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Comment by zkinion | Hacker News Reader

"Facebook" wouldn't have to change their core competencies at all. It would have a stake in a company who's core competency is whatever that industry happens to be.

The site is indeed relatively worthless, and I doubt anybody at all is paying them a high cpm in anything. Thats the whole point, to turn low cpm into somewhat higher cpm, in the long term by capturing more of the revenue stream.

Is it fool proof? No way. Facebook or whatever, could risk losing their investment in whatever company they bring up, and also lose the opportunity cost on whatever ads they could be selling instead of sending to their own child company instead... But does it stand a better chance at making more money in the long run compared to magical BS like social graphs and social ads? Yes, I definately think so.

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The minute a startup starts making significant investments in mortgage brokers, credit card providers, etc., you're leaving their core competency.

I don't think you're understanding why this provides no value to anyone. You're turning Facebook into a Berkshire Hathaway of sorts, with the only coherency being that every company they buy a stake in advertises on Facebook. By that logic, why shouldn't Time Warner start buying stakes in whoever advertises on CNN? Why shouldn't everyone who sells ads do this?

Facebook gains no higher CPM from doing this either. I mean, they may make more money if these auxiliary businesses do well. But it's no more than if they kept selling ads on Facebook for 14 cents cpm, set up these side companies, and spent 14 cents cpm advertising them somewhere else. The fact that they own Facebook provides no value whatsoever for the side companies.

Effectively you're saying that any company with a non-functioning business model should just do something else too. That doesn't solve the problem.

I understand what you're saying.

However, I'm trying to make this "whole is greater than the sum of its parts" argument. But, with Berkshire, almost all of its investments thrive well on their own. Buffett invests in each and every one because of fundamental reasons within each individual company.

My argument is that some companies are making a lot more money off of each traffic batch than the traffic batch is actually worth. By figuring out such companies, the value of the traffic to facebook would then be higher. Would this work with every company that advertises on FB? No. Could it might possibly maybe work with at least one or two companies? Yes.

Saying any company with a non-functioning business model should just do something else is really stretching it. I believe FB does have a functioning business model that could use a great deal of improvement. This, to me, could be such an improvement. What other alternatives are there? You have already said yourself that things like "social graphs" are just BS meant to inflate valuations to $15 billion.

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