Why Facebook Cannot Make Enough Money, and Never Will.

Why Facebook Cannot Make Enough Money, and Never Will.:from Business 2 Community by J.C. Kendall
Non sequitur (Latin for “it does not follow”), in formal logic, is an argument in which its conclusion does not follow from its premises.
Facebook Premise: “We have 900 Million users!”
Facebook Conclusion: “We are going to make a lot of money!”
Uh……no.
Facebook suffers today from basic lack of understanding of buyer psychology.  If you want to turn a user into a buyer, you must match your customer with what they value. Despite terabytes of collected data from millions of Facebook users each day, Facebook has largely failed to match the offerings of sellers, with the personal interests of buyers on a consistent enough basis for generating profit.
It is not that Facebook has not tried. In fact, many feel that Facebook’s efforts at collecting user information have been excessive.  Facebook has often changed privacy rules mid-stream prior to alerting their users, and then placing upon them the burden of having to “opt-out” of certain changes to maintain their online privacy.
More often than not, Facebook provides users information about products that they might be interested in, but then has no role or associated value towards completing the sale. On Facebook, a vendor might place an ad, with a link to follow for more information, or a coupon towards a purchase, or to a site where the customer might actually buy the product. The buyer who trips across the ad when they happen to be in the market for the vendor’s offer is happy, the vendor is happy, and is likely to purchase more advertising, so Facebook is happy as well.
The problem: It does not happen nearly often enough for Facebook to make money, and it never will.
Facebook has an active monthly following of over 500 million users.  Those users buy things.  They rarely if ever buy things from an advertisement on Facebook, because Facebook does not have a mechanism for insuring that the ads that its users see are always relevant to their specific desires..  What a potential customer desires is a moving target, whereas an online purchase born of a social media advertisement is usually an impulse purchase, and not something planned and budgeted.
In previous articles I have mentioned a friend of mine whom due to his demographic, (Asian male, 25-35) received ads on Facebook for both Bail Bonds and Sperm Banks.  Whether these ads were relevant to my friend (they were not) is not the point.  The point is, and what thousands of investors and media figures fail to understand , how many people are going to perform a conversion over Social Media for Bail Bonds or Sperm Banks i.e. what is not relevant to individual users?
Try this on for size:
Man on phone to wife: “Honey, I’m in trouble, I’ve been arrested.  I need a bail bondsman NOW!”
Wife on phone: “Okay sweetie, don’t you worry, I’ll logon to Facebook and find you a local Bail    Bondsman immediately!  *sniff*.
Man on phone: “Facebook…Uh…What?”
I do not know what convinced a Bail Bonds Agency that the above scenario ever happens, much less often enough to provide a return on the advertising investment on Facebook, but I want some of whatever he was smoking when he made that determination.
Sales Psychology tells us that up to 94% of all purchases both online and off, are  planned purchases of items wanted or needed, with per-occasion (birthdays, holidays) or impulse buying representing the remaining percentage.  Facebook rests outside of the conversion space of the planned ‘want or need’ sale.  A business that knows it needs to upgrade its computer systems rarely is heading to Facebook for pricing information on a new server.  General Motors discovered recently that very few FB users converted into car buyers because of  their presence and advertisements on Facebook.
Planned purchases reside within the domain of SEARCH, which is why Google has never had a problem making money.  In the very same way that each of us were conditioned as children to hoist up the Yellow Pages to find the nearest Pizza joint, Online search (mostly Google) is where conversions from shopper to buyer take place. This is something that Advertisers and Vendors investing in ad space on Facebook and other Social Media seem to not understand.
Here is a decisive test.  Listen for it the next time you’re around people looking to buy something online.  Instead of using the Yellow Pages, you will hear individuals of all ages say “let’s Google it” to search for items they are looking for.  This consumer behavior is so pervasive, the word “Google” is well established as a transitive verb!  Have you ever heard “let’s Facebook it”?
There is – science behind what is required by businesses seeking to monetize (make money) online, whether through Social Media or by other means.  Three
If you consider Sales Psychology in your marketing efforts, then you know there are three critical factors required for success in the online space corresponding to pivotal strategies. Advertisers have to decide whether to create demand through Push Marketing or Pull Marketing, while remaining aware of any existing price sensitivity.

Push Marketing

One potential objective of a sale promotion or advertisement is to create what is termed “push demand.”
The idea is that an online ad will generate interest of a vendor’s product by motivating a transaction due to a price reduction, or a specialized one-time opportunity to acquire a product unavailable to others. The assumption is that you are present, and ready to convert if the promotion appeals. In this type of promotion, it is critical that the promotion reaches and is relevant to a sufficient number of shoppers, who through conversion will return a profit over and above the cost of the promotion itself.
The critical factor: RELEVANCE

Pull Marketing

Pull Demand theory operates from the consumer side of the aisle.  Creating pull demand again involves offering a promotion to customers for a product in need of wider distribution.  The theory is that during the search, shoppers will find the promotion and thus create wider demand, resulting in a larger number of outlets stocking the product in response.
The critical factor: BRANDING

Price Sensitivity Factor

A major contributing factor to online sales promotions and advertisements is that shoppers tend to be highly price sensitive for higher-end, discretionary product categories. A better description of these categories are where the items are available through many locations, and the buyer has made a brand decision, and needs only to know where to find the best customer experience.  The way that businesses can take advantage of the existence of a price sensitive buyer is either through the offering of a temporary price reduction, or by performing (and becoming known for) a superior level of customer service. There are of course, items beyond the restrictions of price sensitivity, but those items are rarely purchased online, nor available through a large number of competing vendors.
The critical factor: AWARENESS
If you agree with the above success factors, then the goal for any business wishing to monetize online via Social Media, is to ensure that their target audience is fully aware of their relevant and well branded product or service. Simple, right?
Facebook has shown significant internal and competitive weaknesses in each of these areas:

• Awareness: People do NOT often go to Facebook to shop for needed or planned purchases, nor does Facebook have sufficient connections to the popular search engines, which are part of most every online shopping process.
• Relevance:  Facebook delivers ads to Demographically defined groups and not to individuals. Facebook is working to correct this, but in ways that represent significant privacy concerns outside the stated Facebook Terms of Service with significant challenges to users seeking to “opt out.”
• Branding: For a Brand to be effective on Facebook, the challenge is to turn people into fans of their Facebook Brand page. With the new “Timeline” it is incumbent upon a Brand to continuously produce relevant content.  With people looking for brand awareness primarily through content, Facebook has cheapened the value of their own “like” button. Facebook also lacks the analytics depth to make a real determination of the effectiveness of the overall marketing effort on a real-time basis.

Facebook is designed to make its users aware of relevant and well branded (positive memories and expectations) PEOPLE.  For unexplained reasons, Facebook never thought about charging users for that, some others, like Classmates.com, did successfully monetize user connections for years through only a small percentage of their user community. Classmates.com had their own problems, but that is another story for another article. J
In order for all those terabytes of information to be relevant, they need to be mated to actual individual identities, and not mere demographical groupings of users.  Facebook might know what you “like”, but from a data aspect, they simply don’t know WHO you are. That fact alone makes advertising and promotion a simple crapshoot. Its conversion to sales metric is barely better than the burn-rate percentages experienced through email marketing, where a vendor is happy, even thrilled if 100.000 emails results in 30 to 50 actual conversions.
You might be thinking: “okay, well, Facebook needs to get with it, and come up with better, more user-relevant advertising and better branding options for businesses, and they will be fine”.
Unfortunately, it’s not that simple. Every single change that Facebook needed to make in order to ensure the long-term viability of their value proposition was accomplished last year  by Google.
On July 24th, 2011, Google + went live and changed everything. One only need remember the reaction at Facebook- along with rushed changes to their service into production after the launch of Google +, to understand that for Facebook, it is already too late. In the above components for effective advertising and promotion – Awareness, Relevancy, and Branding – Google + simply eats Facebook for breakfast. 900 million Facebook users hardly matter when your ad-engine is serving up ads that are not relevant to individual Facebook users, nor linked to the time when individuals are wanting to buy.
Through lessons learned through the billions of daily searches,  Google, has become the Relevancy king. Nobody does it better, and it is very likely that nobody ever will. Facebook is sprinting to better incorporate Bing into their mechanics, but it is very much too late.
Furthermore, Facebook has no method for enhancing a business’ SEO rankings.  Google+ does.  Facebook does not have a built-in local reviews engine for online brands either.  Google+ does. Most importantly, Facebook does not have a mechanism for tying data directly to individual users, while Google + is the first online identity engine with every shred of user-data directly-connected to each of us.
If you think this is not important, just perform a Google local search, and see if the ads that appear in your SERPs (Search Engine Results Pages) alongside the outcome of your search are not a near or direct match for what you are searching for. That my friends, reflects the power of RELEVANCE.
There is absolutely nothing that Facebook can do to enhance and support a growing business online that Google+ can’t do, while were I to list the number of things that Google + can do that Facebook cannot, this article would double in length. It is a popular meme in print media to denigrate Google+ for not having the number of users that Facebook has.  Rarely does media point out that Google+ is the fastest growing online forum in history; with a more than 300% growth rate over those established by Facebook.
Google has taken every positive aspect of Facebook, and mated it with their world-leading search engine, then attached massive value to the whole through the integration with of all of Google’s complementary services. Then Google wrapped a big red ribbon around Google+ in the form of Google + Hangouts, something that Facebook can never match, due to the fact that Hangouts are only possible due to the use of all of that formerly Dark Fiber around the world that Google purchased years ago, when the speculation was that Google was creating their own Internet.
I predict that in less than 2 years from the penning of this article, Google + will have matched Facebook for user activity per measured month. I also predict that Google’s earnings in those same 2 years will represent at minimum more than triple the earnings of Facebook.  Advertisers go where the buyers are, and because of the three aspects crucial to online monetization mentioned above, those buyers are by orders of magnitude easier to find and convert to sales via Google and Google+.
Facebook’s lack of value propositions in comparison to the rich set of tools available to Google users, including free analytics allowing Brands to follow their performance real time, represents a game changing dilemma.  Facebook search integration is years behind what Google can do today. As businesses seek a way to effectively monetize their Social Media Marketing efforts, will they wait years for Facebook, or will they move to Google? Early data suggests that businesses are not waiting for Facebook, while Google seems to get better by leaps and bounds every day.