Home Should Google Be Afraid Of Facebook?

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.


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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