Founded in 2004, Facebook in merely 5 years has made itself a formidable force on the Web.  Its currently rankings on major Website rating agencies can speak to just that: comScore: 8, Compete.com: 3, Quantcast: 5, Alexa: 4.  As the latest issue of Wired pointed out, Facebook has always set out to replace Google as the Ad King of Internet and never really cared much about competition from its own kind, i.e. Myspace, etc.

Wired also laid out Facebook’s four steps toward kingship as follows:

1. Build Critical Mass

It has done so with not just membership but also content base.

2. Redefine Search

Facebook’s goal is to encourage users to rely on information their friends post instead of what Google’s index engine finds.

3. Colonize the Web

With Facebook Connect and Open Stream, Facebook has built an ever growing network of sites that live off its user database.

4. Sell Targeted Ads, Everywhere

The end goal. Since targeted ads are said to be more effective than search ads. Thus, replacing Google as the most important ad platform.

As things currently stand, Facebook has done a pretty good job with the first three steps and is at the point where it needs to execute on the forth by turning the mass it acculumates into value.

Whether or not Zuckerberg’s company can successfully transform itelf into THE targeted ads platform, I think the following three things are key:

1. Unscalable Social/Targeted Ads:

Since these ads are targeted, they cannot be easily recycled and reused as people’s interests differ.  Even if two users like the same product, they might not be at the same point within a purchase cycle at the same time.  Therefore making reuse even less possible.  More importantly, there is issue with ad production costs.   Text-based ads, such as those shown alongside Google search results, are easier to manipulate and therefore making customization less costly.  However, to stand out within social media today, an ad has to be creative, interactive and viral and be in the form of a video clip or even a casual game, which all adds to the development costs.  That means targeted social ads have to perform tens or hundred times better than text ads in order for marketers to justify their costs.

2. Social Media User’s Lack of Purchase Intent

Most of the time, when social media users are browsing content their friends share online, they are not in the mood of buying something or looking for something to buy.  On the contrary, when users are doing a Google search, there is a certain percentage that is looking to purchase a product.  This will also hurt so called targeted ad’s performance.

3. Privacy Concerns

As Wired pointed out, from News Feed to Beacon, Facebook so far has angered its users every time when it tries to make their personal data more public.  However, a successful targeted ads platform inevitably will have to share these critical info among its partners.  Whether or not Facebook can find a way to do so both effectively and without annoying to its users is also a question mark.