That's not true; the law of diminishing returns applies.

In this case the law of diminishing returns is offset by the massive movement from TV-based advertising to web-based advertising. As long as TV loses add dollars, there will be plenty of "rising tide" to lift both Facebook and Google in terms of increased advertising revenues.

On the flip side, that's a confounding factor that makes it hard to compare Facebook to Google in terms of some type of battle for advertising dollars. For the time being they should both see revenue growth, irregardless of who does a better job.

How? Advertisers are always looking to show targeted ads

Perhaps if several social sites offer targeted ads with the same level of precision it may decrease the ads' prices since the ads budget won't grow accordingly ? (then it would mean that people are using several services at the same time and not migrating from one to another)