Thursday, October 07, 2010

I can't find the article online to link to, but a Businessweek writer recently offered up the view that because Google makes so much money that Facebook ought to be able to do the same thing... which is a ridiculous position to take.

No one would say that Facebook ought to be able to make lots of money because Dell Computer and Microsoft makes lots of money. Why? Because most people can see that while all three are in some way involved with computers and the internet that they're really not in the same business, they do different things from one another, thus making any apple to apple comparisons defective.

And the same holds true for those attempting to use Google as a benchmark for visualizing huge revenue potential to other companies operating online such as Facebook.

As I have said before (unlike above, I can find these links, but I'm lazy and don't want to, you'll have to look yourself), Google is different from every other (non-search) company selling advertising on its site.

And this isn't because Google is the 800 pound gorilla but rather because people go to Google looking for advertising... something they don't do with any other (non-search) site. This is the distinction that most analysts can't or don't make and which makes every 'we can do what Google does' analysis flawed.

People go to Google looking for the links to advertisers that Google offers and this is why advertisers pay money to list on Google... they know that if they pay enough and write a clever enough ad, there's a real good chance that the visitor will click on their ad.

And that is NOT what happens at Facebook or any other (non-search) website selling advertising space. Visitors to those sites are not looking for advertising, they're looking for the content on the site. Ads are viewed as clutter and distractions.

Google is the online equivalent of the Yellow Pages. People used the Yellow Pages because they were looking for a merchant where they could get what they were looking to buy... the same thing they do when they start typing into the Google search bar.

Facebook is more along the lines of a magazine or newspaper selling ads to local merchants. Their challenge is that most people (and especially today) don't buy newspapers and magazines to get the advertising, they go to Facebook because they like the content on the site. And just as magazines faced reader backlash if they too closely tied the advertising to the content so too will Facebook face a backlash (as they have already) if they too closely integrate the advertising into the content.

Once upon a time, before the Internet, magazines and newspapers were able to sell lots of advertising in large part because there really weren't any tools with which advertisers could see just how little they were getting for their money. That isn't the case online where advertisers are able to painstakingly able to determine what return they are (or, as is usually the case, not) getting on their investment.

Advertisers are going to Facebook because of the hype. They'll soon realize they're only losing their money.