Chris Dixon on Facebook:
Facebook relies on an old internet business model: display ads. Display ads generally hurt the user experience, and are also not very efficient at producing revenues. Facebook makes about 1/10th of Google’s revenues even though they have 2x the pageviews. Some estimates put Google’s search revenues per pageviews at 100-200x Facebook’s.
The good news for Facebook is there is a lot of room to target ads more effectively and put ads in more places. The bad news is that, if there is one consistent theme in both online and offline advertising, it’s that ads work dramatically better when consumers have purchasing intent. Google makes the vast majority of their revenues when people search for something to buy or hire. They don’t have to stoke demand – they simply harvest it.
Dixon makes some very valid points. I believe that for Facebook’s longterm growth, and to make money from a captive audience, rather than passive users browsing their friends photos, Facebook will have to enter both the search engine and browser markets. With $18 billion dollars coming in via an IPO on Friday, Zuckerberg & Co. will have plenty of cash to pursue both those things.