Hacker News Reader

Comment by notauser | Hacker News Reader

Whoops, are a few basic errors here.

He has two assumptions:

- You can make a profit in the industry of your advertisers. This is a huge if, and is impacted by scale, expertise, management focus, time/maturity, branding and many other factors.

- The return on investment you can make in industry X is higher than the return on investment you can make by expanding your operations in your current industry. This could be true for social sites, where increased investment (i.e. programmer time) might not get them many more users, but they still have to compare the possible revenue to the increased profit from firing some programmers and going into maintenance mode.

These to are the main reasons why you see companies outsourcing non-core activities (like cleaning and even product development), the markup they now have to pay on the service is lower than their internal cost of capital.

View on HN

-The SN network in this situation would be acting as a "holding" company. It does not expand into anything itself. The child companies do, and gain expertise (by possibly hiring from competitors), and also advantage by more traffic sent to them.

-That return on investment would be higher, in the long run. Yes, thats an if, but its a much better if than "social graphs completely turning around CPM for something like FB".

Those are also, by their opposite, reasons why companies consolidate and acquire...

Your first point is essentially meaningless. It makes no difference if it is a division, a child company, or part of the core business. Someone has to think about it, manage it and execute it. All this costs money which you could use elsewhere _and_ it creates potential conflicts of interests with your own business. This means that you need a really good reason to go ahead.

For an example of conflicts of interest look at the Windows/Office vertical integration and the constraints placed on Office in order to keep Windows profits high.

Your second point boils down to the fact that social networks give an awful return on investment. Could be true, but if so that's more of an argument to get out of social networks altogether and find a more profitable business.

Microsoft is still doing well off of office, and acquisitions/ventures such as hotmail and msn/windows live search. When most "average" people use their computers for the first time, and then on, they'll use internet explorer which goes to the msn home page and searches on Microsoft's search solution. The "average" user out there still uses IE, not firefox or opera. As a result they get a ton of traffic they wouldn't otherwise get.

http://www.alexa.com/site/ds/top_sites?cc=US&ts_mode=cou...

As you can see, Windows Live is number 6 on there. It is terrible compared to google, but that is still alot of traffic they get from synergy between their companies. Would Microsoft make more money if they instead sold their search traffic/IE users to google? Not at all.

Reply on news.ycombinator.com