Facebook and Google have a similar reach, but Facebook has much higher pageview counts (pageviews are redundant today anyway) and much more time on site (I will dig up the numbers again).
The problem that Google has is that it is a doorway to other sites - they have spent 10 years now trying to find ways to keep this userbase on their site further with different applications. I think it is fair to say that Gmail is probably their only success in this regard - and even that hasn't solved their problem of diversifying revenue.
I think much of the current GOOG valuation is predicated on both the revenue growth they were seeing (as you point out, though investors should have seen the flat line coming) and a bet on the ability for Google to utilize their place on the web to build out a 'platform' of sorts with applications and other services. They have failed at both tasks, and it is only a matter of time that the market wises up to this and brings the value of the stock back to a PE more in line with that of a traditional media company (as that is what Google is at its core with this revenue model).
Watching Facebook grow must be really painful for Google, a real punch in the face and a bruised ego. At some point, I wonder, when will they take a step back and admit failure and re-evaluate their entire management structure.
I have the numbers somewhere, but Google's eCPM rate is just insane. I imagine that Facebook atm would be lucky to achieve a penny - so there is some room for improvement but I do agree with you that their primary business model will come from platform.
I think if FB are game, they could try in-stream advertising. A scenario would be a new movie being launched. The marketers for the movie could throw away their traditional website and go to the FB sales team, setup a custom page and then specify who they want targetted - say, 18-30 year old males in the US. Facebook could carve out this demographic, and then run an exclusive in-stream pop-in for a 24 hour period for millions of dollars. The users might react, but they could just make the ad clear. This is much more powerful than what Google offers - since they can only target a users attention, while Facebook is the only website with a global reach where users can be targeted directly.
I think in 2-3 years time that $3-5B from advertising is possible. Add another $3-5 from platform, and you are at $6-10B, with a lot of room to grow and a potential $60-150B valuation.
Also as an aside, won't Facebook be forced to go public at some point due to SEC regulations? I know they have placated employees by offering a sanctioned second market, but at some point they have to bite the bullet and list. It could be possible that they are waiting to book 12 months of platform revenue and a full year of those results for the prospectus (which will make the filing look a lot better - 2 major sources of revenue and strong growth).
Overall a very interesting topic. If you had a chance to today, would you buy Facebook stock at $20B? or $10B? :)
This is really a great piece of analysis. I don't have anything to add at all.
Basically, becoming a platform is where both companies need to go, and start monetizing that platform. But unfortunately for Google, they are much further away from being that than FB is.
I would go so far as to say that Google has utterly failed to figure out a good diversification strategy -- at this point, they just dump something out there and slap some targeted ads on it. But outside of search and gmail, they don't really have much of interest they can monetize on.
Google Apps might be their next billion dollar product line,
if they can turn it into something decent. Enterprises are where lots of money is at, but their enterprise offerings are really rather lousy.
I'm actually sometimes flabberghasted at how much wasted potential Google has in terms of obvious monetize-able offerings they have in their basket, but all of them are treated like incomplete one-off projects done on employee's 20%...with vast stretches of time between obvious enhancements and/or some necessary things never getting built at all.
FB, on the other hand, has the platform but isn't doing anything with it that's readily monetize-able, and they can manage to keep people at the site, but there's really not a whole heck of a lot for people to actually spend money on. Once again, I don't understand why something like Ping or Pandora/last.fm isn't a central part of FB's strategy. It's like a videogame console with only 1 or 2 games.
The problem that Google has is that it is a doorway to other sites - they have spent 10 years now trying to find ways to keep this userbase on their site further with different applications. I think it is fair to say that Gmail is probably their only success in this regard - and even that hasn't solved their problem of diversifying revenue.
I think much of the current GOOG valuation is predicated on both the revenue growth they were seeing (as you point out, though investors should have seen the flat line coming) and a bet on the ability for Google to utilize their place on the web to build out a 'platform' of sorts with applications and other services. They have failed at both tasks, and it is only a matter of time that the market wises up to this and brings the value of the stock back to a PE more in line with that of a traditional media company (as that is what Google is at its core with this revenue model).
Watching Facebook grow must be really painful for Google, a real punch in the face and a bruised ego. At some point, I wonder, when will they take a step back and admit failure and re-evaluate their entire management structure.
I have the numbers somewhere, but Google's eCPM rate is just insane. I imagine that Facebook atm would be lucky to achieve a penny - so there is some room for improvement but I do agree with you that their primary business model will come from platform.
I think if FB are game, they could try in-stream advertising. A scenario would be a new movie being launched. The marketers for the movie could throw away their traditional website and go to the FB sales team, setup a custom page and then specify who they want targetted - say, 18-30 year old males in the US. Facebook could carve out this demographic, and then run an exclusive in-stream pop-in for a 24 hour period for millions of dollars. The users might react, but they could just make the ad clear. This is much more powerful than what Google offers - since they can only target a users attention, while Facebook is the only website with a global reach where users can be targeted directly.
I think in 2-3 years time that $3-5B from advertising is possible. Add another $3-5 from platform, and you are at $6-10B, with a lot of room to grow and a potential $60-150B valuation.
Also as an aside, won't Facebook be forced to go public at some point due to SEC regulations? I know they have placated employees by offering a sanctioned second market, but at some point they have to bite the bullet and list. It could be possible that they are waiting to book 12 months of platform revenue and a full year of those results for the prospectus (which will make the filing look a lot better - 2 major sources of revenue and strong growth).
Overall a very interesting topic. If you had a chance to today, would you buy Facebook stock at $20B? or $10B? :)