Valley Wag has a hot post with a video of Jason Calacanis explaining why Facebook might not generate as much ad revenue as Google.

His argument is pretty simple: Facebook is used for direct communication between friends and family. What your friends and family are doing and saying is far more interesting than ads.

Calacanis uses this reasoning to justify why he thinks that Facebook will not become a $100B company. I liked his comments because they deflate hype. Â Facebook has a lot of heavy lifting it still needs to do before it gets to that kind of valuation.

However, Calacanis' reasoning does not prove his conclusion. There are a series of flaws in his thinking.

1. While the click through rate on Facebook based ads might be lower, the amount of time that users spend on Facebook could easily be enough to make up the difference. If Google's click through rate is 10 times higher, but Facebook gets user attention for an average of 100 times longer, then Facebook wins on a per user basis. Where is the data to back this up? I don't have it.  But I have found this: Videoegg has a quote from a Deloitte and Touche that says "Young people spend more time on UGC sites than traditional ones". Traditional includes Google. On Inside Facebook, they say "More than half of active users return daily (users spend an average of 20 minutes on the site per day)". I don't how much time people spend on Google. If it is not at least 20 minutes a day, then Facebook has the advantage.
2. Calacanis assumes that all advertising is about clicking to get someone to come to your site. It isn't. A huge chunk is about brand awareness. Red Bull's Roshambo (rock, paper, scissors) game is a perfect example of the kind of engaging brand awareness advertising that is possible on Facebook. I am not sure how Facebook will eventually charge for this kind of access, but considering that they have figured out a way to charge Fortune 500 companies in excess of $300K per year just to have a network on Facebook, my guess is that they will figure out a way.
   
3. Calacanis assumes that what we see today is all there is to come. It is not the ads - its the apps. The amazing thing about Facebook apps isn't that the apps today are particularly exciting. Instead, it is that the platform is getting end users in the habit of installing server side apps in the cloud into a domain that they control. As such, Facebook is the first widely successful Personal Server. This could radically change the way that people buy computing services. Think about the following questions:
   • How could a Facebook version of Gmail be more useful to you simply because it leveraged the social network information available? What Facebook mail could leverage their app platform. Remember, there are no plug-ins to Gmail. If, like me, you are a WordPress user, you know how valuable plug-ins can be.
   • How could an Activity Centric business blogging platform benefit from the "social graph"?
   • How could a generic "white label" version of Salesforce's ideas.salesforce.com customer feedback site be built to leverage the existing social networks within Facebook? Remember here that these kinds of social feedback systems where end users vote of product improvement ideas require social recognition to succeed. Also recognize that this kind of passionate user feedback is worth millions to large companies.

Social Network as a Service

Clearly, there are ways to leverage and monetize Facebook that have not been tried yet.

And, there are lots of applications that would benefit from a social network component - but do not have a realistic chance of driving users to join yet another social network. For these kinds of applications, Facebook provides their social network as a service.

In addition, true end users could very easily be willing to pay for these kinds of applications. Companies from 37Signals to Salesforce have proven that if your app adds enough value, end users will pay for it.

Jason Calacanis might be proven correct by future events. Facebook may not get to be as big as Google. Facebook may lack the imagination to take full advantage of the platform they have built. Facebook users may not be willing to move from current "fun only" group chat behaviors towards more complex interactions

However, saying that the click through rate for ads on Facebook isn't as high as the click through rate for ads on Google does not prove the outcome, one way or another.