Why Facebook will never make a significant profit | Hacker News Reader

Why Facebook will never make a significant profit

qz.com

35 pointsuptown46 comments

I'm old, and I have seen predictions come and go over the years, but this is my prediction about Facebook, and I'm sticking to it: "Facebook will go the way of AOL, still being a factor in the industry years from now, but also serving as an example of a company that could never monetize up to the level of the hype surrounding it."

If I had serious money, and if I thought that the time frame fits the Long Bets website

http://longbets.org/

time frames, I would put up this prediction (tightened up for specificity) there. But I actually think that Facebook fulfilling this prediction will be on as short a time frame as AOL's eventual collapse into irrelevance.

AFTER EDIT: A kind and thoughtful reply wrote,

Facebook has way better engineers than AOL did, though, and an extremely engineering-oriented culture.

That could be a strength, as you claim, but it could also be a weakness. A great many of my friends and one of my children are strong programmers, and some of those people have strong social skills too. But I would suggest that while Facebook beat MySpace early on by imposing a "house style" on each page, so that the users couldn't make their own pages off-puttingly ugly, Facebook has also muffed more than once meeting user expectations of how their social interactions will proceed in Facebook's mechanized environment, because Facebook engineers thought like engineers rather than like people building social networks. Facebook is not off-putting to me: I use it even way more than I use Hacker News. But I can't figure out any sound way for Facebook to monetize that will not become off-putting, and user exodus can happen very fast once people feel put off enough to leave. I will follow my friends where they go, even if I have both trust and like for Facebook myself.

I think Facebook has way better engineers than AOL did, though, and an extremely engineering-oriented culture. The infrastructure they've built up already is also very valuable; only a small handful of companies can match them there. I think those two factors will be their saving grace. Even if FB as a social networking website never becomes highly profitable, their talent and infrastructure should let them easily pivot into other areas and remain relevant. I would never bet against a company that has a few thousand of the best engineers in the industry, and ambitious management.

Not just ambitious management, but ambitious management that is not afraid of ignoring the whims of Wall Street Analysts.

I'll always be happy to back companies led by Wall Street defying, long term oriented founding CEOs: Costco, Amazon, Facebook, etc.

before the IPO I'd have said that if Amazon can stay in business for 17 years on minuscule earnings, I suspect Facebook can too. All it has to do is stay relevant and popular and investors will stick with it due to it's 'long term potential', in Amazon's case apparently for ever.

The problem for Facebook is their IPO was a mess for investors, so they're perceived as being lot less shiny than they were. But still, once you reach the point of ubiquitous name recognition that gives you a lot of protection.

E.g. apparently Bing is just as good as Google these days. I wouldn't know, I just use Google. For me to change they'd have to be very clearly superior, and for ordinary people to switch they'd have to be even better than that. All Facebook has to do at this stage is to stay at least as useful and relevant as they are now, and they will retain a mass audience. If they keep the audience they'll keep the investors. Making money isn't sexy, it's market share and that pot of gold just round the corner that pulls investors in.

"E.g. apparently Bing is just as good as Google these days."

Well, when one of your "1000 ranking signals" amounts to "clicks on Google's search results", I would hope so. Of course, this just means they'll always be equal to Google - epsilon, even if Google's quality gets worse, and so like you say there will never be a compelling reason to switch.

That is such an old canard.

Discussion from way back. http://news.ycombinator.com/item?id=2183480

100% agree.

Facebook is already dying a slow death. Everybody in my circle of friends, co-workers, professors, and girlfriends use twitter or just text each other, or keep open a Gtalk app.

Sheesh, talk about a hostile reading experience. Dismiss the overlay:

  document.getElementById("overlay").style.display="none";

It's not just the permanent "loading" overlay that makes it feel hostile. I feel genuinely uncomfortable reading that website; nothing stays still, the content is jammed in the corner and the scrolling physics have been messed with.

It's somehow the epitome of claustrophobic design and interaction.

I mechanically translate "qz.com" into "don't even look at it until I hit View->Page Style->No Style". It's still ugly, but at least the content isn't fighting for space with all of that other... what is all of that stuff, anyway?

I wonder if there's a way to make that stick for all pages on a domain. (Firefox)

adblock extension goes a long way to fixing that (block by element id) and stylish can solve the rest

I could not read the page at all until I executed that. Thank you.

Is the era of graceful Javascript degradation completely over?

> Is the era of graceful Javascript degradation completely over?

Yes. I've noticed more and more websites using Javascript in the same way that Flash would have been used 5-10 years ago.

Oh look! Another website that fails to display properly in the latest Firefox (Firefox 19 beta) and doesn't work that well in opera, but works perfectly in Chrome.

Don't worry web developers, there are no rendering engines out there except for Webkit. We have never had to deal with the fallout of designing sites that only work with one rendering engine before. Continue forward, do not attempt reflection on your practices, and do not attempt cross browser testing. Apple and Google can be trusted for all time.

I agree with your point, but I should point out that an increasing number of developers (those in their early-mid twenties and younger) literally never experienced the first browser wars.

The article feels like it's been written by someone who's never bought advertising before. Anyone in advertising could tell you about FBX.

FBX among other things allows Facebook to offer retargeted ads which have been shown to convert at a significantly higher rater than regular ads. As retargeted ads roll out to more users Facebooks ad revenue will go up with Facebook having to do practically nothing.

"Pundits often make the argument that 'surely with all that personal data, Facebook must be able to do something.' A great many startups have launched in the hope that if only they get enough data about their users, they’ll find a way to make money from it. But looking at the history of Facebook and related companies like Google, there’s little to back that up."

Most pithy way of describing the dangers posed by the advertising industry companies like Facebook and Google.

Arrgh. That damned website has such a horrible UI that it renders the page (no pun intended) essentially unreadable.

A graph that shows a company "only" makes $5 annually for every user aren't exactly laughable when you have over 1 Billion users, yet the article, in an awfully hand-wavy fashion, brushes over this on its way to concluding that "Facebook hasn't changed much since its founding" (it's "hard to argue," see).

Anybody who dismisses Facebook as a website where you can stalk your college friends would obviously be bearish on Facebook. If you think Graph Search is "just another way to sort your news feeds," then of course you wouldn't expect Facebook to grow. If you don't even mention the fact that Facebook is a platform that is interwoven with every part of the Internet, I wouldn't expect you to understand how Facebook will make money.

"Facebook is a platform that is interwoven with every part of the Internet"

That's just not relevant: As soon as FB charges for logins or for using their platform as a user mechanism for their site, there will be a mass exodus.

The reason it is so interwoven is because it is free, and in order to make your argument you have to explain how they can turn a profit from the ubiquity.

The point is it's working on an advertising platform that will be just as interwoven. If it converts better and can track readvertising, it will change everything in advertising.

> As soon as FB charges for logins

"Facebook is free and always will be". It's on the homepage.

Well this site is just awesome, can't even scroll down.

Typical tech punditry. Small minded, short sided, and bandwagon hopping. I particularly like the fact that there is a "share this on Facebook" button a the end of the post.

"Facebook is a large, inefficient engine for transforming electricity and programmers into a down-market place to sell low-value advertising"

"Low value advertising"? Well, not to my business at least, as it currently represents the second best ranked referring website. Customers who come to my shop always talk about the things we post to our FB web page.

Right, things you post to your Facebook page, not ads you are actually buying from Facebook. You get to advertise for free by creating a page for your business and getting people to like it. It has a ton of value for your business, but you're not purchasing anything directly from Facebook.

We buy FB ads too. We attack in all fronts to drive traffic to our website.

Do your analytics allow you to differentiate traffic driven by your Facebook page vs. Facebook ads? I would be interested to know which was more impactful.

We use Facebook's own analytic tools for that. But we don't go down to the very detail of what each number there represents. We work one of two levels above discussing how we are going to invest our online advertising budget across the different websites (facebook, uol.com.br and alikes, and some bridal specific portals). Surprisingly enough, Facebook generates more results than the sum of all the other bridal portals we have our ads on. I'd say 10 times or more of each individual bridal portal.

What business are you in? From time to time our fellow participants on Hacker News mention that their industries are well served by advertising on Facebook, but I rarely see mention of which industries those are.

We sell wedding/party dresses and bridal accessories.

> It’s hard to argue that the company has done anything particularly innovative since its founding; all the updates to Facebook since then come down to tweaks to the core experience of reading through a stream of updates from your friends.

This speaks far more to Facebook's ubiquity than it does to Facebook's lack of innovation. Anyone in web tech whose been around and actually remembers what Facebook was like in 2004, 2005, 2006 and 2007 would make such a stupefyingly ignorant comment as this.

While I don't think Facebook is all that great of a business model, its financial performance is FAR better than say Amazon.

Over the last 12 months, FB has done $6B in revenues and $500mil in earnings (aka profits). That's a net of 9% or so and is decent but not stellar.

Amazon in contrast has done $61B in revenue but lost $40mil. In it's best quarter, it only showed a net income of 1%.

Honestly, to say that "Facebook will never make a significant profit" is just silly since it's been doing that for a few years now.

You can't compare amazon with facebook. Amazon is fundamentally low margin business. FB can at achieve/ maintain profitability levels of high margin google like ad business. Both companies are investing heavily for the future, and that reflects on their bottom line. The more important metric is revenue growth, and unless bottom line is not too red, generally speaking market is only paying attention to the top line growth.

Why should social be high margin? How do we know it's not fundamentally low margin like Amazon's business?

This is the disconnect between Silicon Valley and Wall Street. The OA says that Facebook's profits will never be "significant", yet is completely dismissive of the fact that Facebook has claimed more user time than probably any single company's creation in the history of mankind. If they can do this and making 9 or 10 figure profits then I think it's one of the greatest success stories in the history of capitalism. That is, the theory that capitalism is a way of allocating capital to create value. Ah but if the investors who bought into Goldman Sachs' hype machine don't see their cash return then Facebook must be nothing more than another failed attempt to create something "significant".

Wow. I simply cannot navigate this site. In Firefox, the content isn't loading. In Chrome, every time Is scroll down the page bounces all over the place. Why in the world would anyone make a site whose focus is articles and content, but make it so difficult to access any of it? So I turned off JavaScript and got this:

>"Your browser doesn't support Javascript or has it disabled. QZ.com works best with Javascript enabled."

Nope. Your site worked much better without JavaScript actually. Ugg.

I'm old enough to remember when people appreciated the great search results of Google, but wondered how they would make money with a search engine. After all, everyone knew search engines didn't make money--that's why Excite and Altavista were pursing content portal strategies.

I don't know how Facebook will make big money, and maybe they don't yet know, but I think it's hard to bet against assets like 1 billion users and more time on site than anyone else.

Google users are people who actively searching for answers and information. Hence delivering relevant advertising to them that is addressing their real-time needs is so efficient.

Facebook's users are people who are mostly bored, time wasters and procrastinators. Facebook certainly does better to target ads based on person interests and connections, but facebook's userbase is way more passive and apathic to respond to ads.

This makes me wonder : a lot of FB users are always logged in, even when they aren't on FB (to use the like button and other stuff). Shouldn't Facebook be able to offer something like AdSense with much better targeting capabilities ?

I'm curious to see how facebook's external advertising network plays out. It would have, for example, been silly to judge google's potential profitability before adwords was established. Facebook's data isn't as valuable (from an advertising perspective) as google's, but it still has untapped potential.

A title just below that article (if you scroll down) - "Facebook is a goldmine in the making"

Facebook has a few things up their sleeve, a version of Adsense could be one. 600 million users check in daily, there's value in that, just need some creativity.

I am not sure if Google is worth a 24PE, their pages are already full of ads. For how will that go? They're begging to be disrupted by a Google without the (current) need to put 5-20 ads before real results. Before you even say it: "Relevant" isn't best

I agree, I'm kind of surprised we haven't heard much of anything on the ad network front from FB. I think an Adsense competitor and a Paypal competitor are the two big items they could have.

On the paypal competitor front, FB payments (formerly credits) can be used in mobile apps as well as FB platform apps, so the infrastructure is largely in place. That's a tough space though; Google Wallet and Amazon Payments are both more established non-Paypal players already.

Omg this is so shortsides that I almost was not going to post.

Why do you feel that? What did they miss?

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