I write this on the eve of the much awaited and hyped Facebook IPO to time-capsule my thoughts before the big bang. After all, we are talking about a once-in-a-decade phenomenon of a company with 900M+ addicted users around the world.

It is not fair to say that Facebook is single-handedly responsible for the current startup bubble cycle, but it is certainly the 10,000 lb gorilla of social media. The company that won the arms race for the social graph in the process decimated companies like MySpace who not long ago seemed invincible.

In the first wave, companies like Yahoo were valuable because they produced or aggregated content users wanted to consume into portals. Social media, or user generated content, has replaced the need to produce professional content as it has proven to engage users on a much deeper level. Call it digital self-service mass-customization. This motivator is behind most of today’s startups with insane valuations based on what would be considered liabilities, not metrics, just a few years ago. Facebook is the sun to this universe of social applications and services. A universe where revenue models are asymmetric and advertisers are glad to pay (or sponsor if you will) the consumers experience in exchange for the narrowly targeted advertising opportunity.

Facebook is amazing on many levels: speed of growth, number of users, average number of times those users login daily, how many minutes they spend on site, etc, etc, etc. There is however one huge question mark in all of those statistics: revenue.

Facebook’s S-1 filing stated ~$4B revenue in 2011 and a current average of $9 annual revenue per user (or ARPU in industry jargon). Multiply that by 900,000,000 (and growing) and you get a $8.1B run-rate. Stand-alone, that is a nice dollar figure. In contrast to the $100B+ valuation, it gets a little weird. And by “a little weird”, I mean WTF?.

For example, Amazon, with a market cap of $98B as of this writing, did $48.1B revenue in 2011 and will likely do ~$60B in 2012. Google is worth $203B, did $37.9B in highly-profitable revenue in 2011 and continues to grow at ~25% per year. Apple, with a strange recent drop to $495B market cap, did $108B in insanely-profitable revenue in 2011 almost doubling their 2010 numbers across the board.

So is Facebook worth half of Google who did almost 10X their 2011 revenue and is an online advertising cash-cow? Is it worth more than Amazon who did more than 10X their 2011 revenue? Is it worth 1/5th of Apple who did 27X their 2011 revenue? Only if you believe Facebook will have steroid revenue grow in the next several years.

Now here is the really scary part. When companies go public, gravity becomes reality. Just look at GRPN. No more dreams and speculations. No more “I wonder what they have in their back pocket?” It is all down to quarterly growth and profitability, and all information–as it were–becomes public. Because of this, the expectations on Facebook are going to be almost impossible to meet. The bulls might be thinking that the sky’s the limit and Facebook is going to magically turn into a cash register at any moment now. My argument is that they would have already done that if they could. They have all the motivation in the world to NOT sandbag. Even despite Zuck’s pretending Facebook is still his pet project and not massively important business with millions of stakeholders around the world.

The social advertising model is anything but proven; as is clearly visible in this week’s news of GM pulling their entire Facebook advertising budget because the ads proved to not convert and a CNN poll that said 44% of users will NEVER click on Facebook ads. GM is nothing to sneeze at (like all the Facebook fanboy bloggers did this week), as it is the 3rd largest auto manufacturer in the world and the 3rd largest single advertiser in the US.

The most important factor that most miss is that you cannot compare Facebook ads to Google’s printing-press of cash. When a user does a web search on Google, they are most often in a purchasing cycle with an intent to buy a product or service. Facebook, although can very narrowly target users, is not where users go when they are looking for things to buy (or at least not yet). Yes, I like motorcycles, doesn’t mean I’m in the market to buy one every day. Hence the order-of-magnitude smaller click-rates and abysmal conversion to purchase numbers. Customers buy when they are shopping, not when they are being sold to. Ads can only be suggestive to an extent. Brand awareness (versus direct advertising) seems to be an effective outcome in social media, but hey you can get that for free as GM shamelessly announced they intent to continue to do.

This means Facebook has to find direct ways to get users to pay up, and right now they are very far from that. One example is the blackmail job they pulled on Zynga. A company that launched well after Facebook and figured out a way for consumers to pay up handsomely. Facebook then wised-up and extracted a 30% commission on the credits being used in the games. This also happens to be the reason Facebook’s IPO was delayed by 12-24 months. They needed time to diversify from Zynga being 30%+ of their total revenue because the pundits would have eaten them alive. Even now, their S-1 states that loosing Zynga is a huge ongoing business risk. And guess what, Zynga has already been moving users off Facebook and into their standalone apps as fast as possible.

So now it gets real. Facebook has a couple of quarters after going public to show massive revenue growth or suffer the consequences of massively unmet expectations. (Coincidentally, 180 days is the standard stock sale restriction for employees who at this moment are all busy counting their paper millions.) The price is set high because retail investors are sheep who buy things they know/use and not necessarily good businesses with solid fundamentals. Markets are crazy because humans are flawed, emotional, and often just plain stupid.

If Facebook fails to meet expectations the repercussions will be dire to not only $FB but to every other company relying on social advertising as a model. For years now, Facebook has been used as the valuation measuring stick for an entire category of companies. If Facebook falls, so will related company’s valuations – by 50-75%. And those massive drops will inevitably take down the entire startup market with them as they won’t be able to raise follow-on financing rounds, etc, etc, etc. Guess what’s going to happen to the Bay Area and NYC economies? If you were around Silicon Valley in 2001, I hope you’ve been storing your nuts (figuratively and literally) like a smart squirrel planning for the next nuclear winter.

Generally speaking, I’m not big on ad-driven business models. I like solving painful problems companies or consumers are willing to spend their own money on. But for the sake of our economy, I hope that Facebook disappoints only slightly and has a soft landing.

One last thought: if you think Facebook is invincible, take a walk-down memory lane. Remember when EVERYONE was on MySpace? How about when so many people were on Friendster that they couldn’t keep their servers up for months on end? Or how about all the way back to when everyone was on AOL and they were so profitable that they were sending CDs (and floppies before that) to everyone in America once a week?

As Facebook becomes a public company with the obligatory risk-averse need to produce quarterly growth, they will almost inevitably miss the next paradigm shift. They already let Twitter grow into a threat. They paid a bonkers amount of money to prevent Instagram from eating their photo-sharing dominance and the most important metric of time in app. They don’t have it all figured out.