Should Google Be Afraid Of Facebook?
In the latest issue of Fortune magazine, Josh Quittner wrote
a page length article entitled Look Who's Worried Now (online here), in which he argues that Google
is increasingly worried about Facebook. He says that Facebook is taking Google's talent, taking its traffic,
and is using its platform to power a new Internet micro-economy.
During the Web 2.0 Summit last week, Jeff Huber, Google's Vice President of Engineering, proclaimed from the stage that the platform wars are over and the web has won. Clearly, Google does not want to have to deal separately with a Facebook silo, since its already has an algorithm for indexing entire web (though Google has recently released their own Facebook applications). The real question is this: Can Facebook really hurt Google? And if the answer is yes, then how and when?
Especially given today's news that Google lost out to Microsoft for the rights to acquire a stake in Facebook, the question of whether Google should be worried is a pertinent one.
Google's Social Ambitions
Google may not be afraid of Facebook, but it sees value in social applications. Google Bookmarks, Google Notebook, Orkut, and recently Social Maps are all among top priorities for the company. Google co-founder Sergey Brin said today that Google has advertising relationships with approximately 20 social networks.
Why? Two important reasons. First, there is hardly anyone left on the web who does not recognize the viral, network-driven power of social applications. Second, Google's strategy across the board is to get into as many hot areas as it can and build free tools to support its core business - advertising.
In truth, Google had a social strategy long before Facebook released its much-hyped platform. And just because Google is focusing on the social web, does not mean that it is a defensive play against Facebook. Surely Google would have liked to have been able to get cozy with Facebook today, but for Google, Facebook's inventory is a drop in the bucket. It is not critical, and as we will argue below, Google is not likely to be terribly worried about Facebook.
Google and Facebook Operate In Different Areas
Google and Facebook are fundamentally in two different types of businesses. Yes, both of them monetize mainly via advertising, but Google is a web wide technology and Facebook is a single web site. In a post earlier this year, we argued that Google is the utlimate money making machine because of its distributed nature. For Facebook to get our attention, we have to explicitely sign in, whereas Google is everywhere.
To argue that with time people will spend more time on Facebook than searching the web is absurd. Facebook is leisure, while searching the web is leisure, and more often, work. Even though Facebook is a platform, it is still built around a vertical. And any vertical is just a subset of the web. Google, on the other hand, has built a mesh that covers the entire web.
Google Still Has Superior Search Technology
Some might argue that Facebook can become the starting point for people to discover the web. At least right now, though, we are quite far from that. Facebook is just a social utility, an entry into the social graph, but not the starting page for discovering the rest of the web. Assuming that Facebook is going to try to go that route (which is unlikely), they would have to build their own search engine or partner with someone.
Meanwhile, Google still has the superior search technology. Its two closest rivals, Yahoo! and Microsoft, are trying very hard to match the search leader, but have not yet had any luck in catching up. The main reasons for Google's massive lead include an early start, a very good algorithm, great infrastructure, and inertia. People are used to Google being their search engine and "googling" has even replaced searching as the verb for finding information online. So until there is a major leap for the better in the search experience at its rivals, Google is not going to be replaced.
Show Me The Money
Facebook has a small handful of options when it comes to monetizing its audience: ads, tax, or products. The second option is out of the question. After touting itself as a great free platform, Facebook can't start charging application developers. The third route, selling products, is iffy at best as a source of real revenue. Facebook is not set up as a store and the platform has no commerce aspect to it. So this leaves advertising.
The only kind of advertising that makes sense for Facebook is contextual, but so far, their efforts have been less than impressive. Most of the ads I've seen invite me to check out lonely college girls and my wife doesn't approve of me doing that. Seriously, what can be successfully advertised on Facebook? Products? Movies? TV shows? There is certainly a range of things that will work, but the question is how to effectively market them?
Some evidence suggests that users of Digg, another social site, are 3 times less likely to click on an ad than Google users. One of the reasons is that when people come to Google they are looking for specific things. When they search, it doesn't matter to them if the top results are ads as long as they're are relevant. So people click.
On the other hand, when people are on a social networking site like Facebook, they want to socialize, they are not explicitly looking for products or information. Over the last year, I've heard several anecdotal stories about AdSense being less effective in terms of lead conversion compared to ads placed on the main Google search results. Once again, the reason is likely to be that people are not looking for specific things when they are at non-search sites.
The bottom line is that until Facebook proves that its audience is monetizable, they are not a threat to Google.
The Market(ing) Games
So if Google has nothing to really worry about, why might it worry? In a word - buzz. Google was the last cool kid on the block, however, it hasn't enjoyed being the "cool" tech company in awhile. Until Facebook came along, though, there weren't any other hot companies to steal Google's wind. Facebook hasn't taken any money yet, but they have taken a little wind out of Google's sails. 2007 will be remembered as the year of Facebook (just like last year was the year of YouTube - which of course by proxy meant Google).
But it is going to be hard for Facebook to turn that wind into dollars. Google is still at the top of its game, with a stock that it reaching all time highs every day on Wall Street. It plays the simplicity game very well, it does a good job marketing its products, and it is sticking with the free software concept as its bait. Facebook succeeded in generating a lot of buzz and hype around itself this year, but out marketing Google in the long term is going to be tough.
If Facebook does want to go head to head with Google, it will need serious cash. The $240 million influx of dough and $15 billion valuation it received today will help to allow Facebook to try to organize all that wind into a storm. But to do that, in addition to spending marketing dollars it will need to figure out how to become a web wide company and how to effectively monetize its users. Microsoft's experienced display ad sales team (via their aQuantive acquisition) should be able to help Facebook with the latter.
Conclusion
Google is not worried about Facebook, it is worried about its business, its future and its image. There is no evidence to indicate that Facebook is an actual threat. More likely, this is a PR situation for Google. Of course, Google is going to press on with its social strategy, but simply because it makes sense, not out of fear of any other company. As for Facebook, after the initial excitement is over, the company will need to show that it can make money. Time will tell if Facebook is worth all the hype and its fresh massive valuation.
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I think there is a key move that will catapult the MS-FB team into Google's territory and get it all irked up: Search. As you note, Facebook is already the home page/starting point of many web users. If Facebook sticks a search box there, powered by Live no doubt, usage will skyrocket. Millions of users will be happily googling around on FB using Live as the backend.
That prospect alone should send a shiver down Google's spine.
A few more thoughts in my blog post at http://ekstreme.com/thingsofsorts/fun-web/what-a-great-day-an-analysis
Pierre
Hope that MS and FB can hold their breath 'til November 5th:
"The word on the street is (and this is confirmed off the record by folks I’ve spoken to at Google) that the real work on social networking is going to make Orkut look like a local opening band when compared to the headliner they debut on November 5th, and the chances are you’re already using several key parts of what will end up being integral components to the new Google social network (GMail, GTalk, Google Docs, etc)."
Source: Mashable!
Not sure a search box will work. I do 90% of my searches using Lijit, and have the Lijit Facebook app installed, but guess where I do all my searching
Ctrl-K | enter query | enter
Yep, the Lijit search box for Firefox gets all the use. My Portal is my browser. I love Facebook, spend a lot of time there, but I use it to keep up with friends, try out new books and movies (something I never used Google for anyway), and listen to music, etc.
Yes, the Stumbleupon, Google Shared Items, and all the video apps are very useful, but they are not impacting how I work and play the way Google does.
I think Google is losing importance because of their privacy management. Several friends of me are disappointed of Google and are using other Search-Engines now.
Google's gonna feel it in a while... ;)
Isn't Adsense the most popular method of monetising a Facebook App? In which case (and this is especially true if app real-estate provides better CTR's than the left-hand ad position), doesn't Google actually have a better grip on Facebook than Microsoft does?
Facebook is a walled garden community that might as well not actually be on the web - think of it as an AOL or a Prodigy from back in the day. Google pretty much dominates the entire rest of the Internet; they should certainly watch Facebook, and shouldn't become complacent, but they don't have anything to worry about. Given the Mashable quote above, particularly come November 5.
In a word . . . no.
Google is everywhere, sure, but you only use it for a minute or three each day. Some people stay on Facebook for hours. That makes a huge difference.
Your assertion that "Google and Facebook operate in different areas" doesn't make sense to me. Google has already stated that Facebook has taken a chunk of usership from one of its flagship products (Gmail), and it's certainly going to make a ding in their advertising.
Money is not matter. Wikipedia is not making money, but it is bring no less value than Google to society, and deserve our respectation.
We - user, praise the product when they bring value to us, not when its company makes a tone of money.
how is facebook different from myspace?
As I have stated in another of your posts, I do think that Google should be afraid. Why? Because Facebook+MSFT can offer better value web search than Google by tapping into FB's so called social graph and user base. How? By offering users the ability to turn their searches into questions that can be answered by their facebook friends and/or other facebookers. For more details see my post: http://www.ideatagging.com/a-facebook-and-yahoo-partnership-that-could-trouble-google/. Just replace Yahoo with Microsoft.
First it was MySpace and now Facebook. What's the next big social network ... what will they look like?
Cyworld, Hive7 , Sleep.FM ... such social networks are 3D worlds/Second Life in their design and architecture. These types of networks we will see a ton more where one will no doubt become the next Facebook. A white background ...snooze fest someone send me an alarm message and allow my Social Alarm to alert me when we have gotten there!
I like the way of Facebook work and I hope Google don't bay it because it will be the end of onther Internet fight and it's not good for people in the world. The competition always good to improve everything.
This is one of the most biased articles I have ever read. "Can Facebook hurt Google and if so how and when?" What the hell is that? Fear of Google is rooted in the hatred of all things big and powerful and I can appreciate that to a degree. But honestly, your biased journalism is just candy for anti-Google people... whoever they are.
Embrace it, dude. You use it every day. Facebook is great and there is no reason why they shouldn't see Google as an ally.
The problem for Microsoft (and one they have recognized by investing only $240 million in Facebook) is that websites like Facebook can never gain permanent dominance - they are fads that are relatively easy to duplicate.
As soon as someone comes along with a better Facebook, the original Facebook will be yesterday's news. That's why MS's tired old me-too business model keeps failing time after time, and Google is the powerhouse.
google is a fantastic search engine and i highly doubt that facebook will ever be a competitor in that arena.
what makes facebook different from myspace is that it is almost impossible to find a college student that does not have one. while there is certainly overlap, myspace is not as "needed" in the college environment; facebook was created for college students, bravo to them if they want to expand, but that will always be their primary user base.
Both are Sailing in different boats...they got the same business model but still are opposite poles
I don't think Google needs to be worried just yet. As said above Facebook is a walled garden. Though the potential advertising revenue in Facebook is incredibly high not everyone is on Facebook. Adsense works so well because of its link to search. Search is where it is at.
I agree with those users invalidating this article. Now... if you were comparing Google (for delivery of content, searches) vs Wikipedia... you might be onto something.
It's becoming increasing more difficult to pull up quality content via Google (Yahoo, Live, etc... = same situation) without hitting loads of highly optimized, seo-enhanced, blogspam, link sharing, cut-n-paste, "I'm in it for the ad money" BS sites.
Hell... you throw in a social aspect to Wikipedia and they'd be king on the hill nearly overnight as far as end-users are concerned (not the hordes of people trying to make a few bucks off their useless pages).