It's obvious that a Google employee would believe this, and believe me, I think Google ads are amazingly effective when used with Google search. I've just started using Adwords and it's great.

But Facebook is entirely different from Google search, and there is no reason why their monetization techniques need to be the same way that Google monetizes their users.

Facebook is more akin to TV in that people use it to browse content based on what their friends are doing. They aren't searching for things, they are browsing, which is different. So Google search and the techniques you use to monetize your users are completely orthogonal to how Facebook should monetize their users.

Facebook is more akin to a TV station, and if I had to make a choice, I would go for things like "sponsoring" of ads or items in the newsfeed. And the way Facebook could analyze the users is completely different. You could probably do an analysis on the types of articles or links that a user it clicking on, and then sponsoring items in the user's newsfeed that they might be interested in. "This news article was brought to you by the Ford Fusion" or "Your friend Janet went to Jamaica, there's a flight leaving for Mexico next Friday for $500 for 4 days, all inclusive, brought to you by Travelocity".

Right now, they are making something like $4/user/year in revenues, based on really terribly performing ads. I know this personally because I tried using it and it was terrible, even worse than Bing ad CTRs. In order to get to GOOG's revenues, they'll need to bring that up to $40/user/year. Depending on the growth rate, that would make FB worth even more than GOOG, so I don't think it's necessarily a bad investment at all. It all depends on how effectively and how quickly they can ramp up the monetization of their users.

2) Google Adwords-style advertising is the absolute shortest line between a person who has a need and someone willing to fulfil that. To be worth more, Facebook has to either make "brand awareness" advertising bigger than "need fulfilment", or somehow figure out a way to beat Google at need fulfilment before Google heads them off. The thing about need fulfilment is that the user is already motivated to solve their problem, at this exact point in time that they're searching. You just have to fulfil that. That's worth pure gold for a marketer. Currently on Facebook the "need" is to get more cows, or whatever. To be "worth more" than Google, you need to use the social graphy thing to figure out how to get someone to spend money. But see #4.

3) I haven't spent one cent on Facebook, so either find a way to get me to spend one cent, or increase the value of the "whales" somehow.

4) Google knows a lot more about me than FB does. I spend every day telling Google what I'm thinking about, via the searches I do. Facebook, I might click a "like", or post a status. You can be sure that the things I'll "like" are a tiny subset of the things I search about. Google therefore has to hold back in which information they use about me, so they don't look creepy. Zuck would be happy looking creepy, but he's not able to get enough info to even begin to look creepy. [edit: so really, Google could make more by flicking a few "add creepy" switches. If FB desensitises us to that first, Google is still more likely to be able to leverage it.]

So, what would make Facebook worth more? Maybe if they leveraged the asset of having-everyone-on-board in a way to make the specific applications (e.g. search) irrelevant. They've done a reasonable job already, what with integrating it into websites, but that still isn't making them money in any direct way. Indirect ways are not going to beat the direct way.

So, Facebook is still a bit like Google pre-Adwords. We have a great lock, still looking for the key.

[edit: please tell me why I'm wrong. Really - I'd love to hear a way Facebook could win, would be an awesome lesson!]

My point is that their current methods are terrible and they still bring in $4B per year. If they can actually increase the quality of their user monetization, then they certainly could bring in a lot of revenues.

Also, no one is saying that Google's current way of advertising isn't superior to Facebook. It's very effective, but Facebook doesn't need to be better. It just needs to make more money. Given the fact that it is has 1 billion users and the metrics indicate that they are more engaged for longer periods of time, it has plenty of opportunity for better monetization.

My point is that the OP was projecting Google's way of monetization thru search onto Facebook, and that's not the right. You don't go to Facebook to search, you go to browse your friends' lives, which is a different experience. It's like channel surfing as opposed to going to the library to work on a research project. If you try to buy ads from Facebook you can see right off the bat that it's not the same as Google. You don't select users based on keyword searches. You can select your users based on their interests, their age, etc. And this information is likely to be much more accurate than the information that Google distills from the sites you click on, etc.

If they can come up with a better way of monetizing their users through some better ad platform, or through better products and services, then they could make a lot of money, and they wouldn't be the risky investment that some people think they are. That is what you're betting on as an investor, that Facebook can actually improve their monetization. If they can't, then they are dead meat.

Full disclosure: I have no association whatsoever with Google or Facebook besides using their ad platforms, and my hope is that Facebook gets down to about a $50B market cap shortly after the IPO before I buy.

Ok, but that's like saying if they can make more money per user they'll make more money. It feels like that's just restating the problem. So what things would happen for them to "increase the quality of their user monetization"? I'm looking for a lever they could pull or push to get more cash out of, say, me or you.

It's like channel surfing as opposed to going to the library to work on a research project.

Channel surfing is a very un-motivated state of mind for the user to be in, so you're less likely to be able to get them to do something you want. The best at this seem to be Zynga et al, but they only work on a subset of the population. Increasing the quality of user monetization will require that either you are able to leverage their dis-interested state of mind, or change it.

You don't select users based on keyword searches. You can select your users based on their interests, their age, etc. And this information is likely to be much more accurate than the information that Google distills from the sites you click on, etc.

I'm absolutely sure my daily searches give Google more info than what I feed Facebook. Today, Google knows which tech stack I'm working in and what problem I want solved this very minute. It knows which stocks I want news about, which types of mountain bike I'm reading about, images I'm searching for, etc. Compared to that, Facebook is trying to get me to search for more friends from my school, because it's figured out that I went to X schools. It might know I have said I "like" something, but that's usually a friend who asked me to like their business.

I think Facebook have an incredible strong position for maintaining the best social graph. It'll take infinity to get my older relatives on anything else. It's just not going to happen. But as to making serious money, I can't see it. Still, I'd like to see how they would do it.

Just because you don't put useful information on Facebook doesn't mean that hundreds of millions don't as well. There are literally hundreds of millions of people that likely put very relevant information on their profile, which means that targeted ads might work for them. The inverse of you is that I use incognito mode on Chrome, so Google likely knows nothing about me, since I don't store any cookies. It might be able to divine something from my IP address, or maybe there's a backdoor in Chrome that overcomes incognito mode for the purposes of Google ads, so who knows.

We are in agreement that Facebook's current state of advertising is terrible. They, however, made $4B last year, and will likely make more this fiscal year.

The only thing we're arguing over is that I believe there is this vague "untapped potential" and you don't believe it exists. Maybe they'll figure out a more engaging advertising mechanism than their current ad platform. Maybe they'll use Google Ads instead of their own ad platform. Maybe they'll buy Netflix and they'll have their own tv channels with traditional tv ads. Maybe companies will be able to pay to get their particular event promoted on people's newsfeeds, in more indirect methods, such as if the new Avengers movie just came out, they could spend money and then Facebook would consolidate and highlight every time your friend went to see Avengers and posted it on their status.

There are a lot of "maybes" paths that lead to much higher revenues and higher rates of user monetization. This is why people are willing to pay 25x revenues, and a $100B market cap at IPO for Facebook. The entire premise of their market cap is based on their ability to increase their user monetization. If they can't, then I agree, they will certainly fail as a stock.

So Facebook has the following positive attributes; huge number of impressions or minutes spent, good demographic targeting. And finally yes, if they launched a search engine that made sense, they may increase their value to advertizers. But I don't know how.

But you're absolutely right - it's basically TV-type advertising.

I finally got annoyed with those flash adverts everywhere and hogging up my bandwidth so use AdBlock... but even before, just cos it's served in front of a person does not mean they have taken any notice of it.

On the other hand, I would assume that people performing any sort of search to are likely to be more focused and less open to extraneous ads--so I think things like issue/political/awareness ads probably are better suited to facebook. I'm just very skeptical that the amount of revenue facebook could extract routinely from these could top what someone sitting at a search engine can extract (it's easier to skim off an impending financial transaction). Another thing depressing the value of issue/political ads on social networks is the "viral" vector for spreading a message where people freely share things they believe with their communities. I'm more likely to attend to things actually shared with me by my friends than ads thrown in the mix.

So, in the end I'm not startled that GM finds paid ads on facebook aren't too cost effective--cars aren't impulse buys (ad viewers will hit a search engine before they actually make a decision) and there are cheaper (i.e. nearly free) ways to raise brand awareness.

Maybe? Personally, I spend all my advertising dollars/effort (and good brand building requires far more effort than dollars.) on brand building, and as little as possible on per-customer sales (except as it relates to the 'brand building' - support is part of that.)

I mean, it's like commission. For co-location, it's traditional to give the referring party 10% of what the customer pays you for the life of their contract. (sometimes it's for the life of the customer, and through any upgrades, too.) - every customer pays a different price for the same product, and you are expected to spend hours selling to the customer.

My approach is to put the price and information on the website, and then advertise that. Spend little effort on each individual sale.

The advantage of per-customer effort is that you can specially craft your offering to charge as much as that particular customer can pay.

The disadvantage, of course, is that is a lot of work, and it doesn't help your reputation any. This is a big reason why IAAS is crushing co-location; It literally takes months to get the real price out of a co-location provider, while amazon has the prices right there on the website. (I mean, the off the bat price is about twice as high as the "real price" after negotiating and looking around in co-location. Cogent quoted me $3/Mbps six months ago. I signed papers at $0.65/Mbps. There isn't as much room when it comes to power? but my highest quote is easily twice the price of the lowest quote.)

I don't know about you, but as a customer? I will pay more to know the price up front (and to be reasonably sure that I will pay a similar price if I need more later) - I mean, I won't pay 400% more, but I would pay 30% more, that negotiation isn't free on either side.

So yeah, I think brand building is the better advertising value in the long term. It is more effort, though; writing articles probably has a better return than buying ads for brand building. (buying ads has a place, too.)

No, it's just the be-all end-all reason for people using the internet to find information. You know, the very situation where an ad is more effective.

>Facebook is more akin to a TV station

Yes, and ads on these do not work that good, especially if you can ignore them far more easily than switching channels in a tv program when the ads come in.

As a Google employee, what do you think of Google as an investment? If you look forward 5+ years, everyone is doing much of their internetting via their phone (certainly some or all of that will be web vs. apps-- who knows?). Google gains some extra data with searches, like location. So "pizza" searches get a LOT more targeted. But many searches do not.

The rub is that Google has near-zero ad inventory on mobile. You can't show 6 adwords ads, you can show 1. Additionally, consumer's bar for tapping an ad is MUCH higher (given the relative speeds of mobile browsing). As searching moves mobile, how does Google's revenue shake out?

What I think is interesting about Google is how much voting power the founders retain. Things like a campus of solar panels, space elevators, and self driving cars (not to mention Chrome and Android) make a lot more sense when you realize it's not "the shareholders" that want those, it's the founders that want those. Google is a company where two successful guys and several thousand of their closest friends (we like to think) can do whatever they want. Is that a good investment? I'll let you decide.

(Disclaimer: Google employee. And if anyone takes that quote at the top out of context... well, let's just say laywercat suggests that I don't put it in writing.)

I don't know of anything in particular that would prevent an employee of a company from posting a comment here or in a blog reply anywhere simply saying they thought it was a good idea to buy the stock that would warrant any action.

But lets say (since I don't have time to fully research this I'm basing my answer on many years in business and dealing with the Federal Government, lawyers etc.) that there is some law that makes this "illegal". The chance of the federal government, SEC or anybody caring about a comment like this is nil.

Employees at Google (and many other tech companies) are often privy to what would be considered "inside information" about the company's future plans and performance. Making statements about the stock price's relative valuation can be seen as a form of making tips based on that material non-public information. It's not a good idea to go around making statements (positive or negative) about the current valuation.

So is there a specific policy in writing regarding what you can and can't say? The issue certainly isn't revealing non-public information of a specific nature which is fairly obvious to keep under wraps.

I believe what matters is the amount of specificity. For example you can't say "Our earnings will be up this quarter so buy the stock". But you could say "I think we are doing well so I am buying the stock". Salesman, selling a product for a company, say, airplanes for Boeing are definitely able to make general sales like statements that could or could not be interpreted as a stock buying signal.

Generally, the employee handbook of any public company will explicitly forbid employees from making statements that connect to either future performance or other major non-public info such as products or hiring. (If for no other reason than to protect the company itself from accusations that it's letting its people "pump" it's stock.)

LaYWercats are actually werecats (->lycanthropy) who also happen to be laymen. They give terrible legal advice which is unfortunate as they are often confused with lawyercats.

This makes no sense. Do you truly believe that in 5 years mobile phones browsing speeds won't be much more comparable to desktops? LTE phones already have faster connections than many people's broadband.

Thinking about Google's ad revenue in 5 years time, based on the idea that people's only encounters with internet connected devices will be their phones and PC's is a horribly myopic view of future tech trends. In 5 years time, there will be cars sold with Heads Up Displays featuring Google Navigation. Facebook will certainly be integrated in here too, but at the moment I don't see Facebook preparing themselves for this.

Sure, but a nontrivial portion of that internetting will be with your phone in either a laptop or desktop dock station. Laptops and desktops are dying... laptop and desktop form-factor interaction with computer isn't.

One of the larger of the several reasons I'm grumpy about the way that cell phones has evolved with all their heavy vendor lockdown is that I should be able to use a cell phone as a full netbook with only a bit of effort. It's a f'ing computer, stop pretending it's not, let me in! Instead, hacky half-assed bullshit is barely in hardware beta from a select group of off-brand manufacturers, even as "a Linux desktop" is a solved problem. If I didn't have to invest in both a laptop and a cell phone I could justify a much nicer cell phone to myself.

Not true. People spend a significant amount of time in front of a computer "at work". Those people are still going to be sitting in front of a "desktop" in 5 years and still have the same behavior. There will be more mobile, but there will always (especially in only 5 years) be people "at the office" doing their job looking for information.

Yes, it's nice to be able to drag my computing environment around.

It's also damned useful to be able to park it, and get some serious shit done.

A lot more time is being spent on mobile, but it isn't at the cost of desktop computing. Rather, the entire pie of how much time is spent online and how many people are online is growing as a whole.

This is why the online ad market is going ganbusters with growth (see my comment above) at the cost of the traditional ad markets (print, radio, etc.)

The US online ad market today is $32B. Growing at 8-12% per year (some estimate 25%) this year.

What is happening is old display advertising dollars are moving online, and it is happening a lot quicker than anybody thought it would. Online will overtake print this year (print will continue to shrink 8-10% p.a). TV is worth about $60B per year. Local ad spending is being hurt the most and is also the largest, bringing in around $140-160B per year.

So the trends are old advertising money moving into online. Online making up 20% of all ad spending last year to forecast ~35% next year. Print and local shrinking, and within online advertising display advertising is now larger and growing quicker than search advertising.

Knowing these trends, adapt this back to working out the companies that stand to gain. Facebook currently has the most time spent online for any website. It will be the largest display advertising inventory pool. People are no longer reading magazines, or newspapers or flicking through the Yellow Pages but rather they are spending a lot more time on the web. Spending a lot more time on the web for most average people, at the moment, means spending time on Facebook.

Being bullish on Facebook, i'd much rather that they be in the position of dominating user time and having a shitty ad product, than having a great ad product and losing user time.

Search advertising may be a lot more efficient and profitable, but display advertising is still king. It is a lot easier to create display advertising inventory than it is for search. Google moving into display advertising is all you need to know.

Facebook can fix the ad product and experiment with it over time, finding a way to best adapt those offline dollars to online display advertising. Building a site with a bilion users and a pretty good moat is a lot more difficult.

I would argue that things like the massive photo collections people have made provide a large level of lock-in. I also suspect that Timeline is the first play in a "all your history, here" move that would make moving to another service very difficult.

But I don't use YouTube any more. The level of advertising got to beyond tolerable.

And that is the problem these sites have. I might spend four hours on the weekend with music videos on, but I just could not increase that, there is not enough hours in the day. To grow, the site has to increase the proportion of ads, and then it starts to lose users based on their level of tolerance for crappy, repetitive advertising.

So anyone buying Facebook and suchlike for growth potential should also consider that there really is a practical upper limit to the revenue it can pull in before it becomes annoying and starts losing users. IMHO, YouTube is beyond that limit now, Google is pretty close, Facebook has a little room, but not that much.

This can be excessive ads, but this could be as well things like excessive features which make the service more bloated and unsuitable for the original audience.

Zuck could do shit, because that downloadable app would use client local IP, so they would have to block _everyone_ in order to stop the app. Further, it would use built-in IE frame, so all request would look like coming from legitimate Internet Explorer user. You could also implement "wait(rand [sec 1-5])" between downloading requests, so it looks more messy, more like a human that is clicking, rather then robot pulling requests in miliseconds.

Zuck once had hacked into school system. Who knows -- would be crazy to see an App that so easily ported out all your data out of Facebook, and see Zuck trying to stop it :)

If you think you could download people's entire photo collections in a "couple of minutes" then you underestimate the insane number of photos uploaded to Facebook every day.

What I said is that the App would download all _your_ photos that you owe on your account. Given that it takes couple seconds max until I see a full photo from the moment I clicked it, it would take tens of minutes to download hundreds of photos: 5 sec per photo x 200 photos == 16 minutes of robot's work while you enjoy your drink.

edit: so this "I would argue that things like the massive photo collections people have made provide a large level of lock-in" becomes an irrelevant problem.

is it really that hard to imagine??

A user searches within Facebook and the platform can display the results, apply highly targeted adverts and offer links to comments / endorsements (likes) by friends, Facebook exclusive material from advertisers. From within that platform Facebook could also leverage some commerce / shopping too?

Google can get into action when the intention finally surfaces in form of a search. Facebook can help you to create the association between a brand and that intent in the stage before that manifestation. For example, when you are thinking of buying a smart phone, you will search for the "cheap smart phone" and restrict yourself to 4-5 top brands in your head. Or how when looking for "cheap flights", I have preference for certain airlines. Brand Advertising can help you get into that top group in people's head.

If that pie of the advertising is big enough, I have no idea.

Some people are just in a kind of Facebook daze.

"Hey, they had income for 3 years in a row. One billion last year. This is a sure winner."

They refuse to look at what Facebook actually does.

People will probably read your post and think you're biased because you work for Google. But there's a huge difference in what Google Plus can accomplish. You guys have the search engine data (intent) to combine with the social data.

So why doesn't Microsoft let Facebook combine with Bing? Then they would have a search engine. Or are they planning to do that already?

https://twitter.com/Ford/statuses/202574566613200896

There were rumours Facebook were sitting on very powerful search capabilities they were looking to release post IPO.

Given the personal data held and time users spend on their platform, the potential is quite high.

They may not have much control on mobile but their apps hold your contacts and messaging functionality.

You could make a similar argument about Google becoming the next Yahoo! when someone devises a better search algorithm/interface.

Most technology stocks are high risk propositions, with the exceptions of huge multinationals like IBM (their size and government contracts make them harder to challenge).

You're right. Intent is seriously important. People use Google search as a means to get to another source of information regardless of whether their intent is navigational or informational. People on Facebook simply stay on Facebook until they're ready to either get offline or go search google.

1. Google do very well with search advertising because it has intent

2. Facebook advertising is not based on intent

3. Ergo, Facebook advertising sucks

Display advertising is a very, very large part of overall advertising. Display advertising is larger than search advertising online. Further, intent or search based advertising relies on display advertising to generate interest.

95% of every dollar spent on advertising around the world each year is spent on display advertising. It works. It works so well that Google are getting into it to maintain growth (Doubleclick acquisition).

It also scales a lot better since intent inventory can not be easily generated (and funnily depends on display advertising).

It will just take a while for Facebook to figure it out, but i'm sure they will. Too many people spend too much time on Facebook for display advertising there to be ignored. It doesn't have to even be super efficient with the numbers they are hitting.