Facebook Is Like Starbucks -- Everyone Hangs Out For Hours But Never Buys Anything

It is common to hear entrepreneurs and investors talk about the high level of engagement (what we used to call “stickiness”) of their website.  

They quite rightly believe that it’s better to have a more engaging user experience, as that generally means happy users. Unfortunately, the dominant advertising model on the web – Cost per Click (CPC) – rewards un-sticky websites.  As Randall Lucas said in response to one of my earlier posts:

The paradox, it seems is this: in a pay-per-click driven world, site visitors who want to stay on your site — due to it having the once-much-lauded quality of “stickiness” — are worth much less than those who want to flee your site because it’s clearly not valuable, and hence will click through to somewhere else.

Facebook recently became the most visited site on the web. Yet their revenues are rumoured to around $1B – about 1/30 of what Google’s revenues will be this year. Google has the perfect revenue-generating combination:  people come to the site often, leave quickly, and often have purchasing intent. Facebook has tons of visitors but they generally come to socialize, not to buy things, and they rarely click on ads that take them to other sites. Facebook is like a Starbucks where everyone hangs out for hours but almost never buys anything.

The revenue gap between sites like Facebook and Google should narrow over time.  Cost-per-click search ads are extremely good at harvesting intent, but bad at generating intent.  The vast majority of money spent on intent-generating advertising — brand advertising — still happens offline.  Eventually this money will have to go where people spend time, which is increasingly online, at sites like Facebook.  Somehow Coke, Tide, Nike, Budweiser etc. will have to convince the next generation to buy their mostly commodity products.  Expect the online Starbucks of the future to have a lot more – and more effective – ads.

Chris Dixon is Cofounder of Hunch. He’s also a personal investor in early-stage technology companies, including Skype, TrialPay, Gerson Lehrman Group, ScanScout, OMGPOP, BillShrink, Oddcast, Panjiva, Knewton, and a handful of other startups that are still in stealth mode. He is a member of Founder Collective.

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