Tag Archives: facebook

The Future According to Facebook

By James Kwak

From the Times:

“Doug Purdy, the director of developer products, painted Facebook’s future with great enthusiasm . . . One day soon, he said, the Facebook newsfeed on your mobile phone would deliver to you everything you want to know: what news to digest, what movies to watch, where to eat and honeymoon, what kind of crib to buy for your first born. It would all be based on what you and your Facebook friends liked.”

Does that sound to you like a good thing? Even assuming for the sake of argument that Facebook does not let commercial considerations interfere with that “newsfeed” (and we know it already has, with Sponsored Stories), or otherwise tweak its algorithms to influence what you see:

  • First, do you really want your view of the world shaped by your friends? I mean, I like my friends, but I don’t count on them to, for example, tell me which NBER working papers are worth reading, let alone what crib to buy. (In Facebook’s theory, my friends are the people with similar tastes to mine, but that’s not how it works in the real world. For example, I liked Laguna Beach, and most of my friends thought were horrified to find out. In reality, you have plenty of friends with different tastes from yours, and that’s a good thing. This is why Netflix ratings work better than Facebook friends.)
  • Second, doesn’t that seem like a terrifying vision of the future? It’s kind of like 1984, except kindler and gentler, because Big Brother has been replaced by the most effective form of peer pressure ever invented. At the same time, humanity has splintered into millions of tiny (though overlapping) tribes, each with its own version of the Internet and hence its own set of facts.

Facebook’s Long-Term Problem

By James Kwak

Facebook went public a week ago, to great embarrassment. NASDAQ creaked under the strain and, more important, the price dropped from an offer price of $38 to as low as $27 over the next week as investors decided that Facebook wasn’t so exciting now that anyone off the street could buy it.

In the long run, this could become a footnote. (Remember all the criticism of Google’s IPO?) With over $200 million in profits per quarter, Facebook’s P/E ratio is still less than 100, which isn’t bad for an Internet company that dominates its market and hasn’t fully opened the advertising spigot yet.

In the long term, Facebook’s ambition is to succeed Google (or Apple, depending on how you see it) as the dominant company on the Internet. And that’s where its real problems lie.

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Facebook’s Targeted Advertising

By James Kwak

This is the best Facebook can do with the information it has about me?

Admittedly, I don’t use Facebook that much—but in that respect I’m probably like the vast majority of Facebook users.

Stock or Cash?

By James Kwak

I’m sure many of you saw the article featuring David Choe, the artist who painted the walls of Facebook’s first offices and received stock that now could be worth $200 million. Nice story. I was thinking, though: why was Facebook paying its vendors with stock?

I understand what you pay your early employees with stock: (a) you have to in Silicon Valley and (b) you want their fortunes aligned with those of the company. Outside board members also will often demand stock. But in most circumstances, you should pay your vendors with cash.

Giving a vendor stock instead of cash is equivalent to raising capital from that vendor—at the existing valuation. When you’re an early-stage startup, you want to raise as little money as possible, at as high a valuation as possible—because the whole point of the startup is that it should be getting much more valuable over time. There are tactical considerations, like not letting your bank balance get too low (because then your VCs will have too much negotiating power). But in general, you want to delay raising more capital until you reach some milestone that will boost your valuation significantly.

Obviously, things turned out just fine for Facebook. But it doesn’t seem like the smartest business move.

Facebook and Mark Zuckerberg

By James Kwak

I must admit that I find Facebook’s impending glory a bit awkward, as it touches on two themes I have written about previously. One is that I just don’t like Facebook. And, I confess, I don’t really understand it. I sort of understand why people like it, but I don’t really understand why it’s going to be the most valuable technology company on the planet in a few years. I don’t understand why anyone would ever click on an ad within Facebook (or why anyone would even see them, since you could just use AdBlock), since I don’t understand why you would want your shopping choices to be dictated by who is willing to spend the most money for your attention. (When I want to buy something, I prefer using organic Google search results, since at least they aren’t affected by ad spending.) Maybe I’m just too old.

At the same time, it’s pretty clear by now that Facebook does whatever it is that it does pretty well. $1 billion in annual profits is impressive, and it’s also considered a pretty good place to work. And who is the CEO of Facebook? A twenty-seven-year-old kid with no other work experience. So while, as a customer (“user,” in software industry parlance), I’m less than thrilled, I can’t deny that Zuckerberg is doing something right as a CEO. Which is further evidence that the myth of the experienced CEO and the cult of the generalist manager are just a myth and a cult, as I’ve written about before. According to Reuters, Zuckerberg will soon be the fourth-richest person in America, after Bill Gates, Warren Buffett, and Larry Ellison. Which means that, like Gates and Ellison, it’s a good thing he never let anyone convince him that his company needed an experienced CEO.

Why Is The US Taxpayer Subsidizing Facebook – And The Next Bubble?

By Simon Johnson

Goldman Sachs is investing $450 million of its own money in Facebook, at a valuation that implies the social networking company is now worth $50 billion.  Goldman is also apparently launching a fund that will bring its own high net worth clients in as investors for Facebook.

On the face of it, this might just seem like the financial sector doing what it is supposed to – channeling funds into productive enterprise.  The SEC is apparently looking at the way private investors will be involved, but there are some more deeply unsettling factors at work here.

Remember that Goldman Sachs is now a bank holding company – a status it received in September 2008, at the height of the financial crisis, in order to avoid collapse (for the details, see Andrew Ross Sorkin’s blow-by-blow account in Too Big To Fail.)  This means that it has essentially unfettered access to the Federal Reserve’s discount window, i.e., it can borrow against all kinds of assets in its portfolio, effective ensuring it has government-provided liquidity at any time.

Any financial institution with such access to such government support is likely to take on excessive risk – this is the heart of what is commonly referred to as the problem of “moral hazard.”  If you are fully insured against adverse events, you will be less careful. Continue reading

The Law of Software Development

By James Kwak

I recently read a frightening 2008 post by David Pogue about the breakdown of homemade DVDs. This inspired me to back up my old DVDs of my dog to my computer (now that hard drives are so much bigger than they used to be), which led me to install HandBrake. The Handbrake web site includes this gem:

“The Law of Software Development and Envelopment at MIT:
Every program in development at MIT expands until it can read mail.”

I thought of that when I heard that Facebook is launching a (beyond) email service.

(The side benefit of this project is that now I get to watch videos of my dog sleeping whenever I want to.)

Bye-Bye, Facebook

By James Kwak

I recently deleted most of my personal information in my Facebook account. (I am keeping the Baseline Scenario page up for the convenience of people who want to read the blog within Facebook, and I need to have my personal account in order to manage that page.) This is only a tiny bit related to the fact that, for several days recently, Facebook was blocking access to this blog. It’s mainly because I’ve decided that the costs of Facebook outweigh the benefits.

First, take a look at this fantastic graphic by Matt McKeon (hat tip Tyler Cowen). You have to click on it to advance through time; it shows what information is, by default, available to whom, and how that has changed over time. (Click on the link to the “image-based version” if you’re having trouble.) Then come back here.

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Mysterious Facebook Problems

By James Kwak

Sometime this morning all of the links from our Facebook page back to the blog stopped working. According to Facebook, “Facebook users” had identified the page as being “abusive.” I didn’t find out until this evening, when a reader emailed me. (I don’t spend a lot of time on Facebook.) When the problem started, it also applied to all of the older links from Facebook to the blog. The problem did not seem to affect links from the Facebook page to 13bankers.com.

Then, in the last half our, the problem went away, and now all the links work.

I have no idea what happened. For background, this is what usually happens. New posts on this blog go into the RSS feed. That feed gets polled periodically by Twitterfeed, which takes the title of the post and the URL (compressed using bit.ly*), appends “#fb”, and creates a new tweet from our Twitter account. (The 13bankers.com feed gets treated the exact same way.) Then the Selective Tweets application for Facebook monitors our Twitter feed; whenever it sees a tweet that ends with “#fb”, it posts it to the Baseline Scenario fan page in Facebook.**

The fact that the links to 13bankers.com continued to work seems to absolve Twitterfeed, bit.ly, and Selective Tweets. However, I have enough software experience to know that things are not necessarily that simple.

So the possibilities seem to be:

  1. Facebook doesn’t like bit.ly — doubtful.
  2. Facebook doesn’t like anything being promoted by Selective Tweets, as suggested by one commenter — quite possible. This could be a flaky problem, meaning it comes and goes.  (It does seem like the problem appeared briefly on April 23 as well.)
  3. Facebook has some kind of algorithm that says, “if the same site gets posted too many times using something that looks like an automatic process, it’s probably spam.” But this seems doubtful, since we are far from the biggest blog that auto-posts to Facebook.
  4. A bunch of pro-Wall Street activists (are there such people? aren’t they called “lobbyists”?) figured out how to report to Facebook that baselinescenario.com is really a religious cult indoctrination site, and therefore someone at Facebook (or some program) shut off access to the site.

If anyone knows, or has better theories, please comment. If it happens again, someone please email us at baselinescenario at gmail dot com.

(Incidentally, ours is not the first blog this has happened to. This happened to Cake Wrecks, a blog that highlights really, really bad cakes.)

* Actually, I told Twitterfeed to use Snip instead of bit.ly, but for some reason it’s using bit.ly. But it’s been using bit.ly since long before this problem started.

** I don’t use the main Twitter app for Facebook because, at the time I was setting this up, it didn’t allow you to post your tweets onto a fan page, only onto your personal Facebook page.