JohnMcCarthyIII's  Instablog

How do you value a company that doesn't exist? How many friends do you have? These are Facebook Problems.

Facebook started as an idea to digitize relationships people have with one another through a ubiquitous online format. It was not unique, but it was brilliantly executed.

And like most internet companies, it makes its money on advertising. Yet even as visitors flock to the site in ways that resemble psychological addiction, one would think things couldn't be easier for a company to execute on this.

You would be wrong to think that.

People on Facebook do not care about advertisements. They care about their friends and their subscriptions.

With Google, users enter a search and are provided with advertisements relevant to that exact search. Basically, there is an execution strategy that exists with Google comprising a crucial information gathering step. Perhaps 10-15% of these searches are able to be executed with a financial transaction.

With Facebook, here is what I'm guessing the analytics break down to:

Average Facebook User Experience (Data Not Tested)

1. 20% of time reading Newsfeed
2. 30% of time looking at their own profile.
3. 20% of their time looking at a significant other's profile
4. 20% of time looking at a significant small group of peoples' profile
5. 10% looking at other people's profiles and other random information on Facebook.

Here is an average Google User Experience (Data not tested)

1. 95% of users want to find something out

• 20% of the time looking for a familiar web page
• 40% of the time looking for more information on something they wish to learn more about, also news.
• 10% of the time searching for repetitive concepts and searches
• 10% of the time searching for means related to traveling
• 10% of the time looking for leisure activities to do
• 10% search for other people.

2. 5% of the people using search data as its own research tool.

So if you are told to execute a monetization strategy based off of these two concepts, which one would you prefer? Google, obviously. People with all of users' experiences with Google, they're potentially in the process of a financial transaction. Because of this, there literally is financial value in providing efficient results. But with Facebook, there is no financial value in showing a friend's photos. There is no financial value in exploring your significant others' page. Indeed, we value in society as to not putting a pricetag on our relationships, to an extreme degree I might add, and rightfully so.

Facebook's current plan is to use friends themselves in order to sponsor stories, thus bolster the brand's appeal to a potential user. Firms go to Facebook and pay for brand recognition. Heck, even Twitter has started sponsored tweets. It could be like those tupper-ware parties (I've admittedly never been), where friends start trying to have other friends raise money. But for what? Causes have shown significant contributions can be accumulated from crowd-sourcing. But is that what Facebook will become? Simply a peddling ground, like an eBay without the anonymity? We have an eBay already, and it has a robust platform, with an elite payment service.

One thing is for certain, Facebook needs to start earning predictable profits. That is what "the street" despises: unpredictibility. Investors will take four cents-on-the-dollar, as long as they know that is what they will be getting. So Facebook needs to choose a monetization model that works for them, and stick with it. Enough with the tinkering, enough with the guessing, enough with the wizard behind the curtain. Say what you will be doing in 20 years based on what you decide to do now. If people have to pay for a subscription, have that be part of the plan. If people need to start paying to make a post, start doing that now and have that be part of the plan.

Facebook needs to find a way to get its advertisements more relevant to its users. It needs to copy Google. When users see an advertisement, it should have been there, even before they knew they wanted to see it. That is how you make money in the world of online advertising.