Wolff Howls, The Facebook Is Failing

May 24, 2012

I read “The Facebook Fallacy.” The point of the write up is that online advertising is doomed. Upbeat. Clever. And it certainly seems to be spot on in the wake of the slow sinking of Facebook shares.

Mr. Wolff asserts:

I don’t know anyone in the ad-Web business who isn’t engaged in a relentless, demoralizing, no-exit operation to realign costs with falling per-user revenues, or who isn’t manically inflating traffic to compensate for ever-lower per-user value.

I quite like the word “humper”. It adds some interesting connotations to the person engaged in selling advertising. What does “humper” call to your mind? Keep your thoughts to yourself; otherwise, an online advertiser may insert an advertisement into your once-private life.

The killer sentence in the write up, in my opinion, was this one:

The growth of its user base and its ever-expanding page views means an almost infinite inventory to sell. But the expanding supply, together with an equivocal demand, means ever-lowering costs. The math is sickeningly inevitable. Absent an earth-shaking idea, Facebook will look forward to slowing or declining growth in a tapped-out market, and ever-falling ad rates, both on the Web and (especially) in mobile. Facebook isn’t Google; it’s Yahoo or AOL.

I put the juicy bit in bold. I enjoyed the poignant reference to the value of a New York Times online subscriber, but let’s think a moment about the reality of Facebook.

First, the social trend does not have much impact on me. But for some, Facebook is a must-have application or service. However, Facebook is oozing forward. The company is likely to undergo changes. My view is that the changes will be slow, so the demise of the Facebook blob will take some time.

Second, the problem online advertising faces is in some ways similar to the problem traditional advertising faces. Audiences phase change without warning. The truisms which allowed my account representative from Ketchum McLeod & Grove don’t work too well in today’s wonky business climate. In the absence of proven methods for making sales, there is a desperation marketing phenomenon which I find interesting. Nothing much works, and I don’t think Facebook will crack the code. However, there are enough PT Barnum opportunities to keep the business afloat for a while.

Third, the present financial climate jeopardizes Facebook and a number of other businesses. I am far more concerned about the social consequences of cutting the financial lifelines to those who depend on government largesse to survive. One can advertise and market like the Dickens. If potential customers don’t buy, there is a larger problem.

I don’t have a horse in this race. I don’t care what happens to Facebook or any of the Web outfits. I am reluctant to cry “wolff”.

Stephen E Arnold, May 24, 2012

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Stephen E. Arnold monitors search, content processing, text mining and related topics from his high-tech nerve center in rural Kentucky. He tries to winnow the goose feathers from the giblets. He works with colleagues worldwide to make this Web log useful to those who want to go "beyond search". Contact him at sa [at] arnoldit.com. His Web site with additional information about search is arnoldit.com.