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Born Social: Facebook

|Includes:Facebook (FB), GOOG

Defining a generation. Sometimes they are called Generation Y, others refer to them as the Net Generation, others Generation Next. They are people born after 1980 to the early 2000's. A generation that was not required to get off their sofa to change television channels, a group that was not tied to a home phone line, a group that has been surrounded by video games their entire life.

Why is this generation so important to investors? They will transform the online world as we have not seen before. Everything from the velocity of news, mobile purchases, how we start a business, how people meet, who they can influence, and what they share with the world, will all be shaped by this generation.

If it were not for social media Egypt's 30 year old government of Hosni Mubarak would still be in power. You cannot stop the power of this generation to find a way to stay connected with others. Being online for many of this generation is a like a lifeline to their friends and social media is what will take the online experience to the next level.

With over 1 billion users, Facebook (NASDAQ:FB) will surpass Google (NYSE:G) as the go to site for advertisers. Bold statement you say? Right now about 45% of online advertising revenues come from search engine requests. One reason search is so powerful is because it targets users that have an intent to purchase a product or service. When someone performs a search a search, advertisers pay top dollar to get their product or service as the highest ranking listing so the user can see them first. Now take Facebook and Microsoft's (NYSE:MS) Bing, one day soon, you will see them combined to produce a search. How? Fuse search engine searches with social recommendations. This way General Motors (NYSE:GM) can offer Facebook users a $500 discount if they liked one of their new model cars. So now people who do a search on "best new car", could see a listing ad for General Motors hot new car along with thousands of Facebook likes next to it. Pretty powerful advertising!

No one can dispute the fact that Facebook is powerhouse due to the sheer number of users they have. I think the real power comes with the way they are creating a personal DNA map of their users to their friends and the products, people, and places that they "like." As Facebook continues to fine tune their revenue model, they will be able to leverage this map and create powerful social ads across multiple platforms to a degree of scale and sophistication that no other company can match. As the map develops, Facebook will be able to show advertisers that their online ads hit people who are interested in the wares they have to sell, because of this Facebook will command the lion's share of online advertising dollars-and they will undoubtedly surpass Google.

Disclosure: I am long FB.

Stocks: FB, GOOG