Facebook's Relevancy Problem, and the Currency of the "Like"

Tim Beyers sits down with Rick Engdahl to talk comics, TV, movies, tech, and related geekery. Tim is a member of the Motley Fool Rule Breakers stock-picking team, as well as the real-money Motley Fool Supernova Odyssey I growth portfolio.

Facebook  (NASDAQ: FB  ) can be frustrating for the individual user. Does this mean the online giant is on its way out? In this video segment, Tim points to the granularity -- as well as the sheer volume -- of data it gathers as evidence of the social network's staying power.

A full transcript follows the video.

Rick Engdahl: I am not a numbers investor. I'm kind of a story investor. I trust The Motley Fool and their smart analysts to double-check -- to do the hard work.

Tim Beyers: And we appreciate that.

Rick: I have not bought into the idea of investing in Facebook, and it's primarily from my experience as a consumer. I feel like -- and maybe I don't understand the full business of Facebook -- but as a user of Facebook, it becomes more and more frustrating. It seems like their business model is at odds with my experience.

Definitely not the case with Google+. Google+, they're out of my way. I'm a photographer, and there's a strong community of photographers on Google+. That's one of the niches that they've done really well with.

I've spent a lot of time on Google+, and it's just ... there's no ads pointed at me, there's nothing blocking my way, there's nothing in my face. There's nothing annoying about it. It flows really nicely.

Facebook, on the other hand, I feel gets worse and worse, and it makes me wonder if, even though the Google+-vs.-Facebook comparison is not really an apples-to-apples comparison ...

Tim: You're right.

Rick: Is it a slow decline for Facebook? If this slowly takes over as your online digital, social life?

Tim: It's an interesting question. I'll say this, though. I think that Facebook is the second greatest data company in the world, with Google being No. 1. I find that -- and this is sort of a David Gardner litmus test, so I'm stealing this from David -- if Facebook unplugged and went away, would the world notice?

I think the world would scream bloody murder, and the reason is because there is a mechanism that Facebook has for connecting with people and staying connected with people who are far-flung, and who you don't get to see all the time. Social connection is a kind of currency that Facebook provides, and they make it very easy.

Now, you bring up a good point. Facebook can get in your way with news-feed ads. Sometimes the news-feed ads are ridiculous. For example, I've never had plastic surgery in my life, nor do I plan to, so why would I be interested in Botox ads?

There is a relevancy problem that Facebook has been having to address. They are working on it. The latest algorithm that we have -- or at least the latest news on what they're working on with their algorithm -- is that they are going to more heavily weight user feedback to ads, in what to display moving forward.

Now, there are two sides to that piece of news. One side is, "Well, good. My preferences should come first." The other is, "Why weren't you doing this all along?"

But having said that, I do think that Facebook, because of the way it connects people, is able to generate data in ways that are incredibly fine-grained, in some ways even more fine-grained than what Google gets -- for example, where you go, what kind of games you play, what your circle of friends tend to do and like.

The currency of a "like" is something we don't fully understand, but it may be -- at least what we're hearing -- is that Facebook has pioneered this idea of advertising around what people like. That's new, and it's something Google has not been able to figure out.

You may be right that the Facebook story has some severe cracks in it, but the data it's getting, we know two things about it. First, it's massive. Second, it's unique, and that's pretty powerful.