Google vs Facebook (IPO and Revenue)
Facebook has convinced a large group of people that it can make billions of dollars yet no one actually knows how they are going to do it. While I am not sure exactly what they can do, I do know where the idea has to exist. They have to figure out how to make revenue off communication and not through just advertisements.
The reason Google makes the money they do is not because they sell advertisements it is because they sell cheats. It is fundamentally a zynga model in a different style, people pay Google money to get at the top of their search results and so Google monetizes what makes them popular in the first place. Everything else Google does is about brand awareness and getting people to use their search engine. They give android away for free because it creates awareness and they generate revenue when people do mobile searches on Google.
What makes Facebook popular? Communication. It has a nice address book and an easy way to share/communicate with friends. The problem with this is that it is very hard to monetize because communication on the internet has always been free. Outside of the internet people always pay for communication like phones and stamps. However, within the internet communication has almost no cost associated with it outside the initial entry fee which is the cost to access the internet. This doesn’t bode well for facebook who is trying to figure out ways to monetize their user base.
Facebook has tried to make money in the past using different ideas, paid gifts (icons etc..) but it didn’t pan out for them and they later stopped it. So now their only real method for generating revenue is advertisements but the problem with that is social advertising is not only untested it seems to not be working. GM has dropped advertising on facebook because of low consumer impact. This would of been surprising to me in the past but now it sort of makes sense. People come to facebook for a very specific reason and that is to communicate. They might get side tracked on a game here or there but for the most part their users are focused. This means that no matter how tailored an advertisement is on facebook no one is going to click on them. Compare this to Google where people click on the advertisements because its users are actually looking to click on them.
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