In a recent post, Facebook: the next Google?, I expressed skepticism on the value of Facebook given the nature of advertising there.

A year ago, I expressed similar doubts on the advertising on MySpace to a friend. He coined my analysis the “Grinda Hypothesis”: if you put an ad near a hot girl on MySpace, nobody will see it, let alone click on it.

I would generalize the hypothesis to be: if the advertising you see is not related to what you are actually doing, you are unlikely to notice it and click on it.

As I am only looking at what my friends are up to on Facebook or whether I can find a hot, interesting single girl on MySpace, I doubt they can ever display an ad I will be interested in even with the most sophisticated analysis of my profile and site activity.

Conversely, this is why search marketing is so powerful. The ads are directly related to what I am looking for.

To test the hypothesis, we tried advertising on Facebook for OLX with dismal results so far. We are using a higher CPC than we pay on Google and we just can’t get anyone to click on the ads!

Fred Wilson seems to be having similar problems with his Facebook ad. See: http://avc.blogs.com/a_vc/2007/11/my-facebook-ad-.html