Phase 3: Profit
mattmaroon.com
mattmaroon.com
Ultimately, the answer may lie in some kind of customized event sponsorship:
e.g. you're planning a poker game with your friends, and facebook allows its clients (beer and snack companies for this example) to offer you a deal on those products.
Or something else entirely.
Either way, I agree with the blog post that they haven't found that something yet.
All the lovers will come and razz Matt and this comment, but none of them will be able to provide any evidence that facebook is doing anything but spending capital.
You need to focus on getting paid. Fast.
EDIT: In other words:
if Money In - Money Out > 0: Success
if Money In - Money Out < 0: Fail
The number of users doesn't matter.
And volume is no substitute for probability if every "consumption" is at a loss. Sony can sell the PS3 at a loss because it makes money on the games and in the long run, wins. They can't sell the PS3 at a loss and sell the games at a loss, and make up for it with volume.
That's what facebook seems to be attempting. And they're not even winning the volume game.
Look at Compete data: average stay of 15 minutes * 350 million visits/month = 87.5 million hours / month in the US. That is coupled with decent demographic data and ability to target. How much would that much attention be worth in TV or newspaper advertising? A lot more than Facebook is currently getting, I suspect.
If it can convince major brands that Facebook eyeballs are worth the same as traditional advertising (in effect sell them CPM, not CPC - "Facebook is the new TV"), then Facebook will do quite well. That's a very tough sell for smaller players, but it might not be impossible for Facebook.
I think they're going to have to look at membership or some other direct charge to users, and that's going to really affect that inflated valuation.
Turns out that blanket, weakly-targeted advertising just doesn't perform that well, and companies get explicit feedback from these networks on just how bad the typical ad really is in terms of ROI.
If I run the same ad on tv or print, I have nowhere near the ability to accurately attribute any delta in sales activity to that specific ad run at that specific point in time.
You're probably right about that being the only form of ad they can monetize, though. The question then becomes when do companies spend as much in that space as they do on tv, if ever?
Brand advertising works because most consumers rely on a recognition heuristic when faced with the dozens of products in a store. They'll buy products they recognize, even if they have no personal experience with the product. You don't go out and buy an All-New Mercedes Benz immediately because you saw it on TV - but when it comes time to buy a car, you're far more likely to buy it because of all the associations that its name & image bring up. You can't measure this with any existing web metrics - it may be years before customers actually go out and make a purchase.
Put yourself in the position of an ad exec who has $n dollars to spend on his campaign and has to present to a superior how effective it was. If he has a web ad placement, the execs in charge of the money are going to immediately query him on what they got out of it (how much traffic they got from it). Adsense has spoiled companies into being far more demanding on number metrics on effectiveness. I can't think of 1 flash ad, branding or not, that does not have the option to click and learn more about the product. They are measuring the ad resonance, transaction driven or not.
The fact of the matter is, companies want a return on their web ads they can quantify. They measure using stuff like this: http://www.vizu.com/
When they don't get it, branded or not, they leave: http://mdurwin.wordpress.com/2007/07/25/corporations-leave-s...
I'm not sure most consumer product companies know how to do it properly.
Also some brand advertising isn't always about gaining ground, its about not losing ground to competing brands that do advertise, if Pepsi is pushing a huge TV campaign, Coke feels the pressure to play catch up.
The social graph gives companies the data they need to target this kind of advertising. However, this means companies need to be less exploitative and work more with their consumer. I see this as being a bigger benefit for smaller, more personable seeming companies.
Mining the social graph is the holy grail of social networks, but facebook, with its millions of addicted users, doesn't have to solve that problem to generate revenue. It can do so with other means until they figure it out.
IMO, Google was in an even more precarious position before it figured out advertising because people could switch easily. Facebook's got its hooks in your life; you can't switch.
Sadly I don't think I'm alone. It was useful before, but it's gotten increasingly spammy.
When they launched the API and the apps I, as many others, were excited about the entire idea of a facebook OS but it seems that notion is drifting farther and farther away.
The product acquires value to users as they use it. Giving it away for free at the beginning and as long as possible while it is manageable to do so is fine and advisable. However, in the long run there is nothing wrong or overly difficult in charging your users a little bit. 37signals is a good example of something similar to this.
The same argument could be made for Google as well. Hadoop is poised to render Google's search technology worthless.
(fwiw, I think Facebook is valuable but if they can't monetize it, then they're in trouble and it won't bode well for all the other social network sites out there either)
Facebook + Email + IM + Phone vs. HN + Email + IM + Phone
Which would you rather have?
I suspect this would provide some valuable information as to the near future of the internet -- so many of us are on HN because it is specific to our current interests -- whether hobby or professional -- and our desire to know and bounce ideas off of similar minds.
Now for specific interests replace HN with (Popsugar, TMZ, Social Investing sites, etc.)
I don't think social graphs or other "hocus pocus" BS will get them much more CPM than they are currently getting. I believe the only solution is to take more of the revenue stream from advertising by starting some companies in fields where it is possible, and ones that already advertise on FB. This is the most direct approach, and takes the longest and most work, but the most rewarding in the long run due to many reasons.
I'd be there if there were some there there.
Is it an American thing for self-delusions?
FB as a business has the same credibility as a Washington Mutual AAA rated CDO.
If you just valued the company on the share then it would be worth $15B but since there were other considerations you can't know at all what the valuation was.
I've heard of follow-on investments but I never heard any hard facts about the valuation of those investments.
On the other hand, I've heard people who should know (actual VCs, TechCrunch, press) say FB has a $15B valuation. I just don't understand how that's the case. Is it bogus or what is the piece of information that I'm missing?
I don't know any of their investors, but I'd be willing to bet my left nut that they'd be angry if the next funding round values them at $10b.
well current hires are getting their stock at that valuation so the net effect is the same
I meant the phone system. Individual cell phones are not necessarily platforms.
Until Google Contacts API came out, I don't remember any major company giving third parties access to their users and their contacts officially. (ok Plaxo did but they had a condition that you couldn't make anything for profit) typically apps like Trillian got access when users gave them access to their own login information which is far from ideal and still not open by choice - more like 'broken into'
"I meant the phone system. Individual cell phones are not necessarily platforms."
the problem is, the social graph (contact info and call history) is contained and accessible from individual cell phones and not the phone system (unless again you trust some company to your login information for your cell phone web site account - still not open and a more dangerous than giving someone access your AIM login).
individual cell phones may not be platforms themselves, but the OS's they run on are...
quick name the only company in the valley thats harvesting googlers like its October in Napa valley?
Doesn't mean Facebook is the next Google, though.
Also, and I'm not saying this justifies FB being worth 30x myspace (I don't know), but its very clear to me that in regards to innovation FB is the leader and the rest are playing catch-up at this point. I also doubt that without google's intervention myspace, hi5 or bebo would be able to catch up at all.