"Believe me, I tried to do honest optimization—running legitimate flower ads on Valentines Day, Walmart ads on Cyber Monday, auto insurance offers on car racing games, and so forth. For months, I went through over 150 offers across a dozen networks, systematically testing offers, ad copy, targeting, creative templates, and so forth. I couldn’t get a single one to work. And in a previous life I worked on Yahoo!’s internal analytics team—our job was to optimize traffic.
I finally came to this realization: People on Facebook won’t pay for anything. They don’t have credit cards, they don’t want credit cards, and they are not interested in shopping."
I found this out the hard way too. Trying to do legitimate business on a social network is like trying to sell life insurance at a night club. People just aren't in the right frame of mind when they are there to respond to it.
This is why Facebook's self-serve ad platform will never amount to anything. It will only be able to sell to platform games, dating sites, and maybe some t-shirts.
I've tried to sell t-shirts via Facebook ads, without much luck. Actually, a couple years ago when Facebook Ads were called Facebook Fliers, and there was very little competition, we sold a ton of t-shirts.
This "insider's confession" is extremely contradictory. He starts about by saying "People on Facebook won’t pay for anything".
And then he closes by saying that once the legit advertisers start to grow on Facebook, it will push the scammers out. How are legit advertisers going to be able to do that if no one on Facebook buys anything, regardless of the targeting? And then he claims the legit guys will be able to afford $10-50 CPMs. I can't imagine that will actually happen. Maybe it will, but as of now, people are on Facebook to talk and share with their friends.
If a business wants to be successful on Facebook, then it needs to be successful in the old school real world way: word-of-mouth. Make an awesome product, get people talking about it, and you'll see lots of Facebook traffic and conversions.
That's the problem with affiliate offers, the legit ones don't make any money, so after a few months you either decide to join the scammers, or you pack up and cut your losses.
Facebook can't really fix this. The affiliates are always 2 steps ahead of them. If you get banned as an affiliate, it literally takes like 5 minutes to setup a new account.
The problem is not so much with the affiliate marketing channel and more with the fact that you're, fundamentally, trying to extract money -- that is, hard US currency -- out of someone who is unwilling to pay money for your service. There are no two ways around this for the Facebook game case: at the end of the day, someone has to pay. It has to be the user, or someone selling something to the user. But the user can't legitimately buy anything. So if you're paying to advertise something to that user, you're either a) stupid and going to be exiting the market shortly or b) intent on scamming them.
It amazes me how little people who putatively work in businesses on the Internet understand about Internet marketing. I understand, given that it often resembles Satan's seedy underbelly, but if you are involved in marketing on the Internet (do you sell ad inventory? Congrats, welcome to the party) you need to understand at least this much: there is no legitimate way to extract $X from users who don't have $X to spend.
Everything else in the discussion is, like Jason from Hot or Not said, a smokescreen.
Incidentally, affiliate marketing makes the most sense for products which have extraordinarily high margins. Those are the ones in which the advertiser/vendor has the most amount of money to split with his affiliate, who then has the most amount of money to pay for traffic acquisition (by paying FarmVille or some intermediary service or buying AdWords or whatever). There are many legitimate products which have high margins associated with them -- software, for example -- but the field also tends to attract scams.
Software is actually almost the perfect legitimate affiliate good, because the margin for downloadable software is essentially 100% less transactional costs. If you don't see software offers, you can be pretty sure that the scams have taken over. Why don't you see software offers? Two reasons: you can't outcompete the vendor and affiliates (in this scenario) add essentially no value so as soon as there are two of them they'll bid away all their profits. (Edit to add: there are scenarios outside the scope of ScamVille in which an affiliate can actually add value. Ask me some other time.)
For example, pretend I offered you $15 to generate sales of my $30 software. If I had exactly one affiliate, and they paid some World of Dragonfarming Online game to give dragon eggs to people who bought my software, they might be able to pay $5 for dragon eggs to generate the $30 sale ($15 commission) and keep $10. However, as soon as I have two affiliates, the market collapses instantly, because both players outbid each other: affiliate #2 offers $6 in dragon eggs, affiliate #1 offers $7 ... somebody gets to $15 and the affiliates find themselves disintermediated. (Note that I could, incidentally, buy the eggs myself if you prove that this concept works, and I will always be able to outbid you because I make ~$29 per sale, not $15. Affiliates hate this, mostly because it happens so often.)
Do you see how the math virtually demands that there is no honest money to be made in this, even selling a good which is the paradigmatic best case for the model? That, plus the fact that very few Facebookers want to actually fork over $30 for their dragon eggs, is why the dishonest money always wins out.
Further note: the best point in the article is the one about mixing different streams of traffic together. It is like a dishonest factory which cuts their hamburgers with sawdust. (The Jungle, for the information age.)
Overall there's nothing I disagree with in what you wrote.
One thing worth point out though is that affiliate marketing is a huge force-multiplier for the company selling the product, which is why it exists in the first place.
If you have software (or whatever) you're trying to sell and you don't do an affiliate program your advertising budget is basically limited to your cash on hand.
If you run an affiliate program you can potentially get other suckers to spend their resources advertising your product on speculation; you only pay those marketers who successfully make sales, and get the other advertising for free.
A cute corollary is that you have to be tracking what they do tightly enough that you can reverse engineer the successful affiliates' strategies and self-implement them.
So affiliate marketing isn't going anywhere, but outside of the inevitable outliers the economics of it are such that the major profits will be made in scammy products, and thus the bulk of successful affiliate marketers will be marketing scams or worse.
> "there is no legitimate way to extract $X from users who don't have $X to spend."
so.....why does that make what amounts to stealing $X from the users ok?
kudos to companies cutting their losses and walking away. hats off to those who can innovate and actually get users to pay $X legitimately.
i have a real problem with people thinking they can force a user into something he doesn't want. if he's not going to pay, then either acknowledge that you're giving him a free lunch or walk away.
not really surprising. The rebills make a hundred bucks or so in revenue for the company that basically just sells sugar pills/ringtones, so they can afford to pay well to affiliates, since these guys are willing to spend thousands of dollars to push the offers.
A legit company has to spend money on actually providing a quality product. + the legit company has to give the full information up front, while the scammer can trick the user into pulling out a credit card.
How does the "Give up their phone number" scam work? How do you "[bill] $20 a month" based on that?
Do I need to be even more paranoid about filling out web forms than I thought?
Edit: It seems it's the same mechanism that allows things like Collect calls to be billed to the receiving party. So I guess it has legitimate uses- there just needs to be a better way to keep it from being abused, apparently. http://www.fcc.gov/cgb/consumerfacts/cramming.html
Getting the telecomm companies out of the banking (money transfer) business would be a good idea. Receiving a share of the scammers' profits is bound to distort their notion of what is proper.
Otherwise we'll need guardians with big sticks (racketeering charges, punitive damages, etc.) to protect the most vulnerable from predatory scammers. Which then leads to other problems, such as the sticks being used for other purposes ...
All you need to do is type your phone number in on a web form, and you get billed. I used to belive that you need to send an SMS to subscribe to a service, but that isn't necessary.
as soon as people stop doing things they are not proud of, which we might rephrase as not doing things they are ashamed of, the world will be a better place. humanity, sometimes you really drop the ball.
Leave the morals out of it and the market will eventually "fix" things. Let facebook get bogged down with spam, we have no moral responsibility to keep it clean, and this will give a chance to someone to create something with better privacy and anti-spam regulations.
i don't buy this. advertising in general is a huge and successful business. i don't see it fixing itself, especially if allowed to run purely by short-term greed than ethics. if you have kids then you know just how dman persuasive advertisements are--they create need where there isn't any. furthermore, the US government is strongly effected by rich corporations. if only big journalism were as biased and non-money grubbing as the watchdog it was meant to be.
i'm not sure what you mean by "fix" things on its own. around the turn of the century the US enacted some incredible policy to keep corporations in check (no child labor, anti-trust, etc). we now rely on public opinion (assuming there is some transparency and consumer advocating!) to prevent corporations from abusing lax human rights policy elsewhere.
ultimately, users are too easy to exploit. they get hit by smart advertisements from a young age. by the time they are adults they could believe anything. people put up with crap because they are trying to accomplish other goals, don't have the time to become savy, and they get used to things. it's pretty tough to change the culture against the folks controlling the culture.
there are some positive changes in recent culture. for example, more and more consumers care about fair traide and other social and environmental policies of the corporations whose products they buy. unfortunately, without transparency, we've levelled off with corporations "green washing" and mislabelling their goods (not a new tactic). the idea that consumers have the real [purchasing] power is crap in implementation.
in the end though, we're talking about scams not advertisements. that is where ethics and "crossing the line" should come into the picture. traditionally speaking, consumers have a hard time responding proactively against scams. if it weren't for consumer advocacy groups (typically non-profit, as it turns out) that help consumers take scammers to court or lobby government on behalf of consumers, then people would be screwed. that just reminded me of some scammy private insurance companies, so i think i'll stop talking here.
ultimately, users are too easy to exploit. they get hit by smart advertisements from a young age. by the time they are adults they could believe anything.
Never gonna happen. The more aggressive advertisers get, the more acute people's ad-blindness becomes.
There is no better classifier than the human mind; people will automatically start to filter whatever that's pushed at them .. until someone finds a new virgin technique and the cycle repeats again.
We can safely go through commercial fads without involving government or religion; the greedy will risk big money and make or lose big money, the rest of mankind goes on amused and catered to.
This is true, but it's rather like saying 'why worry about pollution, evolution will find a modus vivendi'. I don't think advertising is evil, but it can be terribly obnoxious. If you have attention deficit disorder then it goes beyond mere annoyance and becomes exhausting.
The problem is that this kind of advertising is basically lying to people and exploits their credulity (if they're foolish) or wastes their energy if they filter it effectively. I can't help thinking 'christ, what an asshole' when I read the guy's comment about not being proud of it - it's just more bullshit designed to market his current line of services. If Mr Yu is really not proud of it, I wish he'd put his money where his mouth is and give some of his profits to PBS or creative commons projects or suchlike. Maybe he does, but I'm afraid the whole article reminded me of 'confessions of a burglar'.
"advertising in general is a huge and successful business."
Isn't the whole point of this post that advertising is actually not a huge and successful business so you need to scam and deceive people in order to make real money?
You're right. We just need to get everybody to subscribe and adhere to the same set of moral and ethical beliefs. That will not just fix Facebook, but, as you say, the whole world. We can make crime, war and suffering a thing of the past!
I can't believe the solution is so simple, and has been right in front of us this whole time.
And the ones raking in that cash, besides the scammers, are the telecomm companies and Google/Facebook/etc. - the first get a cut, the second sell the ads.
I used the ad feedback link to give Google a piece of my mind about their collaboration in these scams. Seems that they, and the telcos, are willing to keep raking in the cash until their name is mud.
I finally came to this realization: People on Facebook won’t pay for anything. They don’t have credit cards, they don’t want credit cards, and they are not interested in shopping."
I found this out the hard way too. Trying to do legitimate business on a social network is like trying to sell life insurance at a night club. People just aren't in the right frame of mind when they are there to respond to it.
This is why Facebook's self-serve ad platform will never amount to anything. It will only be able to sell to platform games, dating sites, and maybe some t-shirts.