Big Data: Facebook's next big idea
Summary: The Facebook fallacy is that at its core the Social Network is really an advertising company. The problem is that "Liking" does not translate to "Buying" something.
The Facebook fallacy is that at its core the Social Network is really an advertising company.
If you look at their quarterly report, you see that about 82% of their revenue comes from advertising, so it backs up this assertion. The problem is that "Liking" something does not translate well to "Buying" something.
You may remember that GM recently pulled out as a Facebook advertiser because of this. On the other hand, teaming searches with advertisements so that you can be targeted with advertisements for products you may be interested in buying is a proven approach, and is Google's strength.
When we think of a traditional web advertising company, the one that comes to mind most is Google. If we compare the Google to Facebook's Price to Earnings (P/E) Ratio, we see the big disconnect.
Quick digression into finance: the P/E ratio is the valuation ratio of a company's current share price compared to its per-share earnings.
Using Google as an example we see it has a ratio, today, of 18.88. This is because Google is currently trading at $636.69 a share and earnings over the last 12 months were $33.72 per share, thus the P/E ratio for Google is would be 18.88 ($636.69/$33.72).
In June we saw the Google P/E ratio at about 11, while Facebook was trading at 40 times its expected earnings. Thus, the disconnect.
“The daily and stubborn reality for everybody building businesses on the strength of Web advertising is the the value of digital ads decreases every quarter, a consequence of their simultaneous ineffectiveness and efficiency”, according to Michael Wolff.
If Michael Wolff is correct, then Facebook will need something more than advertising to live up to and overcome the hype. What Facebook needs is a "big idea"'.
Facebook's 955 million users, with a little more than half that many actively using Facebook every day generate a tremendous amount of data. The size of Facebook's data has been estimated at approximately 100 petabytes by Sameet Agarwal, a director of engineering at Facebook quoted in MIT's Technology Review. “Over the last few years we have more than doubled in size every year.”
Much of this data is in a single Hadoop store where, if mined correctly, has the potential to reshape our understanding of human interactions and, ultimately, of how society works. This could be the next big idea for Facebook.
But how to mine it?
With upwards of 100 petabytes of user data, that is growing daily, Facebook has built a data storage system on Hadoop. The Apache Hadoop project was designed to develop open-source software for reliable, scalable, distributed computing.
Hadoop is really a framework for distributing processes of large data sets across many computers. The idea is to be able to scale up from a single server to thousands of distributed servers, delivering a highly scalable and highly available solution to big data problems.
Though the programming model was intended to be simple, it turned out to be quite complex in its evolution, at least for what Facebook needed. If Facebook's 'big idea' was to come from the study of the data, then they would need to adapt Hadoop to the support data science.
Working with folks from Cloudera, Hortonworks and others, Facebook took on the task to build Hive, a data warehouse system for Hadoop. Hive allows the Facebook Data Sciences Team, a group of 12 researchers brought together to apply social science research techniques, to create ad-hoc queries, and complete varied analysis of large datasets stored in Hadoop.
The Hive project provides the Data Science Team with a mechanism to project structure onto this data and query the data using a SQL-like language (HiveQL); thus, allowing them to mine the Facebook data.
“One potential use of Facebook's data storehouse would be to sell insights mined from it. Such information could be the basis for almost any kind of business. Assuming Facebook can do this without upsetting users and regulators, it could be lucrative.”, according to DJ Patil, data scientist in residence at Greylock Partners.
At this juncture, interesting bits of data have come out, but so far, no "big ideas".
What do you think they may be able to find by mining our data?
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Talkback
Facebook is a one-trick pony
If you have any money invested in Facebook bail now. Next month you will see a huge drop in share prices as large numbers of Facebook employees unload their rapidly devaluing stock.
Based on what Claims?
they're currently too integrated into everything to tank as soon as next month,
especially with the new tablet war going on.
More people will be on/joining.
and while their stock might not be doing phenomenally well,
you can't assume that they're going to tank based on a bad feeling.
AOL?
Let's not be quick to dismiss the lessons of AOL. Recall, they were hyped, purchased for a ton of cash, and then faded away.
AOL and Facebook are not the same
Drop
Its not going to happen over night.
Reality dictates beyond ANY reasonable doubt that none of the following is going to happen any time soon.
1. Collapse/bankruptcy of Facebook
2. Collapse/bankruptcy of Intel
3. Collapse/bankruptcy of Microsoft
I only mention these three due to the fact that while from time to time any one of a number of other companies are predicted by one of the grossly uneducated around here to fall, the ones most often predicted are the above three.
I only want to add, just how big an idiot do you really have to be to think that any of the above companies are going to tank in the very near future. And very near future means in the next couple of years.
All three of these companies are so humongous and integrated into some vital parts of society that for any one of them to fail and collapse would require a rather seismic shift of some kind that started a massive and obvious downward spiral that would look something like an over sized 747 slowly going into a monumental tailspin with results for society that would in some form or another that would be disastrous for many, in the case of Microsoft disastrous for a large part of the world.
People really need to grow a brain about these stupid predictions. They are just lousy.
Facebook is the type of business that could crumble "overnight",
Just one day of bad trading, could easily set up a domino effect for more bad days with Facebook stock, and soon thereafter, it would be in its deathbed. Companies such as RIM and Nokia, would take a lot longer to dwindle down to nothing. A Microsoft or an Apple or a Google, would take a long longer, and, their death spirals would have triggered by some very huge mistakes in management, or a major event in the economy, like, banks and the economy taking more huge hits.
Facebook and Twitter are in a market that could easily and quickly decline, and they have to be very careful.
You may like Facebook and so do many millions of people, but, what Facebook offers, is not a critical product or service that people couldn't live without, and that's what you're not understanding.
Ya know, they don't even need a like with today's technology.
1 tril?
Sorry, quite right. Should have said 1 bil.
I call bullshit
Facebook Kool-Aid
I should not have the second helping of Facebook Kool-Aid!
Perhaps I should have written that Facebook has the power to let us better understand the influences in our lives. The research that they are carrying out, IF successful, could lead to some very interesting discoveries.
2nd layer interactions
I'm going to defend you here, but not based on your article itself. Rather, you are correct because of what I'll call the "data halo". Let me set it up this way: of all the humans in America, how many have appeared on Facebook in some way? No, I don't mean they have an account. I mean their relatives, friends, enemies(?) have in some way photoed, mentioned, quoted them in some fashion? My guess- 1/2 the entire U.S. population. So how would FB monetize that? The answer is complicated, but I believe they can (and will) do it.
In fact, let's turn this idea around. Can you think of any way, other than disappearing into the Canadian wilderness, of completely staying off of FB?
That, my friend, is why you are onto something...
Delete Facebook Data
But.......
No tinfoil hat on my head, but I really doubt the data is zero'd out.
Android Exfoliate app did that but it has strangely disappeared, hmmm
black box and fbi's
on mass deletion of FB data
No chance
I would never go back there if all my freinds weren't on it. They have critical mass, but I think people will start to leak away to twitter pretty soon.
With the retweet thing, a comment can go global in twitter in a way it just can't in facebook.
I get the impression facebook users have a pretty high average age compared to twitter users.
Kudos to Zuckerberg for a beautifully times IPO, but at the end of the day facebook already jumped the shark.
That was why the IPO happened