DISQUS

mikkel · 5 months ago

Um, Facebook revenue yes, but they are still losing hundreds of millions. I think that the Web 2.0 bubble is getting to be as large as Web 1.0; advertising based models can't support any industry because revenues are too volatile. If the economic woes continue another year or two most of the internet will be dead as ad revenue dries up. There is a reason why newspapers are dying, all network TV has long been part of conglomerates that make their money elsewhere and business oriented sites with low bandwidth/storage needs (including the search engines) are the only ones making profits on ad revenue.

JWindish · 5 months ago

Um, Mikkel, I've updated my post for clarity. Obviously I don't agree with your assessment.

mikkel · 5 months ago

Perhaps I have overstated the numbers because the revenue grew faster than I had last read. Here is the source that I was thinking of, and one that talks about YouTube's problems. It seems like the (temporary) Microsoft deal has filled the gap that is referred to.

But my overall critique still stands. As the sites mature and stop their user growth, their revenues will start getting capped while the content growth is constant...leading to exponential bandwidth and storage costs (or degradation in performance). Fred does talk about it as per person instead of site views, which is refreshing, but does hand waving about how they are going to increase that. Perhaps I'll be proven wrong, but so far no one has figured out how to keep per user revenues increasing at the rate of consumption; especially due to the "power user" effect where a very small percentage of users (10-15% for most networks) are responsible for 90% of activity.

And that is without the volatility I mentioned. Advertising in general is contracting, but a lot of print and tv revenue is going over to internet so they aren't seeing it...yet. Growth was 10% in 2008 but may be much less this year. Set against the overall economic backdrop, I'd be surprised if it didn't flatten out/turn negative by 2010. Even then a very slow growth economy will see advertisement budgets flat and perhaps move back to TV/papers a bit [in order to target older demographics] as discretionary spending continues to fall.

I'll eat my hat if the Web 2.0 model succeeds, but this is something that I've done a lot of research on and I believe is structural in nature. It's all about the bandwidth and storage...if they move to a distributed P2P content delivery and and ISPs get on the ball, then they'll be able to profit easily.

mikkel · 5 months ago

Here is another article talking about the problems with advertising on social networking sites. The advertising dollars are there for right now but they aren't getting a good return on cost.

I'm very surprised that he said this because of all the negative connotations with that phrase:

In fact, founder and Chief Executive Mark Zuckerberg says his company just isn't laser-focused on making money. In an interview with a blogger for the German newspaper Frankfurter Allgemeine Zeitung, he said: "Growth is primary, revenue is secondary."

JWindish · 5 months ago

I was a Facebook doubter for a long time. Today I'm something of a Twitter doubter, but a Facebook believer. By believer I mean I believe it is possible for Facebook to become a profitable company. Fred expects self-service ads and virtual goods will grow; that sounds reasonable to me.

As to advertising overall, since the advent of cable networks advertising has not pad for television. Advertising won't pay for Facebook. But advertisers will increasingly learn how to optimize their message for social networks, and advertising will continue to be a big chunk of revenues. Advertisers want to promote their product. Facebook is where the audience is. They'll learn to reach that audience.

I agree the cost of electricity and bandwidth is a drain; I think that will be figured out. (If not through distributed P2P, some other way. See for example, Robert X. Cringely on The Neokast Mystery.) I found your The State of the News Media linknmost interesting. Thanks!

mikkel · 5 months ago

Yes, I hadn't heard of Neokast but it's precisely how I see the next wave of the internet going down. If that technology became ubiquitous for not only video but picture/audio delivery as well then I will take back all of my skepticism.

I too fail to see how Twitter will ever make money, and see it more of being like IM which AFAIK has never made money for anyone but is ubiquitous.