Conversation

Senator Asks How Facebook Remains Free, Mark Zuckerberg Smirks: ‘We...

3) In the last year, Meta has made around $100B of revenue. As Zuck famously reminded us, it comes--mostly--from selling ads.

youtube.com

Senator Orrin Hatch (R-UT) asks Facebook CEO Mark Zuckerberg how he is able to sustain a business model in which users do not pay.» Subscribe to NBC News: ht...

269

4) But to who, exactly, do they sell ads? Well, a lot of people. For instance, Uber. Or Sofi, or Affirm, or Robinhood, or Coinbase, or Doordash. (Or, for that matter, FTX, although not in large size--it's mostly exploratory/experimental for us.)

333

5) The flow of funds here is: a) company P pays $ to Meta b) Meta runs ads, customer S sees them c) S buys services from P for $ d) P uses the $ from S to buy more ads; return to (a) above Ok, cool, so what?

412

6) Well, a lot of companies are currently making negative money, on net. Including a lot of companies that advertise on Meta, and Google. So the $ from (a) -- that companies pay to Meta to advertise -- are often greater than the $ they get from (d), i.e. customers.

388

10:26 AM · Aug 14, 2022Twitter Web App

7) If P is net loss-making, where is the money coming from that it's using to advertise?

Replying to

8) To make it even weirder: someone once made money by buying *his own pizzas* from Doordash:

theverge.com

A pizzeria owner made money buying his own $24 pizzas from DoorDash for $16

This must make sense to someone, right?

784

9) Ok, well, so, what's the *full* flow of funds here? Well... a) VCs invest in Meta b) VCs invest in $ X company P c) P sends $ X to Meta for advertising d) Customer S buys services from P, paying back $ X/2 e) P raises $ X/2 more from VCs f) Go back to step (c)

485

10) You might think that Meta, and Google, are making their money from customers, or from companies. And to some extent that's true!

259

11) But to some extent they're making money from VCs, because here's the *net* flow of funds: i) VCs: - $ X/2, + stock ii) Customers: - $ X/2, + some pizza iii) Companies: - stock, create pizza iv) Meta: + $ X

431

12) In other words: --Customers buy cheap pizza from companies --VCs send money to Meta --VCs get equity in companies

303

13) And what exactly do the companies get out of this? Well, one of the following, really: a) marketshare: future profit (???) b) founders get to sell out in secondaries c) you get to be 'a part of the future'

334

14) But it gets even weirder. Because who is Meta, exactly? Well, Zuckerberg, to some extent. But mostly, it's similar shareholders to the companies investing in it.

243

15) And so the flow of funds is, to some extent, really a cycle of funds.

443

16) But how about VCs that *don't* get large dividends from Meta and Google?

322

17) And who exactly are the ultimate investors? They're people, investing in stocks. Also, they're college endowments, and pension funds.

322

18) When deployed correctly, modern finance can be breathtaking: seamlessly providing financing to innovative ideas, with the sharpest investors getting paid back a lot in the long term. When deployed recklessly, it can be breathtaking, I guess, just in a different way.

509

19) That's kind of how modern finance works. It's also, for what it's worth, similar to how postmodern finance works:

Quote Tweet