More Fraud Book

Facebook sent a notification to all of their users about a new feature. They report 200 million clicked on the link to make a video. That’s a lot of people, but only a fraction of their claimed user base. Given the feature requires very little from the user, they cannot claim that the other one billion users just lacked the time to do it. In other words, 200 million is probably their active user base.

How “sticky” those users are is debatable, but the volume of active users is consistent with other on-line results. People forget that Facebook did not invent social media. It was around for a couple of decades before FB came along. As a result we have a lot of data on it. The people claiming to know about this stuff lack the institutional memory to think about these earlier efforts at social media, but it exists.

Message boards, bulletin boards and so on are a lot like talk radio. That is, you have many more passive users than active users. Talk radio knows they have roughly one caller for every 100 listeners. They also know that the set of possible callers has a subset of regular callers that follows the Pareto principle. That’s how they can tell how many people are listening to a show. If the lines are lit up, they have a big audience.

Message boards will have 90% of their posts from five percent of users. About 10% of users visit daily. The rest drift by weekly and monthly. Back when sites like Scout and Rivals were looking for investors, they would claim user counts that were technically true, but not reflective of active users or paying customers. The ratio was 10:1 free accounts to paying accounts. That’s a different metric, but it reinforces the larger point.

There’s another thing with Facebook. How long are the users on-line? When I had an account, I’d check in most mornings with my coffee. Three minutes later I was reading another site. Mobile users are on the site for brief clips throughout the day, but not enough to be called active users. A billion users logging in for thirty seconds a day is not much of user base when you revenue depends on them clicking your ads.

Add to this the click farm stuff and you have to wonder if Facebook is not one giant confidence game. Even if that is too strong, how in the world can you justify a $165 billion market cap for an ad engine touching 200 million worldwide? Many of those “users” are living in huts or are children with no money of their own. How many are just robots that click on everything? The quality of those clicks count for everything.

One thought on “More Fraud Book

  1. A lot of Facebook hate recently. Seems many to see it fail or predict its failure. The market cap is justified by revenue and profit margins, the former which is growing at 50% a year and the later which is higher than almost any company in the S&P 500. Of Facebook’s one billion users, six hundred million return on a weekly basis. They have been calling facebook a bubble since 2007. At some point they will have to admit being wrong. Stubbornly coveting wrong beliefs in the face of contradicting evidence impedes understanding. Facebook is a great success story and one that is far from being over.

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