Facebook's financial illusion-it's all ad revenues, dependent on consumers not knowing how social media marketing works

Facebook makes nearly all its money from advertising, including ad related revenues from the sales of virtual gaming products.  It's no real economic miracle, as its fate depends ultimately on major global advertisers winning success from their Facebook-focused campaigns.   Facebook's use of its member and friends data for an array of basically viral and peer-to-peer marketing strategies will ultimately create a strong backlash as regulators, privacy advocates and others peel back its facade.  Facebook believes it has perfected social media marketing to create a seamless experience for its users, enabling big ticketed marketers (including political campaigns) to invisibly engineer brand campaigns and promote favorable "word-of-mouth."  Facebook can't avoid a run-in with privacy and consumer advocates, for it will use its new IPO billions to expand its data collection, profiling and targeting system.  According to its IPO filing, it has already invested in such technologies.  I run some relevant excerpts below.

Unlike Google, which also generates most of its revenues from ads, Facebook offers a more limited set of experiences.  It's "closed loop" nature, despite whatever connections can be made via mobile and location based marketing, will help spur further inquiry into how it really operates.  Facebook is touting the absurd notion--to help fend off EU privacy regulation--that it's a boon to the economy.  Yet Facebook is primarily a company of ad sales persons--so such economic claims should be questioned, if not ridiculed.

More later. 

Here's excerpts from the IPO: " Data Management and Personalization Technologies. To provide each user with a personalized Facebook experience, we must process and analyze a vast and growing amount of content shared by our users, developers, and advertisers and surface the most relevant content in real time. For example, loading a user’s home page typically requires accessing hundreds of servers, processing tens of thousands of individual pieces of data, and delivering the information selected in less than one second. In addition, the data relationships have grown exponentially and are constantly changing. As such, we have invested extensively in developing technologies and analytics in areas including:

Content optimization and delivery. We use a proprietary distributed system that is able to query thousands of pieces of content that may be of interest to an individual user to determine the most relevant and timely stories and deliver them to the user in milliseconds.

Graph query. Our graph query technology enables us to efficiently process subjective queries about the Social Graph by utilizing a proprietary set of search indices, query processors, and caching systems.

Media storage and serving. We store more than 100 petabytes (100 quadrillion bytes) of photos and videos. We have built a number of storage and serving technologies, such as Haystack, which allow us to efficiently serve and store the data.

Large-scale data management. We developed Apache Hive, a data warehouse infrastructure built on top of Hadoop, to provide tools to enable easy data summarization, ad hoc querying, and analysis of large datasets.

Software performance. Facebook.com is largely written in PHP, or Hypertext Preprocessor, a widely used, general-purpose scripting language. We developed HipHop, which programmatically transforms PHP source code into highly optimized C++ code. HipHop offers significant performance gains when compared to traditional PHP."

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