The future value of Facebook will depend upon how much its managers can monetarize the social interaction provided by the site. There are limits regarding how much the users of the site will tolerate advertising based on using the private information relating to their use. I suggest that this limit is rapidly being approached. Some kick-back can be expercted by all the web sites that are taking advantage of the small print of their privacy agereements.
Facebook acknowledges that it does not have the business smarts that Google has. By comparison, it is a one trick pony. Perhaps its new owners will take it to the next level: perhaps not. I think it is a much higer risk investment than most observers do based on projecting its current rate of growth.
However, I am biased because I have never understood the advertising industry. I cannot get past the fact that their intrusions are so irritating and dishonest that they arouse nothing but hatred in me for both the product and the medium. So my interest in Facebook has been declining in inverse proportion to its financial success.
However, I am biased because I have never understood the advertising industry. I cannot get past the fact that their intrusions are so irritating and dishonest that they arouse nothing but hatred in me for both the product and the medium.
It’s not quite as simple as that. Advertisers actually do have information that you want — the problem they face is that they don’t have a way to identify the people who want/need their information from those who don’t. But the costs are such that false positives (showing ads to people who don’t want the product) don’t really cost much compared to the payoff for true positives (showing them to people who do want it).
This is one of the ways that Facebook is in a position to monetize their site: advertisers are willing to pay sizable premiums for well-targeted advertising. It doesn’t matter whether they pay $100 to show an ad to one guy who’s virtually certain to buy the product or pay 10¢ an impression to show an add to 1000 people who each have a 0.1% chance of buying — the end result is it cost them $100 to make a sale.
Facebook is in a position to know a lot of detailed information about its users, which means they’re potentially in a position to offer very well-targeted advertising. Google is in a similar position — they can use your searches, the content of your email, documents you put on GDocs, and so on to find out what information you find valuable.
In the long run, that should improve the situation with advertising. Those “irritating” intrusions are there because they don’t have the information to target the ads. If they have it, they’ll use it, and you won’t see the ads.
The (unreachably) ideal situation would be that almost immediately after you’ve made up your mind to buy something, you’d be exposed to ads giving you the information you need to buy it.
Not that it’s all sunshine — there are some negatives, too. I’ve got no problems with advertising that’s informative — telling me who’s got the product, its features, and price — but there’s a lot of advertising that’s manipulative, with the goal of “creating” a market, rather than merely attracting an existing market. It’s usually pretty easy to identify, if you know what you’re looking for — statements like, “you can’t buy a better X” (as opposed to “our X is the best”), really mean “they’re all the same, so we’re just hoping you’ll buy ours because you heard our name more recently than the other guy’s”. That kind of advertising we can do without.
And there are some obvious social risks — most notably privacy. Google and Facebook have lots of incentive to learn everything they can about you, but very little incentive to keep it private.
On the whole, though, I think our relationship with advertising is more complicated than “I hate it all”.
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