Facebook’s business model

Co-founder of Hunch and startup investor Chris Dixon:

The key question when trying to value Facebook’s stock is: can they find another business model that generates significantly more revenue per user without hurting the user experience? (And can they do that in an increasingly mobile world where display ads have been even less effective.) Perhaps that business model is sponsored feed entries, as Facebook seems to be hoping (along with Twitter and perhaps Tumblr). The jury is still out on that model. Personally, I have trouble seeing how insertions into the feeds aren’t just more prominent display ads. You still have to stoke demand and convert people from non-purchasing to purchasing intents.

Chris nails it here. In other advertising models, users have purchasing intent, while that’s generally not the case on Facebook. Less intent translates into ineffective ads.