In a conference call with financial analysts following Google's Q4 financial report, it said revenues from advertising on social network sites were less than expected.
Google earnings miss Wall Street estimates By Elinor Mills News.com
... the company had trouble making money off ads on social networking sites, including News Corp.'s MySpace, Google executives said. Under the MySpace deal, Google is committed to paying revenue even if advertisers don't click on ads.
"We have found that social networking inventory is not monetizing as well as expected," said Chief Financial Officer George Reyes.
GOOG stock fell by 8 per cent in after hours trading. You can bet that the private valuation of Facebook fell too. MSFT's recent investment in Facebook valued it at $15bn.
This increases the pressure on Facebook management to justify its high valuation and to find a business model that won't alienate its users. It is a tough problem for its 23 year old CEO and founder, Mark Zuckerberg.
Facebook recently had to retreat from a key monetization strategy after a large number of users complained about its use of personal information to market goods and services. Google's failure to reach revenue goals on social networks raises the bar for Mr Zuckerberg.
It'll be interesting to see what strategy he and his management team come up with. Facebook's investors have a keen interest in making sure that Mr Zuckerberg will be able to articulate and execute a business strategy in line with its lofty $15bn valuation, plus more. But Google's problems in monetizing social networks indicate that there is no easy solution. It is a situation that would challenge any CEO, let alone a 23 year old with no prior experience with much of anything.
I don't think Mr Zuckerberg wants that job anyway. It is clearly time for Facebook to bring in an Eric Schmidt... Who could be Facebook's Eric Schmidt?
(Bill Gates isn't doing much these days, except saving the world. But I heard that's just Tuesdays and Thursdays. It would make for a cool story...)