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Google Slumps, Facebook Flounders

Oct. 27 2008, Published 7:07 a.m. ET

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SPEND IT WISELY Zuckerberg Lost in the hullabaloo surrounding Microsoft's surprise $44.6 billion offer for Yahoo was the following statement about the reason for Google's sluggish earnings report, from cofounder Sergey Brin: "We have had a challenge in the fourth quarter with social networking advertising inventory as a whole. ... Some of the monetization work we were doing there did not pan out as we'd hoped." Bad news for Google, sure, but it pinpoints an underlying issue for much of the social-networking racket—particularly Facebook, which has also yet to effectively monetize its own services.

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Back in October, the Mark Zuckerberg–helmed, Palo Alto–based outfit received a $240 million cash infusion from Microsoft, which valued the company at $15 billion. It was a number many thought high. Yesterday, Zuckerberg announced that he would be using the money on "capital expenditures" such as new servers. We'd recommend that Zuck also spend some money on figuring out how to get people to actually click on the site's obtrusive ads. At least before the rumored IPO in 2009.

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