Posts Tagged ‘profit

01
Feb
12

It’s striking how little $ Facebook makes

Everyone thinks Facebook will grow, and I’m not a skeptic. How could I be — I don’t know anything about investing.

However, Facebook doesn’t make that much in profit compared to a whole host of other corporations. Home Depot makes 3x more than it. Also in pg. 12 of the IPO, facebook warns about the source of its revenue, and how unstable it might be. It’s just kind of funny to hear Facebook say this itself and acknowledges it.

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. As is common in the industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively small portion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and ads with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including: 

 

decreases in user engagement, including time spent on Facebook;

 

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content; 

 

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

 

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

 

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

 

loss of advertising market share to our competitors; 

 

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

 

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

 

our inability to create new products that sustain or increase the value of our ads and other commercial content 

 

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

 

changes in the way online advertising is priced;

 

decreases in user engagement, including time spent on Facebook;

 

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content;

 

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of ads and other commercial content displayed on Facebook;

 

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial content;

 

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

 

loss of advertising market share to our competitors;

 

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigation;

 

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

 

our inability to create new products that sustain or increase the value of our ads and other commercial content; 

 

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

 

changes in the way online advertising is priced;

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21
Apr
11

Vending Machines and Nuclear Deterrence

I was at a vending machine today getting some cookies and the thing cost 95 cents (yea, I know). So I got 5 cents back as change since I used a dollar, and then I thought, what would I do if the machine just DIDN’T give me the correct change?

The answer is I probably wouldn’t care. People don’t care about change. That much is pretty obvious, and I don’t even think this is me the relatively privileged person talking. Lots of people throw coins into the change cup at convenience stores and whatnot and I just don’t think many people would go out of there way for an extra five cents.

So if I’m running a 7/11 or something, why don’t I just say to various customers “I’m just going to take an extra 5 cents from you” and then take an extra five cents from them. The main reason, I think, why no one does that, is probably just the general decency of most people. The second reason might have something to do with the fact that you will piss a lot of people off in a hurry just flatly saying you are going to steal from them, no matter how small the amount is. People might attack the cashier, or protest the store, or just hang around, or call the cops, or whatever. All of this is facilitated by the fact that there is an actual person involved.

Think of nuclear deterrence. Its a way better deterrent for a country to program its nuclear weapons to launch when launched on. This makes deterrence assured. As long as policymakers control the weapons, there is reason to threaten, lie, second guess, and all the rest. If an algorithm controls the weapons, there is no one to bargain with.

So, automatic nuclear strikes in this case is a little like vending machines. What I mean is that what if the vending machine just DIDN’T give me my change. Would I complain, would there be anyone to go to, would there be any fuss to make or hell to raise? No, it would just be 5 cents I lost.

You’re likely thinking “yea, but you’ll be pissed at the vending machine owners and this will make you a less likely repeat customer.” Really? I highly doubt it. No one knows how to contact the owners of vending machines, and no one would go to the trouble over 5 cents. Also, its not like your anger would really hurt the business you gave out, since there is no way to know that the next vending machine you’re out is affiliated with the one that scammed you out of your money. After all, on the outside, the damn things are just BOXES with stuff in them. You wouldn’t know where to direct your anger.

And so, the conclusion of this argument is that absent the basic decency of people, it seems to be pretty smart for vending machines to be run like nuclear war computers and to just have them SCAM-BY-ALGORITHM. Once price would be displayed, but another slightly higher price would be charged. It would really never be worth it to try and recoup the individual loss, and the vending machine would make extra money on every purchase. You could even have the machine only do it every fifth time so individual repeat customers wouldn’t even necessarily adapt to the new price, thinking that it was fluke. This is another benefit of machines. One can rationally believe that not getting change back was just a mistake, whereas you could just ask the cashier for the right change if one tried it on you.

Vending machines could make at least like, 30 extra dollars a month just based on fraudulent accounting. 30!

I guess I don’t need grad school after all…




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