is on all day - because they don't work.

2) When people look at an ad on Google, they are looking for something and the
ad might be the answer. When I'm looking for something on Facebook, it is a
picture/event/person/comment, the ads will never be what I'm looking for.

The one area I disagree is that I'm not sure a FB+1 will be able to undercut
FB on price alone. If FB goes with a freemium model where only the people with
500+ picture and 200+ friends have to pay and businesses with fan pages have
to pay, the "regular" users will probably stick around and keep FB the leader
because of the network effect. The resulting revenue wouldn't match their
valuation at all but it would probably keep them profitable.

~~~
kmavm
"I've been thinking this for years, ... The people on there the most are broke
college kids and younger."

Years are funny that way: things tend to change as they pass.

Facebook has 400 million active users, where "active" means the account has
been used in the last 30 days. 200 million of them have logged in in the last
24 hours.

<http://www.facebook.com/press/info.php?statistics>

To put those numbers in perspective, the Internet itself has about 1.67
billion users. Even assuming, for the sake of argument, that many of those
_daily_ active users are duplicate or fake, for facebook's demographics to
suck, the Internet's demographics must suck.

(Disclaimer: I work for facebook.)

------
ErrantX
Ok, so possibly (though not empirically proven) there is some misleading going
on. Bad, I agree.

But a Ponzi scheme? I think that damages his argument because it doesn't
really resemble a Ponzi scheme - indeed it sounds like an attempt to
rationalise what _is_ going as something illegal and thereby win support for
the argument.

Bad rhetoric.

------
noelchurchill
I manage over $100k/month in adwords advertising spend for clients who demand
results. I've also spent a few thousand dollars on Facebook ads for those same
clients. Facebook ads do not work as a direct response type of advertising.

However they work fabulously well for sending traffic to your company Facebook
fan page and building your fan base. You can typically get new fans for about
40 cents to a dollar a fan. These are people who you will be able to influence
on a daily basis for years to come, and although you won't be able to directly
track sales/leads/whatever to your Facebook advertising, I also believe there
is tremendous value in interacting with your fans in this more personal way.
It's a lot harder to convince clients of this value, but it's real.

~~~
stcredzero
I don't ever recall being influenced through Facebook by anyone I'm a fan of.

~~~
rhl
I think he means that you are signed up on the fan page's mailing list.
Companies of which you are a fan gain access to your social inbox, which I
would assume allows them to garner much more of your attention than if they
reached for your spam-filtered, labels-and-filter-ridden, adblocker-protected
email inbox.

Another intangible but real benefit is the backchannel that fan pages open
from the users to the company, and the other fans. Hard to quantify indeed.

What I am curious to see is hard data on acquisition cost of fans vs. mailing
list subscribers, and subsequent mailing conversion rates.

~~~
stcredzero
Yeah, I've not become a fan of too many big corporate entities. I tend to
ignore lots of FB stuff.

------
mattmaroon
He's somewhat incorrect. Facebook ads work great for some things, and those
things are where most of the money comes from. Right now it's games (which I
have much experience with first hand, having spent somewhere in the 6 figures
in ads) though I'm assuming also t-shirts and dating sites given the number of
ads I see for those long-term.

------
chaostheory
The article assumes that Facebook will never change or evolve, which I think
is wrong given Facebook's history.

For one thing, Facebook does have extremely valuable data, and they're not too
shy about starting to sell it to the highest bidders:
<http://social.venturebeat.com/2010/04/22/facebook-lobbying/>

~~~
jamesjyu
Totally agreed here.

I have seen too many articles lately that examine Facebook's strategy and
business model based on the present. FB has been extremely agile for a large
company, and they have proven this fact again and again. They are not afraid
to throw things away and try new tactics.

Even if they aren't doing well with their ad system right now, there is a big
chance they will stumble upon an even bigger goldmine through their concerted
and iterative effort (ie. Zynga + social gaming).

------
mrtron
This feels like a 1960s article stating:

TV ads don't work because people change the channel when commercials are on!

~~~
easyfrag
In the 60's you couldn't prove it

~~~
mrtron
The point is television ads have been incredibly good at generating revenue
for 50 years.

------
aheilbut
Part of the motivation for putting 'like' buttons all over the web is to
gather more granular behavioural data on users, which is eventually going to
enable much better targeted ads. They aren't stupid. That said, I'm still
mystified by the low quality/relevance of the current ads given what they
already ought to know about me.

------
jmm
Well, not literally a Ponzi scheme, but I guess I get the point. He means to
say, simply, that advertisers will eventually catch on and stop using facebook
ads because they're ineffective.

The analysis suffers in trying to shoehorn facebook's biz model into google's.
Facebook is relatively young and may very well find different ways to make
money. If their push to be a major platform pans out, they're in a powerful
position.

------
LiveTheDream
Facebook ads serve a different sweet spot than Google ads. The latter excels
at capturing purchase intent for the obvious reason that people will run a
search specifically for something they want to buy -- it's a no-brainer.

Given that people do not hop onto Facebook to buy things, it is the ad
purchaser's fault for expecting great direct sales from their product ad on
Facebook. Use the right tool for the right purpose. To be fair, the article
doesn't give details on the book promoter example, but given the statement
"nobody ever clicks them", I feel safe assuming that they did not use all the
social features you can build into ads. I've used FB ads and achieved
excellent click-through rates. With FB (unlike Google) the promoter could have
made a fan page for the book and attracted users to like the page by a)
targeting people who would like the book based on demographics and b) showing
"your friend Foo liked this page" sort of teasers. Once someone likes the
page, you can get stories into their newsfeed for free, which is a pretty darn
good return on your ad investment.

------
praptak
"A useless product is never sustainable. I wish I could short Facebook."

Knowledge about lack of sustainability is not enough to short. Even if you are
sure about the imminent collapse, they might skyrocket before that point. In
this case you are forced to cover at a huge loss.

~~~
LiveTheDream
Buy a put option instead of shorting, and you are protected against rising
share price.

------
jgilliam
But this week didn't Facebook take one big step closer to their own version of
AdSense? Put those social ads all over the internet, where they aren't just
hanging out with their friends, and it's a whole new ballgame.

------
robryan
I think to work a facebook ad can't be trying to directly see something.
Providing a link to a game or a fan page or anything the person wants to do I
think would be the way to succeed. I've seen figures before for a direct sell
type campaign, they were horrible, the cpc was a lot higher than the usual
long tail adwords stuff and the ctr was a lot lower.

I think if nothing else brand advertisers and facebook app advertisers would
keep them going, I can see how it would be cheaper continuing to shove
something like coke in our faces on facebook than TV ads.

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zaidf
Pay-per-performance is only one type of advertising.

Brand advertising is the big elephant in the room and might make fb a tonne of
$ going forward.

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poundy
The author basically says that ads on Facebook are a Ponzi scheme as it is
often taken up by newer advertisers who then dump it as it produces no
results. He estimates Facebook will make about 10 billion doing this.

$10 billion is a lot! by the time they run out of the ad based ponzi they can
well find another scheme and keep making huge returns!

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rhl
It would be interesting to have figures backing these assertions. What sort of
conversion performance did you see Joseph?

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rradu
Facebook is well aware of this, that's why they're experimenting with payment
platforms and credits as a form of making money.

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c00p3r
Seems like no one could tell how they would return an investment. Of course,
their exit strategy could be an IPO, but it seems too late - looks like they
were reached their peak, and in-browser social networks in general is not a so
cool thing anymore.

They got the hype, the users, and the data. The data is what someone might
want to buy when users start to shift to some new emerging service (something
truly mobile and location-based, I guess).

So, it is an established communication platform for people across the globe,
but they still unable to make a profit from it, while it is already on the
peak.

It that sense it is a true Ponzi scheme. For investors. =)

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binspace
What isn't a Ponzi Scheme?

\-- Sorry I edited my question, and then reverted it back.

~~~
evanrmurphy
Anarchy.

