The search business is especially efficient when it comes to online advertising. When it’s put it the right context, an ad can be a valuable service for the user, and this means that companies like Google Inc (NASDAQ:GOOG) and Yahoo! are in a position of strength to compete against Facebook. Facebook Inc (NASDAQ:FB) ads, on the other hand, are mostly an inconvenience for its users.
Besides, costs per click have been falling lately, Google reported a decrease of 6% year over year in costs per click for the last quarter and Yahoo! Inc. (NASDAQ:YHOO) suffered an even bigger decline of 8%. Both companies more than compensated for those falling prices with growing volumes, Google sold 23% more ads and Yahoo increased its volume by 21% in the quarter. However, falling costs per click across the industry represent a considerable risk to watch in the middle term.
There are concerns about Facebook Inc (NASDAQ:FB)’s ability to adapt to the mobile paradigm, even if the company dissipated those fears to some degree with a blowout earnings report in the last quarter. Mobile advertising revenue grew 75% sequentially in the second quarter of 2013, and it now represents 41% of the company´s overall advertising, that’s up from the previous quarter when it was at 30%.
News feeds ads were the biggest success drivers for Facebook Inc (NASDAQ:FB) in mobile during the last quarter, and they have clearly been a smart move by the company. But investors need to consider that these ads were introduced in late 2012, so it’s too early to tell what kind of growth Facebook will generate from these products over the long term.
Because news feeds are still quite new, it isn’t entirely fair to compare them head to head against the search and display ads used by Google and Yahoo. Novel products usually outgrow existing ones in their first stages, so we need to wait until the dust settles to make a clearer assessment about Facebook Inc (NASDAQ:FB) and its ability to compete against well established players like the online search engines, especially in the much challenging mobile arena.
Bottom line
The online advertising industry is a fertile ground for growth in the long term, but Facebook is facing fierce competition from Google and Yahoo! among others, and online ad prices could remain under pressure over the next quarters. LinkedIn, on the other hand, is the undisputed leader in online talent solutions, an area with huge long term potential and where no other social network has the same professional focus as LinkedIn.
With more than 1.15 billion monthly active users, Facebook has more friends, but LinkedIn’s contacts are more valuable, so I’m picking quality versus quantity and staying with LinkedIn.
The article Better Buy: Facebook vs. LinkedIn originally appeared on Fool.com and is written by Andres Cardenal.
Andres Cardenal owns shares of LinkedIn and Google. The Motley Fool recommends Facebook, Google, LinkedIn, and Yahoo!. The Motley Fool owns shares of Facebook, Google, and LinkedIn.
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