So Facebook has the following positive attributes; huge number of impressions or minutes spent, good demographic targeting. And finally yes, if they launched a search engine that made sense, they may increase their value to advertizers. But I don't know how.

But you're absolutely right - it's basically TV-type advertising.

I finally got annoyed with those flash adverts everywhere and hogging up my bandwidth so use AdBlock... but even before, just cos it's served in front of a person does not mean they have taken any notice of it.

My point is that their current methods are terrible and they still bring in $4B per year. If they can actually increase the quality of their user monetization, then they certainly could bring in a lot of revenues.

Also, no one is saying that Google's current way of advertising isn't superior to Facebook. It's very effective, but Facebook doesn't need to be better. It just needs to make more money. Given the fact that it is has 1 billion users and the metrics indicate that they are more engaged for longer periods of time, it has plenty of opportunity for better monetization.

My point is that the OP was projecting Google's way of monetization thru search onto Facebook, and that's not the right. You don't go to Facebook to search, you go to browse your friends' lives, which is a different experience. It's like channel surfing as opposed to going to the library to work on a research project. If you try to buy ads from Facebook you can see right off the bat that it's not the same as Google. You don't select users based on keyword searches. You can select your users based on their interests, their age, etc. And this information is likely to be much more accurate than the information that Google distills from the sites you click on, etc.

If they can come up with a better way of monetizing their users through some better ad platform, or through better products and services, then they could make a lot of money, and they wouldn't be the risky investment that some people think they are. That is what you're betting on as an investor, that Facebook can actually improve their monetization. If they can't, then they are dead meat.

Full disclosure: I have no association whatsoever with Google or Facebook besides using their ad platforms, and my hope is that Facebook gets down to about a $50B market cap shortly after the IPO before I buy.

Ok, but that's like saying if they can make more money per user they'll make more money. It feels like that's just restating the problem. So what things would happen for them to "increase the quality of their user monetization"? I'm looking for a lever they could pull or push to get more cash out of, say, me or you.

It's like channel surfing as opposed to going to the library to work on a research project.

Channel surfing is a very un-motivated state of mind for the user to be in, so you're less likely to be able to get them to do something you want. The best at this seem to be Zynga et al, but they only work on a subset of the population. Increasing the quality of user monetization will require that either you are able to leverage their dis-interested state of mind, or change it.

You don't select users based on keyword searches. You can select your users based on their interests, their age, etc. And this information is likely to be much more accurate than the information that Google distills from the sites you click on, etc.

I'm absolutely sure my daily searches give Google more info than what I feed Facebook. Today, Google knows which tech stack I'm working in and what problem I want solved this very minute. It knows which stocks I want news about, which types of mountain bike I'm reading about, images I'm searching for, etc. Compared to that, Facebook is trying to get me to search for more friends from my school, because it's figured out that I went to X schools. It might know I have said I "like" something, but that's usually a friend who asked me to like their business.

I think Facebook have an incredible strong position for maintaining the best social graph. It'll take infinity to get my older relatives on anything else. It's just not going to happen. But as to making serious money, I can't see it. Still, I'd like to see how they would do it.

Just because you don't put useful information on Facebook doesn't mean that hundreds of millions don't as well. There are literally hundreds of millions of people that likely put very relevant information on their profile, which means that targeted ads might work for them. The inverse of you is that I use incognito mode on Chrome, so Google likely knows nothing about me, since I don't store any cookies. It might be able to divine something from my IP address, or maybe there's a backdoor in Chrome that overcomes incognito mode for the purposes of Google ads, so who knows.

We are in agreement that Facebook's current state of advertising is terrible. They, however, made $4B last year, and will likely make more this fiscal year.

The only thing we're arguing over is that I believe there is this vague "untapped potential" and you don't believe it exists. Maybe they'll figure out a more engaging advertising mechanism than their current ad platform. Maybe they'll use Google Ads instead of their own ad platform. Maybe they'll buy Netflix and they'll have their own tv channels with traditional tv ads. Maybe companies will be able to pay to get their particular event promoted on people's newsfeeds, in more indirect methods, such as if the new Avengers movie just came out, they could spend money and then Facebook would consolidate and highlight every time your friend went to see Avengers and posted it on their status.

There are a lot of "maybes" paths that lead to much higher revenues and higher rates of user monetization. This is why people are willing to pay 25x revenues, and a $100B market cap at IPO for Facebook. The entire premise of their market cap is based on their ability to increase their user monetization. If they can't, then I agree, they will certainly fail as a stock.