I feel it's time to open the kimono a bit on a paper I wrote.

I feel I have a unique perspective on this.

As a consultant, I wrote a whitepaper for $INSURANCE_COMPANY that discussed using social network data to refine their premium calculation metrics. The essence of it was that people by themselves do not give an adequate portayal of the risk they represent, as the high-payout-low-occurrence events simply do not occur all that often in a person's life so they are hard to accurately insure against, but knowing who their friends are helps immensely.

Within that person's group of friends, an order of magnitude more accurate assessment of their risk can be made. If your friend gets a DUI, your health and auto insurance risk goes up because you're likely to be in the car with this person or go to bars with them. If your friend gets a drug arrest, your homeowner's insurance risk goes up because you're more likely to be the victim of a breakin or assault.

It goes beyond that too - searching for drug use keywords ("drunk" or "hungover" or "420" or "bong") within someone's Facebook update stream gives you a much more accurate portrayal of their drug use than a questionnaire, and you can accurately weight the impact of hazardous behavior keywords on friends' insurance premiums based on their level of interaction. Other keywords, like liking certain musical acts could be similarly useful (say, Phish versus the New York Philharmonic). Knowing someone's employment status often is valuable in assessing credit risk, so keying on "fired", "laid off", etc. might be useful.

The same report would also be useful to credit card ratings agencies - if your friend has bad credit, then that should probably have a negative effect on your credit score.

They payoffs are potentially huge for insurance companies and banks for whom assessment of risk is their entire business, so much so that they would be stupid not to propose data-sharing arrangements with social networking sites.

I do not know what they did with the report, but it was well received and I got paid. I specifically said that I would not accept any follow-up work along what the paper proposed. :)

The report was written before the 2010 July 100M Facebook account leak, and I would imagine that if anyone at all read that report and considered it useful, they hopped on that torrent post haste to run some quick analytics and backtesting.

Grf that assumes people are stupid enough to post their entire lives out in the open...

Ok, I retract that last statement...

Good luck finding anything on my site that I wouldn't tell a stranger to his face... That's my mental checklist - Would I tell the person behind me at the checkout lane? If yes - Post...

The Facebook/Google model is the same... give out apparently free product in an effort to solicit personal information, then sell that personal information to advertisers.

It's funny, all the people I know who are most active with FB now are the ones who were the biggest technophobes a decade ago. They simply don't understand the full implications of what they are doing.

If you're using FB for a purpose other than doing business, you're making a mistake!

Google adwords and SEO have way out performed our ads on FB.

Quote:

Good luck finding anything on my site that I wouldn't tell a stranger to his face... That's my mental checklist - Would I tell the person behind me at the checkout lane? If yes - Post...

It's not you that you need to worry about, it's what others post about you and attribute to you that you have no control over, but is easily linked to you.

IOW, I wouldn't post a pic about me at a party (I don't have a FB account, anyways) but nothing stops my friend from doing so. And once it's done, it's done, whether or not he's nice about removing it when you ask.

LOL I'm lucky that my family is all a bunch of Ivy League educated nerds. Maybe I should be more active on FB for the insurance discount $$

"I have a Facebook account (is there anyone who doesn't)"

I don't. It's privacy nightmare and I just generally don't like walled gardens.

Along with Facebook I'd add twitter to the how you going to make money theme.

No Facebook, no MySpace, no Twitter, etc. here. I pay cash and don't give my phone number to the cashiers at the stores. If I need to return merchandise, I take the sales slip back. I figure I can't gripe about violations of my privacy if at the same time I give away unnecessary personal data.

Quote:

it's what others post about you

"See something, say something."

As we discussed in the Facebook thread (links below) last week, the secondary trades are the tactic (ploy) being used to build the "perception bubble."

They are going to get this IPO off, no problem; especially with another stock market bubble inflating. Also, it will have a much larger than $50 billion market cap when they float this joke, you just watch.


http://tickerforum.org/akcs-www?singlepo....

http://tickerforum.org/akcs-www?singlepo....

http://tickerforum.org/akcs-www?post=175....

Is Google really any different?

Over the Christmas holidays, I surveyed all of my family and friends. Not a single one will admit to having *ever* clicked on a Google ad. I asked another friend over the holidays to survey his family and friends, and he reported that nobody clicks on Google ads either.

So who exactly does click on Google ads? Anyone?

Based on this, I'm left to believe that Google's "business model" is a complete and utter scam. Add in their aggressive use of tax shelters and transfer pricing gimmickry, and you have to wonder if they even have honest after-tax earnings, or if they're nothing but another dot-com scam. The lack of a dividend, when they claim to be a very cash-rich company, is also telling.

The other 'scary' thing about Google is that, the minute analysts start to actually question things, they're immediately told, "Google is different", or "these people are smarter than you", even though, at its core, Google is just a run-of-the-mill software company, and what they're doing isn't any more sophisticated than is done in any other software development house. In other words, Google has created a 'cult' around their existence, where people are discouraged, if not ostracized, for asking questions.

I don't have a facebook account; as others have mentioned, it's a privacy nightmare.

Quote:

Is Google really any different?

Over the Christmas holidays, I surveyed all of my family and friends. Not a single one will admit to having *ever* clicked on a Google ad. I asked another friend over the holidays to survey his family and friends, and he reported that nobody clicks on Google ads either.

So who exactly does click on Google ads? Anyone?

Based on this, I'm left to believe that Google's "business model" is a complete and utter scam. Add in their aggressive use of tax shelters and transfer pricing gimmickry, and you have to wonder if they even have honest after-tax earnings, or if they're nothing but another dot-com scam. The lack of a dividend, when they claim to be a very cash-rich company, is also telling.

I don't click on Google ads. Just surveyed a colleague and he doesn't either.

Google has ads?

Gen,

Quote:

I have a Facebook account (is there anyone who doesn't)...

I Don't.....but I'm weird.

I don't really understand the attraction of Pro-Football either...

Quote:

I don't really understand the attraction of Pro-Football either...

Millionaires beating the crap out of each other for our amusement. What's not to like?

Facebook is ok if you can handle running into old girlfriends. I don't have a facebook account.

http://www.articlesbase.com/mens-issues-....

Quote:

The other 'scary' thing about Google is that, the minute analysts start to actually question things, they're immediately told, "Google is different", or "these people are smarter than you", even though, at its core, Google is just a run-of-the-mill software company, and what they're doing isn't any more sophisticated than is done in any other software development house. In other words, Google has created a 'cult' around their existence, where people are discouraged, if not ostracized, for asking questions.

Sounds a little bit like Enron. I sure as hell don't click their ads. Who knows where they are taking me.

Quote:

Over the Christmas holidays, I surveyed all of my family and friends. Not a single one will admit to having *ever* clicked on a Google ad. I asked another friend over the holidays to survey his family and friends, and he reported that nobody clicks on Google ads either.

So who exactly does click on Google ads? Anyone?

I don't normally knowingly click on google ads, but I have in the past. And from the short time I was running ads on there, I assure you, people are clicking them. Not just by google claiming people click them to charge me, but by the sales gained at the other end when there's no advertising except the google ads.

And unless you're families are full of techie-geeks, many of them just may not know they're clicking ads. You'd be suprised how many people click the first link in the google results thinking it's a result, and it's really an ad.

Playing devil's advocate.

There is another potential source of revenue that FB could tap.

Right now users can upload as many photos and videos they want for free. What if they offered a PRO service like Flickr ($35/year) does? Cap the media limit for regular users and then expand it for the PRO.

If 20% of the 500 million users sign up for PRO (using Flickr's $35/year) that is $3.5 Billion in annual revenue in "PRO" services alone. Not a bad return on a $50 B valuation.

Of course I just made up the 20% and $35/yr numbers. They may be conservative or too high.

Thoughts?

I consult on both Facebook for companies and google placement. I also run some websites that use Google's adsense as part of the monetization. People do click on Google ads. Not me, and not a lot of the people that I spend time with, but the checks I've gotten say that people click on the ads.

I've found limited success for my clients from Facebook ads. Google ads your usually searching for an item, and the related ads are returned with the results so they are semi-targeted for what your looking for at that time. People logging into Facebook are usually looking for what they're contacts are up to and suffer from ad-blindness. I have had success with companies utilizing Facebook's Fan Page but that's not monetized by Facebook.

One thing I've noticed in 10 years of working on the web is that most people online are morons. I'm assuming the typical person viewing this site has some level of intelligence which may be why some here don't understand how people would put their lives online and click on ads.

(Disclaimer: I personally use facebook so my mother can see pictures of places I go which avoids the phone calls asking if I'm alive )

*raises hand and looks around*

*says* "I don't have a Facebook account".

Karl, I can't see a way to argue against what you've said in terms of how this deal doesn't make any particular sense from a financial perspective, especially since you're so well-informed on Web and financial matters. However, perhaps that means we need to modify our expectations of what might really be going on here (or at least consider it). We now know for a fact that Goldman itself has been explicitly bailed out to the tune of tens of billions, largely by the Federal Reserve (this doesn't take into account the AIG passthroughs to Goldman, the fact that Goldman shouldn't even still exist, on and on). There exists a revolving door between our government and Goldman. These goons just love cap-and-trade, screwing with other countries (like the swap deals with Greece)... What I'm trying to say is they're an integral part of "TPTB". If this FaceBook move doesn't make sense from a purely financial investment perspective, then perhaps something else is at play, no? What I'm getting at is pretty basic, and for now a theory, but it would be interesting to get someone like Matt Taibbi on the case. This is no small deal, and this is not an investment in some Web backwater; it's one of the very biggest sites on the Web. I'm betting what Goldman is really after here is that user information, and probably not for a nice reason. FaceBook has more than 500 million active users; if your objective is more to attain the data than economically profit from the deal, $500 million for 500 million users isn't too shabby.

The article does seem to say that this deal gives Goldman a pretty sizable amount of control over FaceBook. But maybe Goldman just wants to hoist this onto the next sucker, profit from transaction fees and shorting it, or is just stupid. It's possible. But when they're so intricately linked to "TPTB", have no-losing-day trading quarters, tens of billions in bailouts (at least), are a primary dealer... I think you should assume or at least seriously entertain that they know something we don't about this deal.

Adsense works well on the ticker... Competitors I've tested? NOT!

It is cheap. $500 million ought to keep them in servers, electricity, developers, and free soft drinks for a long time.

$100,000 buys you a top notch programmer for a year, so they can pay 500 of them for 5 years with half that investment and use the other half for infrastructure (office space, electricity, servers, staplers, and management).