Keep in mind that all those page views and all that time spent on the site costs Facebook money. It's not like outdoor advertising where the cost is set up front (then amortized over the life of the sign, device or property lease) and the marginal cost for additional viewers is zero.

Another thing to keep in mind is that there are competitors constantly targeting Facebook. But not just targeting them on price, targeting the features of their site that keep people there for 30 minutes every day. This means that Facebook has to spend money to "improve". Again, compare this to outdoor advertising where the competition is largely just a matter of bidding on space every so often.

I, like you, have no idea what Facebook is worth or how successful their business model will turn out to be. However, I think it's important to keep in mind that turning page views (or minutes spent on the site, whatever) into money really isn't a fully solved problem, at least not in the general case. Facebook definitely has their work cut out for them I think.

Excellent point

Also, keep in mind that Facebook has attracted some section of the "best and the brightest". As far as I can tell, they do a really, really good keeping Facebook ahead of the curse; fun and ahead of potential competitors.

The thing is that since these people are the best, one might logically expect that they want compensation in some form, possibly only the form of knowing they're working on the leading edge or possibly in the form of lots of money. So Facebook's ongoing operations to an extent depend on project projections coming true. If they become like Yahoo, they'll bleed people like Yahoo and make horrible missteps like the way Yahoo rolled-out Axis (an idea that appeals to me but which was apparently utterly fumbled).

It's hard to imagine Facebook going the way of Yahoo. Facebook has a relentless focus on their product and continuing to ship and push the envelope. I don't know too much detail of Yahoo history, but it seems like they took their eye of the ball early and started spreading themselves really thin across a ton of disparate products and acquisitions.

I don't see anybody blindsiding Facebook on social the way Yahoo was blindsided by search. The bigger risk seems to be that there is simply no pot of gold at the end of the rainbow to justify a 100B valuation IPO valuation, thus souring everyone on FB and social before we see what the true potential was.

Facebook didn't start yesterday. It's years and years old, with massive amounts of engineering resources and resources of every other kind poured into it. The fact that they have the numbers you say they have, which they do, and that after all these man-millenia of work, are essentially doing just better than break-even, is an enormous flashing red sign to me. Revenue in this sort of area typically has a low-hanging fruit pattern, where getting the next bit out of the same customer gets progressively harder, not easier. If Facebook is going to be this raging success in the future, it should already be doing radically better than it is in terms of monetizing that attention, because it gets harder from here on out, not easier. (Or they need to get into a space where revenues work the other way around, like consulting (i.e., once you got the customer to pay you once it's easier to do it again) but what would that be?)

I see Facebook at this point as a nice business, nice revenue, certainly not a guaranteed failure, but to get to the point where it justifies 100 P/E today is a Hail Mary pass. I think that not only is there not any evidence that is possible, there is significant evidence against it. If there's this brilliant pivot lying in their future where suddenly they're making twenty times the money, how come they haven't managed to come up with it in the aforementioned man-millenia already? It's not like they're sitting on some brilliant idea but refused to deploy it until after they go public for some weird reason.

On the flip side though, isn't this a matter of scale?

What if: Facebook is not building a website - it's building a sub-section of the internet; a private walled garden for it's enormous userbase; an ecosystem of subscribers to rival the viewer-ship normally attributed to mass media outlets.

Yes, the infrastructure investment is enormous. But if this is true, revenue comes through efficiencies and leverage further down the track. The 'low hanging fruit' problem that applies to the players who feed off ecosystems doesn't apply to the player who operates it.

100 P/E today? That's almost certainly wrong, I think, but it'll be interesting to see what they do with what they've created, now that earnings pressure will start to really screw down.

This is sort of what I'm thinking. Everyone is claiming Facebook ads don't work because they're improperly targeted, people don't look at them, people don't browse Facebook with "intent," etc. This is a the supposed "failure" of advertising on Facebook.

But what about traditional ads, say a television commercial or a radio ad? Aren't they more expensive, with a more limited and less targeted audience? Isn't the intent to purchase missing there as well? Why is it the case that Facebook advertising is a failure when it seems that it should be at least as (or more) effective than traditional advertising?

Am I missing something?

There are many kinds of ads - those who tries to sell you something, and those who tries to establish "branding".

The first type is largely ignored by the majority of users, and the 2nd type, can't be ignored, even if the user tries to ignore it (those using adblock notwithstanding, but they are a minority).

The branding type of ads are the most effective, and are the type of ads that would make or break facebook.

Google, on the other hand, seems to excel at the first type - and it makes sense, because when people search, they ususally want to find some product/service, and those ads gets to them at the right time.

If the ads on facebook took over your screen for 5 minutes and forced you to watch them then, yes, it'd be more like traditional media ads. But people have gotten pretty good at just ignoring their sidebars.

In general, most people who are looking at facebook for any length of time are either playing a social game or looking at photos of themselves. It's confusing to me how this is a viable long term business model. Popularity can be a fickle thing...

Nobody doubts they have eyeballs and valuable data, and it seems like that should be profitable, but that doesn't mean it will be.

Well, it is profitable - the question is whether it's $100 B profitable.

In my opinion, the present valuation is probably too high. That said, Facebook could still do incredibly well.

Facebook now has lots of money, plenty of bright people and a recognisable brand. You need money to make money in many fields and Facebook has a lot of money. They could swing out of being just about advertising and into other markets. It isn't far-fetched, Google are already making driverless cars and power stations.

How many of those users use adblockers? What if the most popular browser started shipping with adblocking enabled out of the box?

Given the proliferation of random toolbars on the computers of my family and friends and I would say almost no one in the grand scheme of things.

The people who use adblockers are probably the people who are least likely to click on ads anyway.

Here's a recent study on adblocking. http://clarityray.com/Content/ClarityRay_AdBlockReport.pdf

I can't see Google going for that one, somehow.

how many people who watch television DVR and fast-forward through the ads?