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Facebook Inc (FB), Google Inc (GOOG): This Tech Company’s Advertising Model Is not Valuable

Facebook Inc (NASDAQ:FB) has been under a ton of scrutiny ever since the company went public. There’s good reason for it to be under the microscope. How many people do you know who invested in Facebook over the past year and lost money? Most investors probably know a few.

The problem is that people invested in Facebook because of the hype. Often times, that hype works – there are a number of companies that have been able to ride out their early hype to profitability.
Facebook Inc (FB)But with Facebook Inc (NASDAQ:FB) it is hard to understand how long-term viability will exist with its business model. The company is trying to change the way that marketers think about advertising, and unfortunately it is having trouble making them see things the Facebook way.

Google changed the marketing game

When Google Inc (NASDAQ:GOOG) came along with its AdWords advertising product over ten years ago, the new advertising model was something that marketers were looking for. Instead of just putting out a marketing campaign and hoping that it would work, Google gave advertisers hard data on what worked and what didn’t.

Traditional advertising has not been the same since Google came along. Sure, you still see advertising on television and in print, but marketers know that the data they get from Google Inc (NASDAQ:GOOG)’s advertising networks can tell them a lot more about the performance of their ads. It’s changed the industry and Google has been a major benefactor, which is one of the reasons that the company’s stock has done so well. Google’s ad business makes up 95% of its over $50 billion revenue.

Enter Facebook

It almost appears as if Facebook Inc (NASDAQ:FB) wants to reverse the trend of quantifiable results that Google Inc (NASDAQ:GOOG) has put forth. Many advertisers on Facebook have said that they don’t see results from Facebook ads. Facebook is not refuting that, saying instead that brand engagement and exposure is what’s important to how marketers utilize their social network.

Sure, brand engagement is important. But if a company with a marketing budget cannot qualify that a number of “likes” is translating into success in obtaining customers, then what is the point? It seems almost as if Facebook Inc (NASDAQ:FB) is turning the page back to when traditional advertising was bucking in the face of the trend towards Google Inc (NASDAQ:GOOG). That didn’t work out too well, and now Google has turned the print industry on its head.

The mobile fallacy

Facebook is acutely aware of the problem and that simply providing brand engagement is not going to work. The company’s solution? Tackle a really hard problem, one that even Google Inc (NASDAQ:GOOG) has not been able to solve. Mobile advertising is a hot topic, but it’s still hard to earn money on such small screens. In reality, you’re better off investing in Apple Inc. (NASDAQ:AAPL) rather than Facebook if you want to go all-in on the move to mobile.

While companies like Facebook Inc (NASDAQ:FB) are trying to scramble to figure out mobile, Apple is selling new products like the iPhone 5. In 2012 Apple sold 128 million iPhone 5 devices and uses its iAd platform to sell ads on the device. Apple Inc. (NASDAQ:AAPL) knows better than to try and tackle mobile advertising by just software alone. In fact, it has been reported that iPhone owners captivate more of an advertising audience than any other device.

Facebook Inc (NASDAQ:FB) doesn’t sell any hardware. It doesn’t even sell a product or service. All it is trying to do is make money from a large group of users. Unfortunately, these users aren’t looking to buy something on Facebook; they are trying to connect and communicate with friends and relatives.

How do you make money from that?