Social Media Ad Revenue Will Never Match Search

Everyone is wait­ing for Facebook or MySpace to start turn­ing out ad rev­enue like Google. It is not going happen.

In 2007, Microsoft (in)famously val­ued Facebook at $15 Billion, or $323 per user. This was at a time when their annual rev­enue was $0.73 cents per user, plac­ing Facebook’s pre­sumed reten­tion rate at 100% and their aver­age user life span right around 400 years. (Oops)

Expectations have cooled a bit since then, but not by much. And that’s bad news for social media hope­fuls. Search-engine-like ad rev­enues are not on the hori­zon for any of the social net­works for one rea­son: Search engine mar­ket­ing ROI can­not be beat by a social network.

Yes, these web 2.0 giants have had expo­nen­tial growth. Yes they have mil­lions of eye­balls and lots of mind­share online. But you can’t assess the value of mind­share with­out think­ing about what state all those minds are actu­ally in.

People vis­it­ing Facebook or MySpace are there to con­nect with other peo­ple. A social net­work­ing web­site is itself an end. It’s not a means. People on these sites have reached their des­ti­na­tion. They’ve no momen­tum going that will push them to leave by click­ing on an ad. This leaves the momen­tum prob­lem up to the adver­tiser to solve. No mat­ter how you slice it, gen­er­at­ing momen­tum is HARD. (It’s fun­da­men­tal physics, and in this case the metaphor keeps on delivering.)

That’s what makes search engine mar­ket­ing so pow­er­ful. People vis­it­ing a search engine have come there specif­i­cally to leave and find some­thing else. They have momen­tum. They just need a shove and they’re off. Add in the fact that their search terms or key­words pro­vide mar­keters a con­text for exactly what kind of shove is needed, and you end up with a mar­ket­ing envi­ron­ment that may be impos­si­ble to beat when it comes to value for adver­tis­ers. The money will go to search engine mar­ket­ing, because in the long run it’s a mat­ter of ROI for advertisers.

UPDATE: This was orig­i­nally writ­ten two years ago. Right now, Facebook is val­u­ated at around $41 bil­lion. Google’s mar­ket cap is hover around $190 bil­lion. Will they catch up? They might, but it won’t be because of adver­tis­ing rev­enue. It will be because Facebook is sit­ting on a data mine like no one else… except maybe Google.