Megasite Facebook is preparing for its IPO.

The valuations have been in the range of $100 billion.

But now, at the precipice of the IPO, Facebook has amended its offering to note that there is a danger that the rapid move toward mobile may impact on future earnings.

Really.

I suppose this is to innoculate the Facebook board from future investor lawsuits.

Good idea too, because in fact the move to mobile is coming very fast and Facebook’s revenues are going to suffer.

There’s a great video that Reuters posted on their site yesterday (courtesy of Pat Younge), but Reuters doesn’t allow embeds, so I am putting up the link here.

Facebook is projected to earn $4 billion this year, all of it from ad revenue

First, I don’t know about you, but I have never once clicked on one of those ads on the right-hand side that says things like ‘lose weight now’.

$4 billion may seem like a lot of revenue until you consider that they have 800 million ‘users’.  What they breaks down to is that the most they can net from each person is $5 a year, or slightly more than 1¢ per day. Not exactly Bloomingdales.

While that is sobering, what is worse is that as Facebook transits to mobile, there is even less space on your phone’s screen for those pointless ads.  This is going to cut into revenue even more.  So what exactly is it that Facebook has to offer in terms of real revenue generation?  That’s a good question.

Perhaps the problem is not so much in squeezing more ads into a smaller space but in the whole notion of advertising as a revenue generating model.

Advertising is a very laborious and circuitous way of earning money, if you look at it from 40,000 feet.

A product manufacturer has a product to sell. They take an ad and pay for it in the hopes that the ad will motivate someone to go to the store and buy the product that then generates for them a percentage of the sales price.  What percentage of the people who see the ad actually take all the trouble to do that?  Maybe .0001%?  Is this a cost-effective way to generate income for the manufacturer?  I don’t think so.  We do it because we have done it for a long time, but in a very different media environment – one of the passive viewer or reader.

But the web is different.

The web allows you to buy immediately.

I like Amazon.

Yesterday I bought 100 pairs of chopsticks on Amazon. It’s not a book. And ironically, I had dinner in Chinatown (Dim Sum Go Go – very good, despite the name). Amazon is simple.  It’s direct. It’s a child of the web.

Advertising is a child of the 1950s, as anyone who watches Mad Men can attest.

Maybe advertising as a revenue model is finished.

Maybe Facebook is also finished if it clings to the 1950s.

©2012 Michael Rosenblum