Seeking Alpha
Profile| ()  
Many are praising Google’s acquisition of YouTube for two main reasons: YouTube’s gigantic market share in the online video space and its solid user stickiness which, in turn, makes it a “page view monster.”

What’s the significance of page views? They determine how many ads a company’s website can deliver to readers. For example, a site with 100 visitors who are “sticky” - meaning they spend a lot of time on the site each day, view many videos, different pages, etc. – is clearly superior to a site with 100 visitors who rarely visit more than a few pages during their time on the site. The reasoning is simple: you can deliver a lot more ads to the first group than the second group.

Facebook is significantly stickier than YouTube (Facebook’s page views per user stands at 33 while YouTube’s stands at 11 according to Alexa data). Facebook’s recent launch, News Feed, created a true starting page for Facebook addicts. From here, the Facebooker can see what groups their friends are joining, what friends their friends are “friending,” what music groups are gaining popularity, who has recently published an online photo album, where the party is tonight, when the next school water polo game is happening, and so on. This development makes sense for every Facebook user group. The primary user group, college kids, can refresh their News Feed in between classes, before going out at night, etc. to find the latest news between their friends. The secondary user groups, high school kids and college alumni, can see a succinct summary of recent developments amongst friends on a daily basis. While many users were originally angry with the development, once they became used to the feature few disabled it. In my experience, even after Facebook’s “privacy control” changes, less than one-in-ten friends have disabled the feature entirely and I know many of my friends find it very useful and addicting.

How does this feature increase stickiness? Before the News Feed the typical Facebook user would check his “wall” for any new posts, see if he has any new friend requests and check his messages. Occasionally, the user might have checked the Groups or Photos page to see if anything has been updated, but only if he remembered. With the News Feed, users look beyond these basic Facebook features and click on every new photo album, every new note written by any of their friends, any group recently joined or started by a friend, consider friending any new friends of their friends, etc. According to Alexa figures, the average user now views 33 pages compared to 27 three months ago. This represents an increase of more than 20% in just three months.

Those who say Facebook’s growth is poised to slow down don’t understand the product, in my opinion. As of now, Facebook caters to high school kids, college kids, and college alumni. The majority of people in college have a Facebook, some kids in high school have a Facebook, and many very recent college graduates have a Facebook. Therefore, those who say Facebook is going to stop growing either believe A) new college kids are going to stop signing up for the product B) college kids are going to stop using the product after college or C) high school kids won’t use the product. Logically, it seems like scenarios A and B are highly improbable and even if C is the case and high school kids don’t use Facebook (likely using MySpace), chances are that they will begin to use Facebook once they enter college.

People who say Facebook’s model has low barriers to entry don’t seem to understand the wonders of the social networking business. User retention is ridiculously high especially among Facebook because of the classic “network effect.” Simply put, a company could roll out a product with better technology than Facebook and still not operate successfully. Why? Because users who try the service won’t immediately have their several hundred friends at the new site, their 10 groups from Facebook, etc. As most readers probably know, the 20-something generation of today is highly impatient due to the addiction to instant messaging, text messaging, 24/7 use of cell phones, and so on. It would take an organized effort of the masses to have a truly detrimental affect on Facebook’s user base, in my opinion.

YouTube has more traffic than Facebook. According to Alexa’s statistics, Facebook is currently the 15th most popular site in the United States versus YouTube’s ranking of 8th. However, I believe Facebook has much more upside than YouTube because 1) YouTube’s traffic isn’t likely to continue growing at its rapid pace due to tremendously increased competition and 2) Facebook will continue to grow, inevitably, with more and more students entering college.

Throw in the added bonus that highly targeted advertising is extremely easy to achieve over a platform like Facebook. How so? Facebook users can be targeted according to their college, age, gender, sexual orientation, interests, favorite music, hometown, etc. – all of which is provided (likely honestly) by users to fill their profiles.

Want the icing on the cake? Facebook has tremendously less liability risk than YouTube. In addition, YouTube is often going to be forced to sacrifice profits to pay media partners. We already seeing this trend of “partnering” begin. As Mark Cuban put it, “You can pretty well bet that every and any copyright owner is going to be jumping up and down telling Youtube to remove every bit of content with any copyrighted material.”

Facebook’s a great business with many operating advantages over YouTube. Now, what’s it worth to Yahoo (YHOO) or another suitor? I have no idea…

Source: Why Facebook's Even More Attractive Than YouTube