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After Facebook fails (law.harvard.edu)
367 points by angusgr on May 24, 2012 | hide | past | web | favorite | 202 comments

I have no idea if Facebook is valued correctly or not, however I think this misses a vital point. Facebook is not nearly the same as other web ventures. It's ability to target ads seems secondary to this:

From http://www.kenburbary.com/2011/03/facebook-demographics-revi..., slightly out of date, but still useful:

  - Average user visits the site 40 times per month
  - Average user spends an 23 minutes (23:20 to be precise) on each visit
  - Global users 629,982,480 (I believe this has passed 800 million now)
So, on average hundreds of millions of people are spending about 1/2 an hour looking at Facebook.com every day.

As much as their ability to target ads is hyped (or derided), does it really matter? Isn't targeting just a way to charge a premium, or drive click-thru on massive volume?

Facebook isn't competing with other websites for online advertising. It's competing with the entire entertainment sector for all advertising, everywhere. That isn't going to change soon.

Keep in mind that all those page views and all that time spent on the site costs Facebook money. It's not like outdoor advertising where the cost is set up front (then amortized over the life of the sign, device or property lease) and the marginal cost for additional viewers is zero.

Another thing to keep in mind is that there are competitors constantly targeting Facebook. But not just targeting them on price, targeting the features of their site that keep people there for 30 minutes every day. This means that Facebook has to spend money to "improve". Again, compare this to outdoor advertising where the competition is largely just a matter of bidding on space every so often.

I, like you, have no idea what Facebook is worth or how successful their business model will turn out to be. However, I think it's important to keep in mind that turning page views (or minutes spent on the site, whatever) into money really isn't a fully solved problem, at least not in the general case. Facebook definitely has their work cut out for them I think.

Excellent point

Also, keep in mind that Facebook has attracted some section of the "best and the brightest". As far as I can tell, they do a really, really good keeping Facebook ahead of the curse; fun and ahead of potential competitors.

The thing is that since these people are the best, one might logically expect that they want compensation in some form, possibly only the form of knowing they're working on the leading edge or possibly in the form of lots of money. So Facebook's ongoing operations to an extent depend on project projections coming true. If they become like Yahoo, they'll bleed people like Yahoo and make horrible missteps like the way Yahoo rolled-out Axis (an idea that appeals to me but which was apparently utterly fumbled).

It's hard to imagine Facebook going the way of Yahoo. Facebook has a relentless focus on their product and continuing to ship and push the envelope. I don't know too much detail of Yahoo history, but it seems like they took their eye of the ball early and started spreading themselves really thin across a ton of disparate products and acquisitions.

I don't see anybody blindsiding Facebook on social the way Yahoo was blindsided by search. The bigger risk seems to be that there is simply no pot of gold at the end of the rainbow to justify a 100B valuation IPO valuation, thus souring everyone on FB and social before we see what the true potential was.

Facebook didn't start yesterday. It's years and years old, with massive amounts of engineering resources and resources of every other kind poured into it. The fact that they have the numbers you say they have, which they do, and that after all these man-millenia of work, are essentially doing just better than break-even, is an enormous flashing red sign to me. Revenue in this sort of area typically has a low-hanging fruit pattern, where getting the next bit out of the same customer gets progressively harder, not easier. If Facebook is going to be this raging success in the future, it should already be doing radically better than it is in terms of monetizing that attention, because it gets harder from here on out, not easier. (Or they need to get into a space where revenues work the other way around, like consulting (i.e., once you got the customer to pay you once it's easier to do it again) but what would that be?)

I see Facebook at this point as a nice business, nice revenue, certainly not a guaranteed failure, but to get to the point where it justifies 100 P/E today is a Hail Mary pass. I think that not only is there not any evidence that is possible, there is significant evidence against it. If there's this brilliant pivot lying in their future where suddenly they're making twenty times the money, how come they haven't managed to come up with it in the aforementioned man-millenia already? It's not like they're sitting on some brilliant idea but refused to deploy it until after they go public for some weird reason.

On the flip side though, isn't this a matter of scale?

What if: Facebook is not building a website - it's building a sub-section of the internet; a private walled garden for it's enormous userbase; an ecosystem of subscribers to rival the viewer-ship normally attributed to mass media outlets.

Yes, the infrastructure investment is enormous. But if this is true, revenue comes through efficiencies and leverage further down the track. The 'low hanging fruit' problem that applies to the players who feed off ecosystems doesn't apply to the player who operates it.

100 P/E today? That's almost certainly wrong, I think, but it'll be interesting to see what they do with what they've created, now that earnings pressure will start to really screw down.

This is sort of what I'm thinking. Everyone is claiming Facebook ads don't work because they're improperly targeted, people don't look at them, people don't browse Facebook with "intent," etc. This is a the supposed "failure" of advertising on Facebook.

But what about traditional ads, say a television commercial or a radio ad? Aren't they more expensive, with a more limited and less targeted audience? Isn't the intent to purchase missing there as well? Why is it the case that Facebook advertising is a failure when it seems that it should be at least as (or more) effective than traditional advertising?

Am I missing something?

There are many kinds of ads - those who tries to sell you something, and those who tries to establish "branding".

The first type is largely ignored by the majority of users, and the 2nd type, can't be ignored, even if the user tries to ignore it (those using adblock notwithstanding, but they are a minority).

The branding type of ads are the most effective, and are the type of ads that would make or break facebook.

Google, on the other hand, seems to excel at the first type - and it makes sense, because when people search, they ususally want to find some product/service, and those ads gets to them at the right time.

If the ads on facebook took over your screen for 5 minutes and forced you to watch them then, yes, it'd be more like traditional media ads. But people have gotten pretty good at just ignoring their sidebars.

In general, most people who are looking at facebook for any length of time are either playing a social game or looking at photos of themselves. It's confusing to me how this is a viable long term business model. Popularity can be a fickle thing...

Nobody doubts they have eyeballs and valuable data, and it seems like that should be profitable, but that doesn't mean it will be.

Well, it is profitable - the question is whether it's $100 B profitable.

In my opinion, the present valuation is probably too high. That said, Facebook could still do incredibly well.

Facebook now has lots of money, plenty of bright people and a recognisable brand. You need money to make money in many fields and Facebook has a lot of money. They could swing out of being just about advertising and into other markets. It isn't far-fetched, Google are already making driverless cars and power stations.

How many of those users use adblockers? What if the most popular browser started shipping with adblocking enabled out of the box?

Given the proliferation of random toolbars on the computers of my family and friends and I would say almost no one in the grand scheme of things.

The people who use adblockers are probably the people who are least likely to click on ads anyway.

Here's a recent study on adblocking. http://clarityray.com/Content/ClarityRay_AdBlockReport.pdf

I can't see Google going for that one, somehow.

how many people who watch television DVR and fast-forward through the ads?

Every time I read about how online targeted ads have poor returns for advertisers, I think to myself:

"These advertisers know that the ads have low ROI because things are measureable online. How (in)effective would traditional advertisements prove to be, if they were as measurable as their online counterparts? How (in)effective would traditional advertisements prove to be, if they didn't interject themselves into the medium in such grotesque, user-experience destroying ways?"

Two points:

1. There are lots of digital ad tools that have great ROI. No one clicks on ads....until that one time they do. Critics of digital advertising like to hone in on anecdotal examples of online ads failing to support their points. This blog post is a great example of that.

2. Your second point is why Madison Avenue was so horrified by Google when they started selling ads. Tracking the performance of each individual ad was so scary they couldn't fathom it. Online ads are no worse than offline ads, we're just able to measure online ads in ways that we can't with offline.

I agree, but I don't think things always have to be that way. I know a few people working on projects to improve the measurement capabilities for some kinds of off-line advertising.

That's terrific. I suspect the folks selling those products will be hugely resistant at first.

Offline ads for direct response are easily measurable with tracking numbers. Branding ads - well - I have no clue how they track any of that - but then again how do you track a CPM media buy just designed to increase brand awareness online... (note: I come from the DM world).

Always looking to meet DM folks. Drop me an e-mail!

The impact of any kind of advertising is usually easy to measure. Just because online advertising provides more things to measure doesn't mean they're worth measuring. In the end, the only thing that matters is how it affects the bottom line. If you truly have your finger on the pulse of your business, trends are easy to identify.

But advertisers aren't stupid. There must be a rational reason why they keep paying higher prices for traditional ads.

Firstly, they very well could be stupid.

Secondly, it depends what you mean by traditional ads. I loath television and spend far more time on the internet (and don't use adblock) and yet interstitial ads on the tv and radio (and on the net, eg youtube) are far more present in my mind than anything I've seen on the net.

In fact, apart from those silly bottom feeding ads about how some single mom found out some weird old tip and various medical professionals dislike her for it (because they're out to get you? I don't get those ads..) I can't recall a single web ad. I can tell you about Pizza Hut's cheap pizza Tuesdays though.

As for non interstitial ads, like print ads in newspapers, yeah, I imagine they're about as useful as internet ads.

Yeah, humans never erect institutions that allow them to behave in irrational ways en masse.

I'm just guessing here... If ad agencies earn a % of ad spend, it's in their interest to spend more. It's easier to spend more on TV, plus it's difficult to prove it's ineffective. Targeted ads on the 'net may someday be really good, but it would cost less and undermine ad agencies' fat fees.

Agencies, in effect, earn a percentage of the spend. But this amount is determined up front. Clients go to market saying "We have $x for client y and we want to know which shops will give us the most bang for the buck."

Shops that over-promise then fail to maintain reasonable profit margins don't survive. At the same time, there's pressure on clients to work with established players, since a campaign gone bad is even harder to defend when it turns out the the marketing budget was blown on inexpedienced and / or desperate people who were willing to seriously undercut competitors just to land the account.

Measurement adds value, but sometimes the value it adds is that of knowing not to bother using the thing you are measuring any more.

He points out some of the terribly targeted ads that Facebook pushes on users. I think this is a huge issue that's not discussed enough.

Facebook has all the data but no real targeting. This stems from two core issues: 1) they don't seem to use their immense datasets as effectively as Google does and most importantly 2) they rely on the advertisers to target their ads. Advertisers, even when handed the best demographic tools in the world, seem to get it horrifically wrong. This means people are exposed to bad advertising and learn to ignore it. This also means that advertisers will complain that Facebook doesn't give them the bang for the buck that they're after. Facebook don't mind however -- they still get their revenue.

In the long run Facebook need to work out how to target ads. The longer they leave these horrible ads in place the more desensitized their userbase will become. They're poisoning their revenue stream by allowing any and all ads through, regardless of quality or accuracy in the target market.

One of the major problems with FB ad targeting is that a lot of it is keyword-driven without regard for context.

If I'm on Google searching for a product or service, the context is very likely "I want one of these" or "I'm curious about this", so displaying ads strictly by keyword works fairly well.

But if I mention something on Facebook, it's as likely to be negative as positive. If I've just said something critical about a particular ideology, an ad for "date [ideology] singles" is as you say "horrifically wrong" (especially since I'm happily married.)

Another contextual issue FB gets wrong is timing. Often I'm mentioning something I already own or something I've just completed. Telling me about a restaurant right after dinner, or tax software right after I finish my taxes, is not likely to be relevant to me (whereas if I type "restaurant" or "taxes" into Google it almost definitely is.)

Sometimes it comes down to advertiser stupidity (forgetting to check if I'm married, for example.) But the fundamental problem is that judging intent is a hard problem for a computer. It's easy to write a filter that figures out what I'm interested in when I type a query into Google; it's hard to write one for a status update I type into Facebook.

Facebook advertising isn't keyword driven, it's interest driven. AFAIK Facebook doesn't parse your status updates to find keywords -- they look at what you have Liked.

They certainly do look for keywords in statuses (though I don't know if they use them for advertising). At one point they grouped statuses by subject ("Alice and Bob both mentioned Christmas"), and it suggests groups/pages based on your statuses (I mentioned reading something in French in a status, and it suggested I liked "French language").

Yeah I was referring to advertising purposes. Even if they did use keywords in statuses for advertising I would imagine the the weight of those keywords verses the weight of a liked object would be significantly lower since the relevancy would be low.

Based on all the anecdotes floating around, this one included, I wonder if part of the problem is that the demographic groups advertisers (that use Facebook) really seem to want to target are the most resistant to the ads. This would then lead advertisers to broaden their targeting to the point where Facebook's enormous trove of data is basically useless.

Who cares if your ad is being shown to the exact 50,000 people on Facebook who are a perfect fit for your product if nearly all of them refuse to click on it? So you broaden your demographic selections, the ad goes out to 500,000 people now, but now your product has no relevance for the vast majority of the people seeing it.

Not sure, just thinking "out loud".

Based off the ads the author cites in the article the issue is the lack of data, not poor targeting by advertisers. For example the author wouldn't see the "Boyfriend Wanted" ad if he listed himself as married in his Facebook profile (Facebook aggressively forbids dating ads targeted towards people who list themselves as married or in a relationship).

All online advertising platforms rely on advertisers to target their ads. If this really is the issue, which I doubt, it applies to the entire advertising industry not just Facebook.

I can tell you my profile is full of information on me yet looking at the ads I see on Facebook right now: a) "Join the Army as a Truck Mechanic" (university graduate in IT...) b) "Study Marine Biology" c) "Cheap baby strollers" d) "Learn how to make money trading on the Forex market".

These are just the most egregious examples -- most others are just for products and services I'm not particularly interested in.

If it can't accurately target ads for me then I fear greatly for Facebook's business model...

[If you want to see what information they have to target ads, feel free to check out http://www.facebook.com/smerity -- next to all my details are public as I assume if it's on Facebook it's public]

I have always listed myself as married (even as public information), yet I see a dating ad on my sidebar. The two top ads were for high heel shoes.

Either FB has me pegged as a two timing trannie, or their targeting is really poor.

This doesn't have to be a case of poor targeting by FB; it could be broadcast targeting by the advertiser who isn't as selective as we would expect.

And for brand awareness advertising, I could see that it might be worth it, depending upon the cost. I have no intention of using eHarmony (happily married here), but I'm aware of them due to both online and offline advertising. If a coworker asks me about online dating, I'm sure I'll remember eHarmony. That brand awareness has obvious value to advertisers, and if the cost is in line with their budget, it explains the "mis-targeted" ads.

> He points out some of the terribly targeted ads that Facebook pushes on users..

So true.. Why don't I get ads like this:

"It's almost lunch time, the weather is great and we kind-of know where you are. Here are 3 lunch places in the area with outdoor seating and a few available tables."

Instead I get mostly dating sites and google-translated ads to "make money fast"

The problem is much simpler than that. Facebook simply does not have enough advertisers to do a proper match-up between user and ad.

> Facebook has all the data but no real targeting

In general, this is incorrect.

What you see as poorly targeted ads are those where the advertiser does a poor job, not Facebook. The tools are there and the most successful advertisers use them.

I believe we're arguing the same point. Advertisers are the ones who do the targeting and even with the tools Facebook provides, they make terrible targeting decisions.

It doesn't matter if good advertisers use it properly, the majority do not. If Facebook don't prevent these poorly targeted ads then they can't guarantee any level of targeting at all on their site. This means that users are desensitized to the ads shown there, decreasing their value as an adspace.

It's almost as if there's a business opportunity here.

This essay reads like an advanced lifeform encountering, and misunderstanding, the average human consumer.

Two quotes stick out:

(1) That he goes "on Facebook. . . as infrequently as I possibly can."

This statement disqualifies his entire experience.

Hundreds of millions of average-consumers use Facebook DAILY.

These users update their content, they integrate more of their life. They click the like buttons. They share.

This in turn creates more specific opportunities for advertisers to target more relevant ads vs. the junk broad market ads he uses as examples of their failure (credit cards, dating, classmates known to be JUNK-CPM offers that work everywhere).

(2) That his perfect model is inclusive of "Vendor Relationship Management" that lets people manage their vendors, vs the vendors managing the people.

I might use VRM along with my HN brethren but average consumers won't adopt VRM because it requires them to choose.

Advertising works because people prefer to be told what to do.

This article fits nicely into the "FB is destined to fail" cannon, but I find the author to be grossly misinformed by his own experiences.

Grossly misinformed is perhaps a bit much. I don't think a guy like Doc Searls is so out of touch to not know what the general populace is doing. He contributed to The Cluetrain Manifesto, he's a well-respected writer. http://en.wikipedia.org/wiki/Doc_Searls

I think making statements like what you quote in (1), he's making a bet: I understand what people are really truly like, and this stuff will prove to be just a fad; eventually, people will realize I'm right. He predicts online social networks as we know them to decline in 2013.

If he's right, then it doesn't matter what Facebook users are doing today, even if they are using it daily. There was a time when MySpace and Friendster were the top social networks on the Internet too. Facebook just out-executed them. The interesting question is if Facebook had not been around, would MySpace or Friendster still have been around in 10 years anyway? Or would it have been proven to be too faddish after the activity level reached a certain boiling point?

I would argue that VRM already exists to some extent. When I want to buy something, I Google it. You can instantly comparison shop and add items to a shopping list to keep an eye on the price over time. You might not directly negotiate with vendor's, but I am not sure most people really want to or need to, including HN'ers.

Unlike some I'm not convinced that facebook will fail. However, I think the risk that they will lose a lot of their userbase and/or they will fail to massively increase per user monetization over the next, say, 10 years is pretty high (maybe 50/50 as a SWAG).

The advertising revenue risk is a big one, but there are bigger ones I think.

First, we may be nearing the end of an era where monolithic social sites make sense. Social Graph as a Service and federated social networking just plain makes sense. I think the biggest risk to facebook isn't necessarily the one big competitor (like google) but a thousand tiny competitors who offer the same full suite of services as facebook but are more targeted toward a particular social niche.

Second, as technology advances the ease with which someone can bootstrap a company that has 10 million, 100 million, or even a billion regular users drops dramatically. Right now supporting a billion users takes over a thousand employees and data centers around the world. How will that change in 5, 10, 15, and 20 years? In 2022 it might be possible for a site with the same usage load as facebook to be supported by a company with less than a hundred employees and other expenditures on the same scale as payroll. When, not if, that happens it'll open up facebook to a much greater degree of competition. It also fundamentally changes the game, because then you will have situations where "fad" sites rise up and then evaporate away in a matter of only a few years, months, or days and yet still have gigauser popularity at their peaks.

Third, related to the other 2 points, social is just plain going to change, a lot, over the next several years. Anyone who thinks that the way social on the web works today should be set in stone and never changed is either clueless or evil. There is a lot that's missing and a lot that's broken today. Facebook has so much work to do just to be able to increase its monetization to a level that justifies their stock price, but they will also have a tremendous amount of work to do to fix and change social networking. If they do one and not the other they are doomed, but their competitors can get away with doing only one and they'll eat facebook's lunch.

Either way, it'll be exciting to watch what happens.

you nailed it inclined plane

Here's my take on Facebook (disclaimer: I work for Google, these opinions are purely my own and not representative of the company, yadda yadda yadda).

Display advertising works best when you have sufficient, quality inventory (publishers whose sites serve ads) such that you attract advertisers in sufficient quantity and quality. Targeting in display ads works because from the publishers, the intermediary has information to figure out what your interests are and so on. A common misconception from fearmongers is that your data is being sold. It is not. Advertisers are paying to have their creative put in front of a particular audience.

The most important strategic move Facebook made in the last few years (IMHO) is the Like button. Whether or not you "Like" things is irrelevant. The main purpose of that "Like" button is (IMHO) as a tracking cookie. Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that. Just make no mistake why the Like button exists.

Facebook also has a wealth of information in terms of who your friends are, what your interests are, your relationship status and so on. It's this alleged treasure trove that people point to as the real value of Facebook (combined with the network effect).

I disagree. I think that information is largely useless for a number of reasons:

1. Because of social games and the like who your friends are on Facebook loses a lot of meaning. In the very least Facebook has to filter that information and determine who your real friends are (which it probably does anyway for News Feed filtering and so on);

2. Where people go and what people do is far more accurate than what people will tell you about themselves. As House says--or used to say--"people lie". When you ask someone their interests or opinions it will pass through various filters of what that person thinks you want to hear, what they want the world to believe, what they themselves wish they were and so on. It's a distortion.

It's a bit like dating or job hunting. You look at any online profile or CV and you'll see lies, distortions, omissions and so on. As Chris Rock said, for the first 6 months you're not dating them, you're dating their representative.

Facebook has no search engine. Whatever you say about the size of display ads, search advertising is still far bigger. With search you have intent. People want to find things by their actions. On Facebook ads are an annoyance.

It's the difference between wandering the streets shouting "does anybody want ice cream?" versus putting an ad in front of a bunch of people who have already told you that they're looking for ice cream.

Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft. Mobile (IMHO) poses an existential risk to Facebook, which in part explains the exorbitant price tag paid for Instagram (it has nothing to do with any alleged "bubble"). Much of the engagement on Facebook is because of games. Those games are increasingly going mobile. This is bad for Facebook.

At $100B IPO valuation that put Facebook being worth half of Google with 5-8% of the revenue and significant strategic risks. Of course it was overvalued. It's still valuable but it will take some time to figure out exactly how much it's worth.

"Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that"

I understand that you work for Google and that not holding this opinion would mean that you have to conclude that your employer is also very much in the wrong. But how do you justify it?

It's clearly not information that people have chosen to give to Facebook. Facebook is basically taking advantage of a technical trick in order to obtain information about their users which their users neither gave them permission to collect, nor know they are collecting. It just seems highly unethical to me. But you "have no problem" with it... How is that possible?

The thing that annoys me about it is that the browser vendors could prevent this hidden tracking quite easily. By either disabling third party cookies, or by tying them to the domain in the address bar. Hell, Safari blocks third party cookies by default, and Apple is all about usability, so it can't cause that many problems... On the other hand, why would Google and Microsoft modify their browsers in such a way as to increase our privacy at the expense of their profit.

It is MUCH more than a tracking cookie. The more useful XFBML version is a snippet of JavaScript. JavaScript can do a lot more than a cookie.


   <div id="fb-root"></div>
   <script>(function(d, s, id) {
     var js, fjs = d.getElementsByTagName(s)[0];
     if (d.getElementById(id)) return;
     js = d.createElement(s); js.id = id;
     js.src = "//connect.facebook.net/en_US/all.js#xfbml=1";
     fjs.parentNode.insertBefore(js, fjs);
   }(document, 'script', 'facebook-jssdk'));</script>
Go to http://connect.facebook.net/en_US/all.js#xfbml=1 and be horrified.

That's a decent chunk of minified js. Seems like quite a bit of code just to be able to tell FB whether or not you "like" something.

My biggest problem with it is that consumers have no clue whatsoever that they're being tracked that way. Even typical web site owners don't really realize that the little piece of code they copy/pasted to get the FB Like button exposes their visitors to so much intrusive js.

I don't have a problem with people being tracked if they feel that they're getting reasonable value out of the relationship, but the current situation is just very sneaky.

It's not a lot, really. If you look at it, you see it simply includes the entire FBML widget set, instead of just the Like button.

There are different levels of "block third-party cookies".

Safari blocks _setting_ third-party cookies by default. It does not block _sending_ of third-party cookies, last I checked.

Firefox's third party cookie setting blocks setting and sending and doing that _definitely_ breaks some sites (e.g. some e-payment systems). Hence it not being enabled by default.

The problem is that the Safari approach is not good enough to prevent the tracking issue where Facebook is concerned: As long as you visited Facebook directly so that it got a chance to set a cookie, that cookie will get sent every time the Like button is fetched. So at that point Facebook knows who you are (via the cookie) and which site you visited (because the Like button itself has access to that information).

The Safari approach _does_ help deal with tracking via ad networks that you don't have any kind of first-party relationship with, since those would never get a chance to set a cookie to start with. So it's definitely a good idea, and I wish more browsers would adopt it. But it doesn't help with the Googles and Facebooks. Unless, of course, there were some sort of requirement that the "user-facing parts" and "ad parts" of those organizations use different domains. Would be pretty hard to get something like that written down properly, even.

Agreed on all points, but websites that feature Like buttons or Analytics are complicit in this dubiously ethical behaviour. Webmasters should also be doing more to protect the privacy of their users. Sadly, even the ones that are supposed to be operating within FERPA or HIPAA restrictions in the US ignore this duty.

Are there better alternatives? (I ask this question honestly)

As a web master of a very small, personal site, I find that running AddThis or something similar to be vital in generating traffic. Giving users a one click option to share my pages makes it much more likely that they will. Without that option, I have to resort to spamming message boards, Twitter, Facebook, etc manually, in order to drive traffic. I am not opposed to that option, as my site has no way of generating revenue and likely never will... I'm just looking for engagement from readers and ways to generate more readers.

This makes me wonder if there is value in someone creating a Facebook Like button, Google +1 button, etc. widget set that doesn't keep any tracking data and only sends information about a user to Facebook, Google, etc. when a user explicitly clicks on the button.

Yep! The question is whether to give it away or try to find a way to monetize it. I'd buy it, but I'm not sure how much I'd pay for it.

I don't give a crud about the analytics of AddThis, and their menu is full of options that most will never use. The key point is sharing for the lazy. The vast majority of Internet users are never going to open their Facebook, write a wall post about something and copy/paste my link in their post. That same person, however, may be really interested in it and be willing to hit a little button that does all that stuff for them. That's all I want. I don't want to jeopardize people's privacy.

Heise developed this last year. They made a two-stage like-button which is disabled by default and sends no data to FB et al. When you first click on it, the real button loads and you can then share what you want.

http://www.heise.de/ct/artikel/2-Klicks-fuer-mehr-Datenschut... [german]

That's really interesting. I like the concept, but would most users only click once because that's what they are used to? The interface doesn't seem to be that obvious for a non-technical person.

Is there some use agreement that prevents this plugin from submitting the like programmatically?

I guess this blocking by the browsers will eventually happen. But then it is not impossible to move the tracking to the server of the web site, instead of the client. I guess that is what would happen over time, although I admit it would require more effort by the site owners.

> Whether or not you "Like" things is irrelevant. The main purpose of that "Like" button is (IMHO) as a tracking cookie.

Exactly. Ditto google's 'free' analytics, every adsense impression and the +1 button.

Nice to see someone working at google establish this in such a straightforward way, such candor is pretty rare.

Most of the time all you get is some marketing bull about how you're being enabled to share your favorite things with your friends.

AdBlockPlus and Ghostery are always the two plugins I install first on my Firefox.



I like RequestPolicy because it blacklists all external domains by default and it's easy to whitelist them as needed.


After using NoScript for while, I realized that it was painful to whitelist every website I visited. My goal was different, I only want to block tracking scripts and cookies. This is why Ghostery is best suited to my needs.

Request Policy is really annoying for daily use. Lots of sites use multiple domains to load images or CSS or other static content faster. Using the Readability plugin helps. Just tap ` and the missing CSS doesn't matter anymore.

Also Adveristy and Anti Social subscription for AdBlock. http://code.google.com/p/adversity/

How is it different from Ghostery?

I feel bad running on adblock, and then gorging on cyanide and happinesss, xkcd, smbc, etc... One day I just might click on an add and make them some money.

Isn't it just easy to Opt-Out from Online Behavioral Advertising..


> Ditto google's 'free' analytics

Or being logged into Chrome.

You don't even need to log in – just visiting a URL sends it to google. I'm not sure if you can even disable that despite all the predictive/protective/suggestive checkboxes in config – I couldn't figure out how to stop my dev domains from being leaked to google until I moved to chromium.

Keystrokes are sent to your default "search provider", so if you configure chrome to point elsewhere it will send your keystrokes to someone else. You can add custom URLs as "search engines" so just put in a non-existant domain, or DuckDuckGo, and it won't tell on you.

Bingo. Use chromium if you don't want Google to see everything.

Or Firefox. Or IE. Or Safari. Or Opera.

Sure, but then you have to use Firefox, or IO, or Safari, or Opera. It's not all great.

Google, Facebook and Twitter have made clear statements that this data is not used for tracking. ( see http://online.wsj.com/article/SB1000142405274870428150457632... and http://www.google.com/policies/privacy/ads/#toc-serve ). So if it does (and I am not saying it doesn't) they would be outright lying.

Did anyone actually try to investigate if or to which degree this happening? It should be actually be possible to see if there is some correlation between the site you visit and the advertising you see.

"A common misconception from fearmongers is that your data is being sold. It is not."

I'm calling "Srawman" on this.

The correct conception is that it could be sold and the Market Economics Fairy has predicted that it will be sold as soon as a willing buyer and willing seller agree on a price. Indeed, if Facebook fails, all their data will almost certainly be sold along with the rest of their assets.

Likewise, Google has an increasingly strong incentive to sell user data as its perceived value increases and the cash flow per "unit" decreases. That Google sees this as a distinct probability is clear from their privacy policy which gives them the right to use user data "to develop new services." No one should be surprised by this because failing to reserve rights to a potential revenue stream would be irresponsible behavior by Google management.

If the thesis of the article is correct, sale of data is increasingly likely as the online advertising model pivots away from personalized advertising and the attractiveness of creating alternative revenue streams from the data increases.

Google wouldn't even consider selling that data unless they were losing money, and they'd probably consider a good many things before they'd resort to selling it even in that case.

Right now, Google has that data and nobody else on planet earth does. That's strategic. A couple million dollars isn't worth changing the game.

There are companies that sell browser data, it's anonymized, and it's much smaller than what Google or Facebook presumably has.


You, me and The Lorax all agree its possible.

We just hold different opinions regarding under what conditions it is likely to occur. Google or Facebook's proprietary access to the data they have collected only makes strategic sense so long as there is strategic value in exclusivity. Given that there already are a variety of ordinary existing circumstances in which exclusivity is not strategic - e.g. subpoena - the argument that it is only in extraordinary business circumstances that the data might be sold needs a stronger case made in its favor.

We are not talking about a few million dollars, but several billion or more. Just look at patent portfolios for a parallel way in which the market may suddenly revalue intangible assets. Particularly consider the case of Nortel and if Facebook could experience a similar demise over the next twenty years. Even if Facebook stopped collecting data today, most of it would still shed light on living people.

I'm saying it's very low on the list of possibilities. Most of the data is of transient value (browser cookies last around 30 days on average). If Google is whittled down to a shell of its former self, to the point where they'd consider selling that data, presumably what data they have at that point isn't really that valuable.

On the one hand, I find it hard to believe that Google is not extracting data from cookies and looking at it over the long term.

On the other hand, I know that much of the data which Facebook is collecting will be pertinent twenty, thirty and forty years from now...e.g. my cousin will still be gay in 2036.

Finally, the notion of Google selling their data only seems remote given the current state of affairs. If Facebook starts selling direct access to their data, it makes Google far more likely to follow suit not only based on a need to stay competitive but also because the standard of acceptable behavior has been lowered and a new status quo has been created.

One need only look at the speed at which telephony has changed over the last five years or the music industry over the last ten to realize that business models of established companies can change rapidly.

>On the other hand, I know that much of the data which Facebook is collecting will be pertinent twenty, thirty and forty years from now...e.g. my cousin will still be gay in 2036.

I think Google could probably guess most gay people are gay from their searches, and the pages they visit.

>The correct conception is that it could be sold and the Market Economics Fairy has predicted that it will be sold as soon as a willing buyer and willing seller agree on a price.

Mmmmm... unfortunately, I think YOU'RE the one with the strawman argument here. The misconception that he's talking about is the notion that "the purpose of collecting your personal data is to sell it to the highest bidder". That IS a misconception. The purpose of collecting user data is to rent out the aggregate value of it to advertisers. The fact that the collector might someday be forced into receivership and the user data may end up on the auction block as part of their assets is not actually relevant, because a purchaser of such is ALSO not interested in selling the data for profit, but rather collecting rent on the aggregate value of the data from advertisers.

My premise is that once Facebook's assessment of the net present value of exclusive use of its data is less than a willing buyer's assessment, the likelihood of a sale is significant (it is also a premise that this also holds for Google).

A second premise is that companies which own data may have that data acquired through dissolution, merger, or acquisition; and that in such circumstances the asset may be monetized differently than it is currently.

This may be pessimistic, but betting on the benevolence of corporations is not supported by history.

I'd be interested to hear any insights as to why Facebook hasn't yet pushed to build a display advertising network for third party publishers (a la DoubleClick). That way it could leverage the assets that it does have (behavioral profiles) against an asset it doesn't (users with direct purchase intent).

On a side note - I'd take issue with your suggestion that the information on Facebook is largely useless to an advertiser.

There doesn't have to be any explicit "truth" to the action being measured (whether it's what a user happens to press Like on, or some abstract measure like their ratio of likes to logins), all that matters is that it's a measurable predicate of some other behavior that advertisers care about - like the language you're likely to respond to, what stage in your life you're at, your self image, what the rest of your peer group is into.

In many ways this a lot like a first date as well, in that the things your partner may embellish or overcompensate for might actually tell you quite a lot about what sort of person they really are.

FWIW, everytime I ask my friends at Facebook about this they make a weird face and say "no comment."

It is clearly their plan to do this, and in line with their stated intent to form the "identity layer" for the web. It's unlikely to work though, because the web has a great tendency to upset the plans of those who want to basically control the whole thing. It's sure that some kind of identity layer will come into use, but an open system (maybe a descendant of OpenID, maybe not) will always have the advantage of allowing myriad people and (importantly) companies to do different things with it. And that's the kind of evolutionary openness that saw off AOL in the 90's in favour of the web.

You know, another really obvious reason why it might not be a good idea:

Facebook ads are really cheap and have awful CTRs. Advertisers are used to paying very little for them.

Web ads though cost much more and are expected to perform a lot better.

What if FB launched an Adsense competitor, but no one cared because it performed so much worse?

I expected Facebook to announce plans for an ad network to coincide with their IPO. I'm a little flummoxed that we haven't heard anything yet. It seems like an obvious outgrowth. I wonder if concerns over a privacy backlash would push them to keep this project on the back burner?

(Though I don't personally see any privacy issues with such a project)

Honest question: Would it REALLY generate that much new revenue for them? Their problem isn't owning the web. They do already. It's mobile.

I've been wondering the same thing for a couple years. It seems like an opportunity that's way too big to pass up.

The botttom line with Facebook is that it went public far too early. It doesn't have its footing on solid ground as far as revenue growth, stability, and profitability are concerned. Its advertising model, dependent as it is on these much-maligned targeted display ads, is promising -- but has a lot of kinks to be worked out. The more I look at the Facebook IPO, the more I don't see the conventional narrative, i.e., that the company itself is a flop, or that its ad model is inherently flawed. Rather, I see a company that was forced to IPO before its time, by taking on too many private investors and too much private funding. Furthermore, I see a bunch of the people behind that private funding basically giving Facebook as shiny of a paintjob as possible in order to make its public debut. But the paint was applied hastily, and it's all flaky and spotty at the big show.

To me, this cautionary tale is every bit as much about VC funding bubbles as it is about advertising bubbles. Sure, Facebook could never have been bootstrapped to its current scale. But it could have stopped taking on such massive amounts of funding, and, instead, opted for more organic growth until it found time to perfect its ad products and business model.

When we talk about the Dotcom Bubble of the mid 90s, we talk about a frenzied funding (and IPOing) of companies with little more than userbases and unproven (or occasionally nonsensical) business models. Facebook is not that, exactly. It's more userbase than business, but that doesn't necessarily have to be the case. Unfortunately, it was funded (excessively) in Dotcom Bubble fashion, and forced to IPO in Dotcom Bubble mode: grow insanely fast, worry about profitability later.

That it happened to benefit, temporarily, from a misguided advertising bubble is material, but also somewhat incidental.

So by saying that you think they went public too early, you are maybe implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate.

Are either of those things true? Is there some other difficulty?

"implying that they could have made much more money later, or maybe implying that public perception of the stock will interfere with their ability to operate."

I'm implying both. First, if they'd have shrugged off the early pressure to take on too much VC money, they wouldn't have been propped up with an indefinite runway and would have been forced to get creative, and quickly, with monetization. They'd probably be in much stronger shape today, because they'd have had to scale up profitability in line with operating costs and userbase. (At least to some greater extent than they were).

Second, because they're now public, they're having to crash-develop profitability while still being held to the fire to make quarterly projections.

I'm aware of the apparent contradiction in what I'm saying here, i.e., does it really make a difference when their feet are or were held to the fire to grow revenue? At least in my preferred scenario, they'd have been forced to deal with it early. Before growing to 1 billion users -- all of whom expect the service to be 100% free -- and going public to the equity markets -- who expect those users to be monetized pretty much overnight.

Not so sure that Facebook's strategy would be in-line with early monetization.

Their business strategy was clearly to rapidly gain default status and solidify the barrier to entry of being the de-facto social network... by monetizing you either piss off or scare away users, or decrease your eyeballs (that you can sell in-aggregate to advertisers).

That's been their strategy, yes, but the problem with not finding a way to monetize as you grow -- by putting off monetization -- is that you risk pissing off users even more when you suddenly introduce it, and at such large scale as to satisfy the needs of public shareholders. It's sort of like burying a mess under the rug: it's out of sight for awhile, until it festers, rots, and really starts to stink.

Sooner or later, Facebook was always going to have to monetize. Its deliberate strategy of putting off monetization until it became a de facto standard social network was a gamble. It seemed reasonable at the time to many inside and outside of Facebook. But my point is that, knowing what it was gambling on, Facebook shouldn't have taken in so much money that it was forced to go public before its gamble was ready to pay off. Now, it's going to have to start monetizing quickly and massively, come hell or high water -- at a time when it still doesn't quite know how to do so without pissing off its userbase. It's in a worst-of-both-worlds scenario, which could have been avoided regardless of its user growth vs. monetization strategy.

Agree with just about all of that.

> "Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft."

A majority of non-techy types I know bought smart phones because they "do facebook". There is a deeply symbiotic relationship there, and woe is the mobile maker that couldn't provide a Facebook app.

> A majority of non-techy types I know bought smart phones because they "do facebook". There is a deeply symbiotic relationship there, and woe is the mobile maker that couldn't provide a Facebook app.

I finally decided to upgrade my iPhone 3 a couple of months ago when the Facebook app stopped working for some obscure reason and I couldn't update the app anymore. I'm a programmer, but probably not a "techie".

Also, I think it's kind of wrong to continue making this distinction between "real life" and "FB-life" or "internet-life", as in "real life friends" (which are ok) versus "Facebook friends" (which presumably are just a "lie" or "fake").

I think the distinction is still useful to draw a line between those you legitimately interact with and those who are your social networking 'friends' solely because there's social pressure to accept them.

e.g. former coworkers, old high school friends, friends of friends, etc.

I also use the Facebook app on my Android, as I like to get real time notifications from really important people (my wife, my godson, my best friend).

However, they have a lot of improvements to do, starting with being freaking slow compared to going to facebook.com in the browser.

I bet you those same non-techy types would by MySpace phones.

Sure, but did you notice how they use Facebook? I've watched (and asked) several of my non-techy friends and there reaction was always the same: "Yeah, I just update my feed, look for updates of my friends and that's it."

I don't see how Facebook wants to make money of such an usage pattern, so at the moment it doesn't help them very much that people have smart phones to "do facebook".

If people have access to Facebook 24/7, in their pockets, they are more likely to become dependent on it in their daily lives.

The mobile app fuels the addiction which keeps people logged in and coming back every day on their browser.

Quite the opposite, in my experience. I can read my feed on my 'phone, with a better UI than the website (turns out native app beats webapp, even when it's tiny screen vs. desktop), so why would I ever bother going to the website?

Most of my FB friends seem to use the mobile app mainly for uploading photos, if my feed is to be believed. From that POV the Instagram acquisition makes sense. How they're going to make money from it I'm not sure, but location-based ads and third-party apps come to mind. Though I still have a hard time imagining the developer appeal for their hypothetical but inevitable mobile app platform.

Aren't Instagram photos geotagged by default? That would make Instagram essentially the "like" button for user tracking in meatspace.

FB wouldn't see everywhere a user goes, but they'd know when/where the user was, when they thought something was worth a picture.

And with the face-tagging stuff, they can get additional time-space data on photo subjects as well.

But facebook gets to see who is where at all times...

> "Facebook has no search engine. Whatever you say about the size of display ads, search advertising is still far bigger. With search you have intent. People want to find things by their actions. On Facebook ads are an annoyance."

Exactly this. I don't have any feedback on your post, but I'd like to thank you for writing this. Very insightful.

I like Chris Dixon's blog on this topic http://cdixon.org/2012/05/15/facebooks-business-model/

1. Your social games argument is really weak. People may play some social games with random people, but they mostly like, comment, have common friends, appear in photos together, go to weddings with real friends.

2. Your second argument is contradictory to your observation that Like buttons across the web are mainly cookie carriers.

And as far as lying is concerned, people don't just lie virtually with Like buttons and comments. They also lie by spending real dollars. Even if you know squat about F1 racing, buying that red Ferrari jacket is a pretty good social signal to send to your equally clueless peers.

I'd be really surprised if Facebook is not working on a mobile OS or browser. They will probably also make a big direct play in ecommerce (see Karma purchase).

Predicting failure for Facebook purely based on its desktop web app ads seems shortsighted and naive.

He wasn't actually predicting failure for Facebook. The last thing he wrote was "It's still valuable but it will take some time to figure out exactly how much it's worth". Don't be so quick to lash out at people because they're not sitting in front of you or because you didn't read the comment.

My last sentence was more in response to the OP, than cletus.

That's what it sounded like. For lashing out at you for lashing out at him, I apologize.

Heh, no worries. It's just Sayre's law - http://en.wikipedia.org/wiki/Sayres_law

>"1. Your social games argument is really weak. People may play some social games with random people, but they mostly like, comment, have common friends, appear in photos together, go to weddings with real friends."

Go to any message board for a popular Facebook game; it will be filled with people saying "add me!". This is one of Facebook's dirty little secrets. These games have warped the network. They already had to reign the games in by cutting off viral channels. 1 BB registered users? I've seen people with 20 active accounts trying to "game" the games.

Again, this doesn't make FB worthless, just worth less.

1) Facebook might be able to distinguish real friends from social gaming faux friends, but advertisers aren't given that information today. They can target "friends of friends" of people who appear to have a particular target interest (for example), but that's going to have a lot of noise because of the social noise.

2) When people lie by spending real dollars, at least their spending real money. And they are actually saying something. Maybe it's not "I'm a race car driver", but "I'm interested in race cars". The trick is understanding what it is they are saying.

How do you feel about his claim that we are in an online advertising bubble?

I am sympathetic to that claim, because (anecdotally of course) very few people I know actually click on ads.

Agree with everything BUT if you screen "does anybody want ice cream" down Venice beach in the middle of the summer, I'm sure you'll get some customers. lol

But in all seriousness, great post.

Will you get enough customers to compensate for the people irritated (or worse) by your screaming?

Sounds like the beach is full of grumpy people. That doesn't happen often.

I can imagine two future timelines where facebook turns out big. Facebook could do either:

1. Figure out when people want something and what they want. And insert suggestive ads in people's streams in a way that is not creepy. Or gamble that beyond a token uproar, they will not disturb their equilibrium enough to allow a competitor's toy to slowly siphon their users.

Facebook could also figure out when people are looking to give gifts and aid in that arduous process with targeted coupon/ads.

2. Lobby to become the premier centralized digital consolidated identity provider once governments start to require this due to some misapprehension of how much security such a requirement would bring. With this toehold, Facebook would have more room to control your stream and could insert creepily timely targetted ads. The facebooks of the future may become the synthesis of insurance and big media companies of today.

facebook is already offering facebook offers. Its a great idea.. they know when people's birthdays are on your friends list and some of their relationships. They should offer a personalized deals at these times, dinner or online coupons.

> The main purpose of that "Like" button is (IMHO) as a tracking cookie. Visit any Like-enabled site and you see a small piece of content from Facebook that tells Facebook all the sites you visit. It's a tracking cookie like any other and personally I have no problem with that. Just make no mistake why the Like button exists.

Yeah, probably; still, please remember that it would be the same what ("IMHO") Google Analytics (since ~2005?) + Google AdWords (since ~2000? ah, yes, and this actually makes money as well) do for Google. (Plus a few others, like Customized Search and the "recent Google +1 widget".) Personally, I'm amazed every time I look at my NoScript list and see that on ~99% of the Web google-analytics.com is watching your every click.

More importantly, they could build off the same Like button JS to drop a Social Adsense-like product on all those publisher sites.

great analysis. So following your argument it seems as if facebook realized quite a while ago, that the information it collects is not (relationship status, location, etc.) is nowhere enough to deduct targeted ads. hence they came up with some sort of tracking cookie disguised as a like button. I gotta give them credit for that, that is ingenious.

Facebook will only be really valuable once they find a way to combine interest with intent and location.

This can primarily be done on the mobile but even google haven't really found a way to be that profitable with mobile so the real question becomes can they improve it?

A minor note about point 1. It seems very easy to figure out who the real friends are through activity -- e.g., the people whose posts you comment on or whose pictures and profiles you view. So this information doesn't lose much of its value.

> Their mobile presence is at the behest of Apple, Google and (arguably) Microsoft.

I thought Microsoft had a large pie of Facebook. Maybe they can help each other in mobile.

Imagine an apartment. Google is like the copy of the yellow pages by the telephone. FB is like the photo-album in the closet. People generally do not open these two books for similar reasons. They have very different usage. One is recreational, the other is not[1]. But FB believers do not want to accept this difference. And it's this difference that makes FB a dud compared to Google.

The question I have is what is going to come out of Bing's integration of FB?

1. The other is a directory where you look up businesses that offer products and services.

While I agree with your point, a part of me can't help but wonder about the possibilities that would open up if we had the capacity to extract enough semantic information from a photo:

If I'm looking at my old holiday snaps and reliving the good times I had, I might be tempted by an ad for cheap flights to a similar destination.

If I'm looking at recent photos of my relatives' adorable children, I might be tempted by an ad for children's toys to send them.

If I'm looking at a friend's photos from an event they attended and enjoyed, I might be tempted by an ad selling tickets to that or similar event.

If I'm looking at a photo of myself from a time when I was in better physical shape, I might be tempted by an ad for a gym membership.


I doubt Facebook will ever be able to get to a point where they can make predictions as accurate at that, but given the trove of personal data and image analysis algorithms they have, if anyone could do it, it'd be them.

The key word there is "might."

FB and its believers think that the chances are high enough to make big money, or at least that they can make them high enough.

In actuality they aren't. You might think about booking the flight, but the chances of you actually reaching for the credit card based on idly looking at photos are too small to do worthwhile targeted ads.

The idea that FB can just tune their algorithms until they know exactly what you're thinking is a fantasy based on...

1. an overly optimistic estimation of the SNR ratio of the info people put into FB, and

2. on the hilarious fallacies of the aforementioned Market Economics Fairy which assumes that everyone is always a rational actor, and that everything people do has definite reasons behind it which can be traced and understood, and their future behaviour predicted from, and crucially that these reasons can be modelled with traditional reductionism. This is plainly not true.

Admittedly my opinions here are based on guesswork, just like FBs are, but I contend that I have the benefit of drawing my conclusions without a hundred billion dollars worth of wishful thinking clouding my vision.

"everyone is a rational actor"

And that's why the message to Harvard graduates[1] (purportedly America's brightest rational minds) makes deliberate reference to a man[2] who has consistently proven this to be false. The message also is centered around another pillar of rationality: the idea of "luck".

1. A link to this was recently posted here on HN.

2. One who was "lucky" enough to be awarded a Nobel Prize.

Even if they could do all that it is still wild guesswork with too many possibilies. And the effectity of that fantasy also assumes that there is endless supply of advertisers from all different industries. The reality is that if, for example, only some dating sites and hosting companies are willing to pay for ads that match your profile then it is only dating and server hosting ads that you will see.

This is the trap. This is what FB employees keep telling themselves everyday. This has to work. It just makes sense.

You can keep saying the data is valuable. No one is going to question that it is. We all have imaginations. And advertisers will be curious. They will try advertising on FB.

But there's just a big difference in human behavior in the two examples I gave. They are different. Not because I can make argument based on reason for the difference. But because it's what the facts show. There is a long history to this that predates the web. You might say it's been thoroughly tested.

So, you can make all the arguments you want that people should behave a certain way, and maybe you draw on examples of your own behavior or that of others you know, but when it comes down to making money and growing like Google does, it matters more what people actually do in real life. As opposed to how we think they should behave.

Yellow pages and photo-albums are things that have been around for a very long time, long before the web. If people looking at photos (FB) are at the same time looking for products and services, then why didn't photo-albums before the web have heaps of advertising in them? The answer is because there was a different book where it was more appropriate to advertise.

Read the article on the MIT or Harvard blog again. What you are describing, especially a tactic like image analysis, is exactly the type of approach he is saying is just too invasive. This kind of approach to advertising removes anonymity and violates people's privacy when it's counterintuitive to do so, according to the article.

That last bit Proves that Facebook truly is the work of one man.

I'd say Facebook is more like the front of your fridge (cool pictures of your friends/kids), plus your kitchen notice board (that wedding invitation from last year, that save the date card for next year etc) - the shoebox that you put all that stuff in, and never really sort, plus the photo album ;-)

I know plenty of people with really interesting things pinned to their fridge. It often takes them a while to remember anything about pictures that have been staring them in the face for years. Why? Because, you go the the fridge to get food. People are terrible multitasking which is why Facebook advertising has such a low click-though rate and a high accidental click rate.

"you go to the fridge to get food"

Hungry. Get food. How much thinking is involved in that?

Do you know what has a very high clickthrough rate on FB, probably their highest CTR ever (but which is no longer allowed)?

Pop-up styled ads for "party poker".

Not much has changed since the 1990's in this regard. Web advertising is still much the same. And anyone who has been using the web since then, such as the author of the MIT article, sees and knows this.

But do the kids with advanced degrees being hired by FB at $100K/yr know it? Nope. They believe that watching your every move and analysing who your friends are is a path to riches.

I'm not sure what's worse. The knee-jerk response of web users to blinking poker ads, or the blind allegiance of otherwise intelligent young people to a sociopath who thinks destroying privacy is a "goal" worth pursuing.

News flash: Communication on and above the scale of FB is possible without destroying privacy.

OK, so if your wife says to you, e.g., "Swannie, we need [description of rarely purchased, high priced product]. The old one has stopped working." Do you check the front of the fridge, your kitchem notice board, the shoebox and then your photo album to find the contact information for who sells [product description]? Maybe you have the name of who to contact in one of those places? Or you need to call your friend to get a recommendation? Anything is possible, but what do you think is what people do _most of the time_?

FB is the next Pets.com

But it's going to be a slow, painful decline. They have raised billions to stay alive.

Solution for FB: Build a search engine and put it where the display ads are. Keep people inside the walled garden by removing any possible reason for them to leave. Like 1990's "framing" reborn. FAIL.

The whole notion of FB is utterly absurd. Tell us who all your friends are and we'll "enable" you to communicate with them (even though it's trivial to do yourself without us). We reserve the right to analyse all the information you give us and monitor everything you do on the FB site and elsewhere on the web to _try_ to make money, in various sneaky, deceptive (but really clever!) ways. FAIL.

Google is a tool and Facebook is entertainment. If you look at the history of advertising, entertainment companies have done far better than tool companies. Who made more money in the 20th century--the magazine publishing industry or the Yellow Pages?

Think of Facebook like a magazine. When people read through National Geographic, are they looking to buy a camera right then? No. And yet all the camera companies advertize heavily in Nat Geo because having their ad next those photos creates a positive brand association.

Facebook is developing the ability to show ads that are contextual to whatever you're reading or talking about on Facebook. Their success won't be measured in clicks, but in the same way companies have valued brand ads for decades--by statistical research.

I agree with you entertainment is a cash cow. But FB is _free_ entertainment. As is your photo-album and the discussions you have with your friends.

You appear to be referring to future success. It's like Microsoft talking up "vaporware". It gets people's attention, maybe it convinces some to believe and some to invest, but it offers them nothing. Only a promise of some future of which no one can be certain.

We have almost two decades of web display ads and their effects on building brands. Advertisers are not too impressed. They have waited patiently for something that compares to a magazine ad. And no one has delivered. Maybe solving the context problem might not be so easy. Maybe a website is not a magazine.

Meanwhile people are looking for products and services via the web, with their credit cards in hand. And Google has been there to help advertisers reach them.

That's not some promise of the future, that's the here and now.

Facebook has real power for influence. And some of that can no doubt benefit corporations. But what Google offers is something much more direct and efficient. And it's not a pie-in-the-sky promise, it's proven to have worked year after year.

Facebook has no business model. They only have everyone's curiousity. And that's mainly because the "content" on FB is everyone's friends and family, not the type of packaged, commercialised "entertainment" you get from a magazine. FB is not a magazine. It's a photo-album. More specifically, it's a collection of personal photo albums.

It does have some added "features" to the traditional photo album. It comes with tacky, invasively personal display ads in the margin. And it comes with a team of "engineers" looking over your shoulder to log every photo you look at and every comment you make. And it's exposed to viewing by millions of strangers (this is totally unnecessary). I think we can have photo albums without all that cruft. And I think we will.

Facebook made almost a billion dollars in profit last year on gross margins of around 25%. They obviously have a business model and it's obviously working pretty well. Now--could they fail? Of course, but I don't see any reason now that they must fail, based on what we know now.

I find it kind of funny to see the complaints about Facebook's financial future...I'm old enough to remember when Google was a cool new free technology, but no one knew how the heck such a simple search engine was going to make money.

It really isn't "free" entertainment. There are many companies making lots of money (zynga for instance) selling virtual goods on facebook with FB credits. FB gets 30%. I'm not trying to say it's the same amount of money that google makes, but that alone is in the millions of dollars per month of gross profit.

Whilst I agree with pretty much everything he says about Facebook and targeted ads, I'm surprised that the article makes no reference to Amazon - which is the one place that, at least for me, targeted advertising works brilliantly.

There's a few reasons why it works for me

- I'm going there to buy or at least thinkg about buying something, and when it comes to things like books, I like to browse for something interesting so being prompted to look at books that I might be interested in seems entirely appropriate

- they are entirely open about why a particular product has been recommended to you, and you are able to pretty easily fine-tune those recommendations.

- when I buy something from them, or even browse on their site, I'm not particularly shocked when they remember that next time I visit. They don't seem to be secretly collecting stuff behind the scenes, sniffing around what I did on a random 3rd party site etc.

Facebook, and Google mostly (although they are at least slightly better off on the first point than FB) fail on all three of these. They are giving me messages about things that I'm not currently planning on doing, based partly on some secret info they've gathered from god knows where.

If internet advertising is a bubble that's going to pop they might as well retitle this article:

After Google, Yahoo and most web properties fail.

I guess all we're going to be left with is craigslist and basecamp, also there won't be any newspapers because they're dead because of the internet, and all their replacements are dead too because internet advertising doesn't work. (according to the OP)

I think there's a Facebook Advertising bubble, not an Internet advertising one. I don't think Facebook ads have ever really worked, but most thought they did, which is why it's a bubble.

Cue someone responding "But Google targets intent."

It's the same discussion, over and over and over.

10, even 5 years ago the same people who are now saying "Facebook ads are ineffective, and I never vist Facebook anyway" were saying "Google ads are ineffective, and I've never clicked on one anyway".

>> Robert Scoble likes Orchard Supply Hardware

That is not an ad for a hardware store, its an ad for Scoble. Just "like" as much stuff as you can, and people will constantly see your name and are reminded of you for free.

Yes, they massed up the IPO, Facebook doesn't have a true value as Google or Apple, ads do not work and user growth is finished. I have doubts too that Facebook will match expectations but I am a sick of reading every other day why FB fails or what happens after they fail.

I don't like Facebook either and stopped using it actively but I know for sure that Zuckerberg is a very smart and talented guy just looking at how he build this company, kept power the entire time and with 16B$ he'll find sooner or later a way how to get money from all those Facebook addicts.

I think a lot of the analyses of Facebook's advertising model miss one important point. Sure, their CTRs are not even closely comparable to Google's numbers. However, when people search on Google, they're often actively looking for certain products that lead to high CTRs on these targeted ads. In Facebook's case, people want to socialize and generally don't want to be disturbed by ads.

Basically, Facebook currently uses an advertisement model that is not very natural to its product (and not very well targeted for a number of reasons). But Facebook just doesn't care at this point, because they still generate sufficient revenue through the sheer number of users.

So the real question is whether Facebook can come up with an advertising model that is truly natural to its product (e.g. actual product recommendations by friends in conversations etc.). To conclude that Facebook is doomed to fail because their advertising model is suboptimal seems to be a little premature.

If he put that he was married on the site, he wouldn't get the dating ads. I just checked my facebook (for the first time in awhile) and 3 of 4 ads where things that made sense and were interesting to me.

I personally don't think Facebook is worth nearly as much as their current valuation, but as long as they have 900 million users who average a 1/2 hour a day on the site they are worth quite a bit. As for the targeted ads, I'd much rather have ads for things that are interesting to me than for things that aren't.

Interesting... I was just going through the phase of unsubscribing from all of the legitimate info/news sources I had subscribed to over the years to try to reduce my daily Inbox levels, and it got me to thinking about reversing the tables so I could announce when I _wanted_ to partake and for what reason, and THEN get appropriate emails, links, ads, etc.

Right on, is there a platform for this yet?

Perhaps fbook can pivot to this... since it'd be tough without a big user base first.

This only works for non demand-creating advertising of course.

(edit "raintree" would be a great name for such a service!!! --- hint hint, go for it!)

Marketing used to be about information, letting potential customers know your product exists. Then it morphed into manipulation, but I think that has run it's course - even young children now know when they are being manipulated, and are resistant to it.

Because of this, my company concentrates entirely on providing remarkable services for remarkable prices, so our customers do our marketing for us by telling other potential customers. In our experience, this strategy works magnificently - we're doubling our revenue every year without spending a cent on marketing.

Back to Facebook - I see Google ads as informational marketing, and Facebook's as manipulative marketing. And currently Facebook is horribly bad at it - I think I've "liked" two products ever, because I think most of my "friends" would think I was really lame for endorsing anything that isn't truly exceptional. Having said that, our services have thousands of likes...

I'm amused when intelligent people like Doc don't even show enough curiosity to hack Facebook ads to their own advantage. I hate ads with a vengeance, but I like using Facebook. And just like Doc, I kept seeing stupid irrelevant ads.

So I decided to fix it. I started liking Facebook pages of things I really like - Arduino, Raspberry Pi, Ubuntu, Sphero, Android. And lo and behold, I've started seeing ads which I actually like and even click on.

Facebook critics offer a strange bipolar argument - on the one hand, they say Facebook ads are so badly targeted even with the wealth of personal info they have. On the other hand, they question the valuation. Where's so much growth going to come from? Better ad targeting is definitely part of the answer, but more importantly, I think Facebook will come out with some killer new products in mobile and ecommerce.

For some reason the Facebook IPO reminds me of when Steve Case sold AOL to TimeWarner in 2000.

From the AOL wikipedia page :- "AOL is best known for its online software suite, also called AOL, that allowed customers to access the world's largest "walled garden" online community and eventually reach out to the Internet as a whole."

At the time it was held in high regard for getting such a massive online user base (around 34 million) - which is a bit paltry by today's standards.

AOL wasnt sold to Time Warner, it was the other way around (see http://en.wikipedia.org/wiki/Time_Warner#2000)

First of all, it's not clear that social media advertising is going to fail, just because the author is not happy with results he gets. It was announced today that Oracle purchased Vitrue http://techcrunch.com/2012/05/23/more/ a company with close to 100 million a year in revenues. Presumably, for many people, it works.

Secondly, the title of the article is After Facebook fails - which implies it will fail and will do so because it's advertising model will fail - but who says facebook primary business model has to be advertising? If they continue to grow to over a billion users - who says that the "like" button on sites all over the web now shouldn't be charged for? who says users shouldn't be charged for premium services? more photo filters on instagram - just pay!

the possibilities are endless, and advertising, for now, is just one of them. my gut says it will become less and less important as a revenue generator over time. and personally I will welcome that change, cause with all the ads adjacent to the chat bar, the site is looking pretty messy.

I don't know if Facebook is necessarily going to completely fail anytime soon, but he does have a lot of good points, like how bad the targeted ads are, and that the whole concept of targeted ads is not great.

I think that Google is parsing gmail a lot more closely than we might be comfortable with, and I would not be surprised if an even more intelligent system eventually was applied to Facebook conversations and used to create targeted ads, with or without our consent.

The idea of "intentcasting" what you want to buy at the advertisers and then having control over their responses is a great idea and something I would like to experiment with at some point if I have time.

Within two or three decades, I think there are going to be major, major changes, not just with social networking, but with computing and even the overall nature of computing and even human society.

Yes, we do want, should and shortly will have more control over our personal conversations and data etc., but it goes beyond that. I think that non-commercial distributed but at the same time more private content oriented networking will become a big thing within the next decade or so, and that network will be even more difficult for commercial interests to take advantage of. And it won't be hosted on a giant commercial centralized system.

Beyond the private distributed social/content networks etc., you will see artificial general intelligence that blows Google's gmail parsing and everything else out of the water. I believe that personal data and conversations will generally be stored more privately and that people will voluntarily take advantage of these AIs (AGIs) to act as agents and assistants.

I also think that these powerful artificial general intelligences are going to put the nail in the coffin for the current infinite growth consumer driven "economic" model, which will be replaced by a more sophisticated and humane descendant.

People saw value in Facebook, otherwise they wouldn't have purchases shares last week. Yes, well overvalued but investors are willing to pay a premium for the associated and perceived value.

1) The main value is the sunk cost people have in Facebook. The vast majority of your family and friends are on the platform. You unwittingly have built up a scrap book of your past few years - photos, messages, relationships...

2) The other value is the time people spend on Facebook plus the large user base. You just need one or two mechanisms to extract revenue from this position and you are winning.

There are plenty of risks, some may be:

1) The Government cracks down on privacy or advertising standards.

2) An alternative arrives that makes it easy to transfer your profile. You can always download your Facebook profile.

3) Suffers the MySpace factor. Facebook is left behind due to better and more exciting offerings.

For now, Zuckerberg has shown his ability to compete. Until people stop spending hours on Facebook, they are very far from failure.

Anyone buying Facebook at the IPO value are sheep and gamblers.

Absolutely right.

There is yet deeper issue that applies to all advertising, in the form of a simple natural law:

There is a limit on the amount of BS a person can take before taking steps to actively avoid it or at least 'tuning it out'.

Current business 'thinking' assumes that increasing advertising is always good. It does not acknowledge this saturation effect at the 'receiving end'. It essentially ignores the fact that everyone else will also advertise more and more, for diminishing returns.

The trouble with advertising is that it is like a shouting match: occasionally someone with a strong voice will obtain a temporary advantage but in the long run nobody can be heard properly, least of all modest people with something useful to say.

On a more prozaic level, dividing the FB valuation by its number of active users gives about $170. I doubt very much that an average active FB user is buying enough value from FB ads to justify this kind of advertising budget.

I didn't get through the whole post as it's kind of disjointed and meandering, but its initial assertions seem shaky.

Personalized ads do have business value. After looking at some videos about Native Instruments audio gear on YouTube, I started getting a lot of Native Instruments ads pretty quickly. Unlike television, I am being shown ads for something I might actually buy rather than ads for things I will never buy. If traditional advertising is effective, then I don't see how this more targeted advertising can't be more effective.

As for "uncanny valley", what's "icky" now won't be icky in 10 years. You can get used to anything and kids growing up with the "uncanny" will quickly see it as normal, whether this is a good thing or not.

The practices of the marketing and advertising industry have a history of being received negatively, only to be reluctantly and slowly accepted as a normal part of everyday life. I am currently reading an old economics books (org. published 1958) that rails against the industry for creating unwarranted demand for non-essential products, and argues that it is a root cause of economic volatility. Of course, by today's standards, the industry practices of 1958 would seem tame.

>"After looking at some videos about Native Instruments audio gear on YouTube, I started getting a lot of Native Instruments ads pretty quickly."

So, you sought out the product first, then received ads? I think that's the point. What does this accomplish from a brand awareness point of view? You have already made it clear you're interested.

>So, you sought out the product first, then received ads? I think that's the point. What does this accomplish from a brand awareness point of view? You have already made it clear you're interested.

A traditional sales technique is to retain a list of potential leads and call them every once and awhile to see if the lead is interested in converting into a sale. This technique exists because it works and the purpose of the targeted advertising is similar. Keep me reminded of the product and at some point I might be inclined to buy.

Facebook will figure out the ad problem - and that's the problem.

They're seemingly profitable now on ads (not 100B worth), and through innovation, testing, & learning revenue will grow or at least not disappear. Advertisers will understand how to use Facebook effectively as an advertising media.

The major problem is lock-in. Facebook's users attract other users, which all attract advertisers. Once Facebook and advertisers uncover a breakthrough in effective social advertising, competition for users becomes critical. What will Facebook rely on to keep others from eating their lunch?

Simplistic, but, Google has search and apps. Facebook has....reluctance to change? Which might just be enough, until its not.

Is Facebook going to be the next AOL, left in the dust by a new innovator?

The chances of that happening are excellent, in my opinion.

However, consider the following revenue streams Facebook could generate using a paid membership model:

Facebook Personal - $10/year (no ads)

Facebook Pro - $100/year (small business)

Facebook Private $200/year (full privacy controls)

Facebook Enterprise $500,000/year (enterprise social network built on top of Facebook)

All of these ideas are plausible, and there are plenty more the readers of this site can surely come up with. All of them together could generate a billion dollars per year, or more. Of course, they depend on a shift in Facebook's culture, from privacy invasion and destruction; to actual privacy enhancement.

I don't think this is a good idea:

- Facebook Personal: If there would be a market for this why didn't they introduce this already?

- Facebook Pro: What would they be getting for this money? Facebook is already selling branded pages to corporate partners for much more money.

- Facebook Private: This would be openly admitting that people don't have full control over their privacy on Facebook already. Doesn't seem like a smart move to me.

- Facebook Enterprise: This is a totally different market with different needs. There are already different strong competitors out there. Also, I don't know if Facebook is the best brand for this. It's more associated with distraction then productivity.

It occurs to me that instead of being an advertising platform facebook would be better off as a marketplace platform for real goods. e.g. stop competing with google because you don't have intent and start competing with amazon and ebay because listing real products that people can instantly buy would be much more compelling. People don't like ads no matter what their content, everyone does like a bargain/deal on something they're interested in. Facebook knows what we're interested in, it can offer us deals on that stuff directly and it can immediately show off our purchases to all our friends and the deal that we got...

Isn't this the same Michael Wolf that Loeb, the activist hedge fund manager, picked for Yahoo's board? If this is how he feels about businesses driven by online ads I wonder what he thinks of Yahoo's odds.

Facebook has a clear monetization model. If Facebook releases a product like AdSense - which shows content relevant ads as well as targeted ads will be a great blow to Google.

Also, as far as mobile is concerned there are apps like Karma (http://getkarma.com) and TagTile that Facebook recently acquired - and they showed a great way to monetize using Facebook data.

There are some many apps that have crossed millions of users just because of Facebook integration.

Haters gonna hate but Facebook is here to stay for a long, long time.

A bit off on tangent - I believe the real potential for "the game changer" in advertising is in the following quote from the article: "If, for instance, frequent-flyer programs and travel destinations actually knew when you were thinking about planning a trip."

Hey, if you create a medium where I can proactively request offers of particular kind, then I'm all yours. Provided I have control over what I request - I can set a time limit on a query, revoke it, etc.

There's actually some interesting stats regarding how much FB gets per user in the US vs other regions. It's much higher in the US, which does indicate growth potential in other areas.


I have a crazy idea, why doesn't Facebook charge for premium accounts?

They would really only need to get what? Maybe 10% of their users to sign up to some kind of premium subscription service to justify their valuation. It's funny how this option is rarely ever mentioned, as if selling a service to consumers is some kind of taboo for internet companies.

It's been mentioned plenty of times (at least in discussion forums). Also Facebook has been experimenting with sponsored posts in NZ, where people pay to have their status posts featured more prominently in peoples news feeds, which is essentially a 'pay for premium' service. From what I understand, it's not going too well.

This is a good idea in my opinion. Lets say I'm having a party, launching a an app, selling something..ect. I think people would pay $1-$5 to use that feature.

I think Facebook will decline for a much simpler reason: whim.

Facebook was cool when I was in college and it was only for college students. Now my dentist wants me to "like" him on Facebook and get entered in some kind of drawing.


"I wonder if there's a social network that's only for cool people like me," thinks the user.

Wow, that header really reminds me of the circa-2006 Facebook design, with “the facebook guy” in the top left. Screenshot here: http://joshvandervies.com/is-the-old-facebook-better-2/

One thing I've noticed while reading the article is that my banner blindness is so strong, that I even had to force myself to look at the image full of ads being discussed in the article. I guess the author has a point.

Why do posters in Hacker News constantly confuse a disclaimer with disclosure.

He leads with an extraordinarily false claim:

"The daily and stubborn reality for everybody building businesses on the strength of Web advertising is that the value of digital ads decreases every quarter"

The value of Google's ad network, including the average cost per click, increased for 14 years in a row, roughly speaking. Google certainly isn't suffering from any supposed value decrease per quarter, and if that effect were actually in place, their business would be nearly worthless by now.

Read the linked MIT article. There's a clear difference between Facebook-style display advertising, and Google-style search advertising. Google ads are much more profitable because people already have the intent to buy.

FB has bought itself some more time with this IPO. How much time does $15BB buy? Even if advertising executives and industry analysts give up on FB, FB stil has the cash to sit and wait for their muse to appear (like Google's discovery of ad feeds in search). Given that FB no matter what they do, no matter how much they fail to perform, is now subsidized with $15BB, will they drive the ad market down?

And what about when all TV is served over the internet? Or when all billboards are controlled over the internet? Or all magazines are displayed on epaper via the internet? 95% of advertising will be done over the internet, and if the author is too short-sighted to see that well then that speaks poorly on him. Of course if he had any insight maybe he'd be building something and not whining about it. He just sounds bitter because he's getting left in the dust.

Did you make it to the end of the post? He is working on a VRM system that supposedly puts the power in the hands of the customer, rather than the vendor.

I could see facebook being replaced by nothing more fancy than a web design app with a social webring gizmo.

You heavily under estimate the network effect. If that was true, terrible sites like eBay and Craigslist would have been replaced a long, long time ago. specially ebay which is hated among even it's most loyal sellers refuse to leave ebay, because they have buyers. The network effect is even stronger with Facebook. I highly doubt that we are going to see another social network get 900 million users anytime soon.

Facebook's advantage over any competitor is that everyone is already on Facebook. I could see early adopters moving to what you're describing, but it would take ages to move the other 90% of the users over. So at least for the next few years, it's unlikely that people will transition en masse to a completely new service.

"Everybody" is already in a lot of places.

They're on FB. They're also on Google. A hell of a lot of them are still on Yahoo mail. They're using Craigslist. And eBay. And Amazon. And The New York Times and/or Fox. Hulu. Whatever Apple's calling its offerings these days. Even Microsoft. To say nothing of a bunch of B2B service sites that have large user lists (ADT, Delta Dental, Beico, etc.).

There are a bunch of sites that have a very large userbase. Large enough at least to get past the network effects problem sufficiently to start boostrapping social onto things if they want to do so.

Which is one of the reasons that network effects, in and of themselves, offer such transient advantages. You may be able to corner the network effect in one area for a time, but you're not going to conrner all network effects in all areas, leaving you vulnerable to intrusion and erosion.

Several of the players listed above have a vastly better advertising or direct revenue capacity (Google, Apple/iTunes, eBay, Craigslist, and most of all in my mind, Amazon).

Craigslist is a wonderful example of a site that leave huge amounts of potential revenue behind (charging for only a small fraction of jobs and housing listings) to create a hugely compelling advantage in the classified advertising market, and supporting some "social" features (there is a pretty active, if not grossly overwhelming, forums section). Amazon also has discussion. Google has entered directly into the frey. The direct problem of social networking is one of coupling a modicum of engineering talent to a financing capacity and and existing network.

I've said it before and I'll say it again: social is mostly a way of tying notices and feeds to specific users, and there's absolutely no inherent reason why it needs to be based on a centralized application model. Diaspora is already a community-based project, and may be heading toward a decentralized hosting model. Once that happens, IMO, the jig is up. Not because Diaspora will instantly subvert Facebook, but because all the 2nd-tier social networks will have the option of joining FB (or whomever leads the siloed SN space at the time), ceding significant power and control to them, or of playing in the open space.

It's the same strategy that's lead Linux to subvert all other operating systems on the server, embedded, and handheld/mobile markets (less successfully still in desktop/laptop). Sun, IBM, HP, LG, Samsung, HTC, Motorola, Google, Amazon, B&N, etc., couldn't take on Microsoft directly with their own OS offerings, but they could join forces by agreeing on an open standard which offered none of them a proprietary advantage of itself, but allowed them to exercise other business strengths to benefit (and yes, Apple's been doing quite well with an alternative strategy, though also based on an open UNIX base).

So yes, I'm bearish on Facebook.

That was also Yahoo's advantage for a while.

My point is that the underlying functionalities of Facebook are features of the web in general, not of Facebook specifically.

Facebook made them simple to use and put them all in one place and now has grabbed an impressive amount of share as a result, but they are not on the most solid of ground, as their social functionality could easily be swallowed by the browser itself, or by a clever lump of javascript.

And remember, the inline advertising is only required by their business model, not by the functionality of the service itself.

[edit] That said, I sort of agree with you that they probably have a few years before the mass exodus, I wouldn't give them a lot more than that however.

So... Myspace?

No, more like anyspace (that supports html and js).

It's sad when old people get bitter about change

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