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The Facebook fallacy

June 08, 2012 | Online Marketing

For all its valuation, the social network is just another ad-supported site. Without an earth-changing idea, it will collapse and take down the Web, writes Michael Wolff in his widely discussed article for MIT's Technology Review.

The growth of its user base and its ever-expanding page views means an almost infinite inventory of ad space to sell. But the expanding supply, together with an equivocal demand, means ever-lowering costs. 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.

To maintain its overall growth, Facebook will continue to lower its per-user revenues, which, given its vast inventory, will force the rest of the ad-driven Web to lower its costs. The low-level panic the owners of every mass-traffic website feel about the ever-downward movement of the cost of a thousand ad impressions (or CPM) is turning to dread, as some big sites observed as much as a 25 percent decrease in the last quarter, following Facebook's own attempt to book more revenue.

As Facebook gluts an already glutted market, the fallacy of the Web as a profitable ad medium can no longer be overlooked. The crash will come. And Facebook - that putative transformer of worlds, which is, in reality, only an ad-driven site - will fall with everybody else.

Get the full story at MIT's Technology Review

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