Facebook earnings gain as ad sales surge 82%; CFO is stepping down
marketwatch.com
marketwatch.com
First the pages were free and great, then they started to reduce the number of people who'd see your posts (fair enough, not everyone can see every little thing)
Then they reduced the % of people seeing posts to 3% and less, and really focussed on getting those page owners to buy ads to maintain their previous view numbers.
Maybe page owners are paying for now, potentially reliant on traffic, but I don't think they're going to be happy paying forever when free alternatives will crop up again. The traffic quality is reported as being low (many mis-clicks on mobile). If the profit isn't there then business won't be able to afford to pay in the long run.
Maybe I don't want to see posts for 'Jim's oil change' every three seconds, but good content is getting cut away also making FB far more boring.
It always comes down to the numbers, though. If we're advertising a small business on Facebook, and it generates more in revenues from sales than it costs in customer acquisition, it's still a net win. Is it the best place we could have invested those advertising funds? Maybe, maybe not, but it certainly becomes less attractive as their cost-per-whatever figures go up, and no matter how much they fudge the presentation, we still know how much we paid overall and how much revenue we got in return.
In any case, every time this comes up there are plenty of posters who have small businesses and make the above argument, but generate revenues in the 100-200% bracket, i.e., they're at least breaking even and maybe doubling their investment, but no-one's buying the private jet and yacht any time soon. It doesn't take anything shady-sounding like a bait and switch for Facebook to lose all of that business, it just takes increasing cost-per-whatever a bit more until the return on investment is no longer a safe bet. At that point, they lose to other options with either generally better returns (so you don't care about the odd few percent, because you know you're still comfortably winning overall) or a more predictable model (so you can still run it on tighter margins).
Businesses grew their followers on Facebook over the years with the intention of growing a user-base they could engage with. Now a substantially lower number of your followers see content you post due to algorithm changes. The way to increase your reach to your followers is by paying for ads to basically recapture the engagement you were once getting free.
It would be like if Twitter started charging businesses to display tweets to their own followers.
I can see where you're coming from. We've always assumed that Likes had no inherent value -- they are worth exactly the amount of extra revenue they ultimately generate through better reach and/or conversion rates -- so we never ran campaigns whose only goal was something that happens on Facebook. However, I accept that others might have had different expectations. In any case, nerfing posts so you have to pay to boost them if you want the same coverage you had before was clearly a hostile move on Facebook's part.
This statement ignores the marginal cost of sales. In your oil change example I have to deduct the cost of the oil from my revenue, before I compare it with customer acquisition cost.
(Of course, attribution of new customers to particular sources is not always easy, either, particularly if you might have gotten that customer even if you had ceased to advertise.)
Remember when apps came out and developers could spam the crap out of their user's walls and message all their user's friends? They let that slide for a while, probably to watch how people adopted the platform, then locked it down once they themselves had locked down tons of app developers on their platform.
Likewise with ads initially. You could get away with basically anything at first, running iffy ads to iffy landing pages, cloaking, buying cheap ass likes for fan pages you could then drop affiliate offers onto. They let that slide for a while until marketers became dependent on their platform, then yanked the rug out from under them and made it much harder to get away with any of that stuff.
He showed the usage of his page beforehand, with users clustered in Western countries, generally 20-40% of whom interacted with his page in some way. After paying for more views, they were all from developing countries, a profile of users he'd never seen before with very little (0-1%) engagement with his page.
It's worth checking out his videos if you want more detail on the patterns he found. It's pretty clear that it's fraudulent.
https://www.youtube.com/watch?v=l9ZqXlHl65g (explores problems he sees with FB as a marketing platform)
https://www.youtube.com/watch?v=oVfHeWTKjag (massive influx of unengaged developing-world pageviews)If you go from a time point when there were 3 television channels to a point where there are 500, have the original 3 channels pulled a bait-and-switch on you by promising "national audience"?
If a social network user likes your page and your page only, he'll see 100%. As soon as another page enters the mix, your reach will drop correlated to that other page's posting frequency (local pizza shop - you'll likely still get user's eyeballs, New York Times or Reuters - your updates might get drowned in that other page's updates).
A year ago an average US user was following 70 pages http://allfacebook.com/how-many-pages-does-the-average-faceb... but the number was growing, no doubt inspired by ad campaigns on TV and in storefronts.
The ones that unsubscribe, no problem. Then you know that:
- Newsletters aren't interesting
- He is not interested
After reading up on other's experience, I ran an experiment last week:
I started a stupid comic blog (http://omgcmon.com). I made a facebook "page" for it too.
I posted an link from my stupid comic blog to the facebook "page". I posted the same link to my personal status.
The posting didn't even show up in my OWN news feed, unless I changed it from "top stories" to "most recent". (All other posts from me, show up in my "top stories" at least.) My friends & family didn't see it either.
But, when I took the same image in the blog post, & put it in facebook as a "Photo", then people saw it, commented, liked, etc.
So, it sure does look like Facebook knows that the link was on a "page", & then used it's secret algorithm to suppress it, as it knows that will, over a large population, cause more ad dollars to be spent to boost "pages".
So, the money/profit will flow well, but not forever.
Run your own experiments if you doubt it. It's not hard to get this data yourself.
However, if a business (a non personal entity) wants to gain entry (and potentially pollute the experience to some extent), there is a price they have to pay. And that constitutes facebook's business model.
The fact that they introduced "Free" business pages which allowed free entry to people's news feeds before ads has skewed the perception of their intentions. But if I were to design it from scratch today, my design would probably be somewhat similar.
However, ~30% of the "top stories" in my newsfeed (anecdotal of course) are public URL's that my friends share. And, those don't look like ads or promoted posts, but they sure could be!
That said, in the past, we'd promote a business by trying to get email signups, then trickle monthly updates to our users to engage them more. (That still works!) Now, email is seen as "unsexy" & we're told to go social to get viral, & make everything have a Facebook share (+pinterest/etc). That's just not as effective as email, sorry. I just wanted to share my experience about what works best for startups.
I suppose without logging into Facebook you can't make them any money, so why bother giving you any access.
Nothing about game session duration, rhythm? Nothing about the thousands of odd Pakistani accounts liking the page of random family restaurants in the North of Ireland?
Some people at Facebook know those very well, but as far as I can tell, no one has connected that issue with a Wil-E-Coyote moment: strong sales out of momentum, filling an inflated inventory but widespread skepticism. There is indeed far more ads in the Facebook mobile thread, but almost exclusively for miss-targeted offers (I recently moved to a different country, twice, and I keep seeing things for local apps in a city 2,400 miles away) and for mobile games with Zynga-like gameplay: pay or… well, you can pay too.
I’m not sure Facebook is aware of that; I am sure however that Zynga wasn’t, or at least that the people in charge of the financial stability of the company dealt with that issue in an unethical manner. Seeing both a trend and someone to chosen to reinforce it scares me.
They don't break it down, but an ad product boosting likes to a business page that you're describing as highly susceptible to fraud is probably not a best-seller, and isn't even offered on mobile.
Mobile is over-invested because there is a presumption of high user value that isn’t adjusted with history.
Organised click-farms use non-commercial links to avoid detection. There is a lot to be said about Facebook detection technology there.
YouTube had a similar issue when they started paying out content producers based on views, and all of a sudden "view farms" appeared out of nowhere, generating required thousands of views. It's a big deal if you buy ads on YouTube and get charged per views, but in the grand scheme of things it's a drop in the bucket for Google Inc.
In the case of social networks, the idea is to make sense of how people start adopting a behaviour. For that, you have many models, from ‘susceptibility’: a user adopts if it pleases her, as soon as any of her neighbour adopt it; to avalanches: one can’t tell the benefit without using it, so, as a proxy, they use a number of friends using it as a threshold. There are variants, including where users can stop using it; a more obvious one is using the weight relations; a more significant is considering the structure of the network: can one potential consider that their friends using it might be part of the same group (a ‘facet’ to re-use Field’s vocabulary) and does it encourages me to adopt or no, on the contrary.
When you talk to people about adopting trends, they usually explain that “every body is doing it”, but if you dig using several examples, “everybody” ends up being a form or another of those model. It might be ‘influencers’ that may of may not be a stable or identifiable group, too.
If you are concerned in targeting ads to the right people, understanding which case work for you is key. This is why Facebook tried (controversial) ads indicating that some of your friends were using the service already.
But even without that creepy factor of expressly indicating that, you might want to measure whether you have better conversation rate for people with no friends, one friend, two or three, four to nine, ten to twenty, or more than that already using your service. Cases include situation where those friends might know each other, or be part of clusters or cliques (respectively, groups where everyone knows almost- and everyone else). That would allow you to target your advertising to the specific behaviour of your service.
I’ve been studying that for the past ten years (so not exactly when Facebook started, but initially on other networks); since, I’ve made considerable efforts to make a complex and counter-intuitive discipline clear enough for any marketing intern to grasp it; I’m not sure “gobbledegook” is exactly how I want it to be described to me.
They had a NON-GAAP EPS of 34C while estimates were at 24C.
That's pretty incredible considering that mobile advertising contributing about 59% of their advertising revenue. That's been the one area that analysts were worried about.
Undeniably they blew their numbers out of the water. And I don't think his departure has anything to do with the numbers; he's probably just tired.
http://www.forbes.com/sites/joemckendrick/2012/06/29/rip-sof...
Arguably software is a large driver of the company's value.
This is all pretty much an angles dancing on heads of pins argument, though.
When people congregate; advertisers follow seeking the staggering ROI of the early marketers on the platform.
The platform, under shareholder pressure, will accept as many ads as it can until the platform is so saturated the customers leave and the ad ROI plummets. Advertisers are normally last to arrive at the party and also late to leave...
I recently saw a photo that demonstrated Facebook has an 8/1 content ratio. For every 1 meaningful piece of content a user is subjected to 8 ads including sidebar + newsfeed. If you include the horizontal scrolling for mobile adverts it rises to 13/1.
I think this party just hit it's peak. I deleted my FB a month ago, have not really missed it and a few of my friends have followed. Anecdotal evidence admittedly but no one did it in the usual "I am out!". The deletions were more of a shrug. Personally I find that the most emphatic indictment; when people have just grown bored of your platform.
After almost two years of staring at six figure weekly revenue values on the analytics and tracking applications I've built (I obviously am not making this much), I begin to question my inherent concerns on FB's long game.
Facebook is not the platform we need, it's the one we deserve right now ;-)
I've also seen similar polls that show that what people _think_ are ads on Facebook aren't really ads per se ... just content from pages they had liked. And in general this might not hold for everyone, due to the newsfeed algorithm -- if I'm more engaged with my friends' posts than pages' posts, I tend to see more of the former than the latter (which is what happens when I visit FB.)
[EDIT: First time I have been downvoted for asking a question. Must have been offensive haha]
[I got a downvote too, just for fun I guess :D]
for one side I'm impressed at their speed in incorporating that new window into my privacy. ...or maybe the selling price was so high because that was already a feature? anyway, on the other hand, I'm unimpressed by either their inventory of ads or ability to classify the content they know i know.
if they showed me things relevant to that link it would be interesting. they just flooded me with ads for something i might even own already. its like the cheap ad networks on desktop. see one item at amazon, now all sites in the world will show you that item. they just spent billions to race the mobile ads to the bottom from the get go.
From my trading days, I've learned the importance off only short term trades when betting against a stock.
With these earnings their PE ratio will go from 72 to 57, assuming the stock price doesn't increase. If this stock deleverages at the same speed as google stock did, over 2 years, the share price will be $35-$30 by the end of the year ...
If the pe ratio gets in line with S&P 500 "normal" pe ratio of 15 (actually more like 10-15, but recently it's been nearer 15 than 10), facebook is only worth $17 per share.
Now the default argument is "but growth", so I fit a third degree curve to their earnings. So I fit a second-degree curve to their eps (this assumes it's on an exponential growth trajectory, quite generous I would say), and at what point would their valuation become justified at standard S&P 500 ratios ? Q1 2017. This is assuming FB's exponential growth holds up. That's not as bad as I feared it would be, but still it's pretty bad.
EPS curve for facebook: 0.005 x^2 - 0.0015 x + 0.12 (x is measured in number of quarters since Q2 2012. Data from streetinsider.com)
I wasn't going too far afield -- by "rational" I meant on the basis of P/E ratios and other conventional sources of information, rather than mass psychology or hunches.
As to trading bots, depending on how much capital they move, they can twist a small market until it cries uncle, and in a matter of minutes in the worst cases. That's rational by some definitions. :)
>Interesting take on things ...
There's got to be a point where it just gets too saturated for users, just like Myspace did. Maybe not this time?
An advertiser recently had an $800,000 invoice struck off because he threatened to sue Facebook. They decided just to let it slide instead of have the public debate.