A Hole in the Facebook (FB) Business Model?

Facebook (FB) is getting a LOT of attention. As well it should.

An IPO that is down 17% in the first three days of trading will generate a lot of focus.

Everybody loves Facebook. Reconnecting with old friends. Making new friends. The world has gotten very small and very fast with new modern technologies. Which of these capabilities has been more impactful than Facebook? All this said, questions abound about Facebook, including:

  1. Is a great product by necessity a great business?
  2. How and when will Facebook develop a mobile application?
  3. How will it monetize its traffic? Will it be able to charge for certain services? Will it be able to sell a sufficient number of ads to justify a valuation of anywhere close to $100 billion?

All great questions, but they do not hit on a question posed to me today for which I had no answer.

What if Facebook users, broadly speaking, were to block the ads posted on Facebook? I will admit I am a technical neophyte. I am lucky to navigate the basic highways and byways of sites like Facebook and many more. Block ads? I would not know where to start. Who does? Plenty of people and especially kids. A friend of mine shared the following with me earlier today:

“why is no one talking about what happens when everyone realizes there are ad blockers on Safari, Chrome etc that are free and take 1 minute to install….what happens to sites like Facebook and all ad supported sites when everyone starts blocking their ads?  my fifteen year old son and all of his friends block ads … what happens when we all do?

In speaking with somebody who studied the Facebook marketing materials extensively, he informed me that this topic was not broached at all.

I wonder what sort of block rate Facebook has built into its models and projections?

Will we look back and say Mark Zuckerberg just pulled the greatest coup of all time, or will Facebook generate cash flow which supports anything close to a $100 billion valuation?

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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