Sunday, July 30, 2017

Where does Facebook make its money?


Good Reads - Chaos Monkeys
Antonio Garcia Martinez dishes out on the tech industry and life in general in his book, Chaos Monkeys.

While Garcia was working at Facebook (FB), its public stock offering was imperiled by slow revenue growth. FB had tried several things to spur revenue like sponsored stories and a product called Open Graph but these efforts had failed.

To rectify this situation FB came up with two basic strategies. The first was to use FB like buttons to collect data on users browsing behavior. Most users do not know it but, when you go to a website, very little on the page tends to be from the .com address that you click. The rest, like FB like buttons, come from other entities, who collect your web page actions via cookies. FB terms of service prohibited this and Mark Zuckerberg, the head of FB, decided against it.

Zuckerberg was against using the Like Button proposal due to terms of service issues but the big reason was that, despite extensive efforts, FB had found that the type of social media data that it gathered was useless in terms of generating revenue. The information could not be readily sold for advertising purposes because it could not be tied to purchasing decisions.

The other proposal was to utilized outside data in conjunction with FB ads to generation revenue. FB had to use outside data, since its own social media data was worthless. 

One aside that Garcia makes in the book that I have also found to be true is that most high level decisions are not based on technical detail but are ultimately made based on gut feel. To get high level decisions made, one needs to cater persuasive messages to high level executive who are typically impatient and uninterested people.

Digital Jobs Revolution

"The spread of computers and the Internet will put jobs in two categories," Andreessen says. "People who tell computers what to do, and people who are told by computers what to do." -Marc Andreesen, USA Today, Jobs fight: Haves vs. the have-nots, 09/16/2012

Antonio used the above quote to speak about how the job landscape is being revolutionized. Martinez started out in finance at Goldman Sachs and saw how trading jobs were being replaced by computers.

He then moved Silicon Valley and witnessed them doing the same thing in multiple areas: Like Uber revolutionizing transportation or Airbnb revolutionizing stays.

In the coming years, computers will radically transform the job market. Rather than computers filling in the hard gap in human workflow processes (like say a calculator to help add numbers), humans will fill in the hard gaps of computer workflow processes. 

Martinez notes that in some areas this may not come as soon as in others. For example, in finance the digital revolution has largely occurred on the equity side rather than the debt side. This is because equity is simpler and, hence, easier to digitize. 

He also notes that it is in the best interest of firms not to digitize certain areas, particularly when the profit from the inefficiencies. He points to CDO's as one area where the big players profit from inefficiencies.

Death of Publishing

Online media has also seen a revolution in recent years, particularly in terms of online advertising.

Ad Push Up - The History of Online Advertising

Online media saw the balance of power shift from publisher to advertiser. This was due to the rise of programmatic media buying that allowed targeting based on things like age, sex, geography. Similar to finance, a few giant companies controlled the data that calculated what could be charged for ads. With this information, they had insider knowledge that could help them profit at the expense of the content providers. Publishers have become at the service of middlemen standing between them and the ad dollars that they need to survive.

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