24/7 Wall St.

Groupon (NASDAQ: GRPN) and Facebook are in a battle with many investors about the value of their audiences. Do Groupon’s visitors still use it regularly to buy merchandise? Do Facebook’s members ever look at advertising on the site? The question comes down to what people actually do online. Despite reams of research, the answer is unclear.

Groupon’s shares dropped 15% after its announcement that it lost money in the fourth quarter of last year. It said its “active customers” rose 275% from the same period a year ago to 33 million. Revenue jumped 194% to $506.5 million. And Groupon said sales in the first quarter would be as little as $510 million, up “only”73% from last year. Then Groupon claimed it would continue to have outsized investments for marketing. Many investors are worried that the use of online coupons is a model that consumers adopted only briefly, as well as that rivals like Amazon.com (NASDAQ: AMZN) have similar services. Beyond that, the lingering issue is whether people clip coupons more than they watch videos, communicate by text or hang out on Facebook. There are only so many hours in an internet day.

People clearly spend a lot of time on Facebook, but there is a debate over what they do. A set of research from Citi released last fall said that people are on Facebook for 16% of their time online, on average. The number eclipsed time spent on Google (NASDAQ: GOOG) and Yahoo! (NASDAQ: YHOO). But how long does it take to do a successful search on Google before the user moves to a site the search uncovered? Google remains a utility as much as anything else, with search results mixed with ads on similar subjects. It is a nearly perfect match of content and marketing messages, as Google’s numbers have shown. Facebook’s 850 million users interact with friends and acquaintances, for hours it seems, but wandering people are hard to target, even with data on behavior and demographics. Facebook had less than $4 billion in revenue last year. So Wall St. wonders whether the people on the social network care at all about the ads that they see.

There is a cottage industry of research about why people visit online sites, whether they watch video on PCs or TV, and why some websites are better for advertisers than others. None of the research is conclusive enough, at least from the standpoint of many people who review it, to convince experts that time spent on Facebook or Groupon can ever yield the kind of revenue garnered by Amazon.com and Google. At least Amazon and Google can demonstrate a long history of interaction that yields a steady and growing stream of revenue. Each has a future likely to be as good as its past as far as revenue and profits are concerned. Facebook and Groupon have not yet cleared that hurdle.

Douglas A. McIntyre