Facebook vs. Google-Encroaching on each other's territory

by David Spark on November 1, 2007

I had lunch today with Patrick Koppula, founder of ffwd, a video recommendation service that just launched in beta a couple of weeks ago. Prior to starting ffwd, Patrick was the creator of iLike, a music discovery site and player that garnered significant fame and recognition through the launch of its Facebook application. I would argue that it was through iLike’s success that others saw the incredible influence building a Facebook application can have. iLike’s success started a domino-like effect with every Web 2.0 company believing it had to have a Facebook application to get recognized.

Listen to the Spark Minute. John Scott and David Spark from Green 960 in San Francisco, CA talk about social networking application development platforms: Google’s OpenSocial vs. Facebook (Run time: 7:19).

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Patrick and I got to talking about Google’s announcement about OpenSocial, the open API for developers to create applications across multiple networks. The announcement is an obvious direct attack on Facebook, and also Microsoft whose territory its been encroaching on with Google Docs, its online office suite that includes a word processor, spreadsheet application, and presentation tool.

Google is trying to define the announcement of OpenSocial as an open network vs. proprietary network debate. With developers sitting in the middle, carrots are being dangled from both sides. In the traditional branding of software development, companies creating “open” platforms and software are seen as the good guys. “Closed” environments are given a bad rap and associated with the negative branding a la Microsoft. It’s not so black and white. Closed environments are operating under their proprietary intellectual property (IP) which is pretty much how every single business (with IP) on the planet operates. Open developing environments have ulterior motives for developing revenue that are rarely spelled out for others to see. The competition and objectives of Facebook and Google involves many issues:

Finding what you know you want (Google) vs. discovering what you didn’t know you wanted (Facebook) – Google’s ad model is built on people knowing what they want when they start to search or proactively visit a content site (e.g. blog). Facebook allows people to discover content through friends which is another way we consume content. Google wants your discovery revenue. The search giant currently doesn’t have it.

How will Facebook monetize all those eyeballs and personal information? – While Google has proven the success of its ad model, Facebook hasn’t. It’s far from generating enough revenue to justify its whopping $15 billion valuation. But the social network has yet to take advantage of what it knows about all of its members. And that’s exactly what’s got everybody a buzz. Facebook knows a lot more about its users than Google knows about its visitors. A social network literally has a profile of all its users and their relationships with others. Layer on top of that behavioral information that’s enhanced by a multitude of applications, and you’ve got a kind of Holy Grail of demographic and psychographic data. This is extremely attractive to advertisers and Facebook knows they’ll pay dearly for that kind of targeted advertising. Everyone’s waiting in the wings to see what Facebook will do. They’ve got so many options and the deal with Microsoft will surely help as they are now the owners of the ad network aQuantive.

I’ve got 50 million users on my closed network and I’m going to keep it that way – If you’ve got a popular product built on proprietary technology, defend your position. There’s no point in opening it up to allow others in. People point to Microsoft as an example, but that’s how businesses with IP and proprietary infrastructure operate. Disney doesn’t cough up Mickey Mouse’s image for anyone who wants it. Verizon, Sprint, and AT&T spent a lot of money on their networks and acquiring customers. You didn’t see any of them getting so excited about having to open it up for all to use on the 700 MHz spectrum. Telcos defend their position by forcing customers into multi-year contracts. Microsoft defends its position by making its software work just a little bit better on its own products rather than competing products. And Disney just sues everyone into oblivion who tries to appropriate Mickey’s image. Microsoft will surely help Facebook protect its 50 million user base. It’s in both of their best interests to do so.

We’re not going to open up our network for security reasons – This response gets the same “eye rolling”-response as “I’m resigning so I can spend more time with my family.” Nobody believes it, and you know nobody’s going to believe it, but it’s a hell of a lot better than telling the truth. While I don’t know if Facebook has said it’s not going to participate for “security reasons,” I’ll bet you’ll hear it soon. “Security reasons” was the same BS excuse that America Online used when Yahoo, MSN, and Jabber asked AOL to open up its instant messaging (IM) platform, AIM. Logically it made perfect sense. It would be much better if everyone could intercommunicate on instant messaging like we do with the phone. Being the dominant player dwarfing its competitors, it made no financial sense for AOL to open up its AIM network. It would only devalue its audience. Knowing full well that AOL would never agree to open up AIM to their IM networks, Yahoo and MSN asked them to anyway purely as a PR move to show how egalitarian the two giants were. Here were two traditionally closed networks that were both willing to go open. In 2004, the three finally agreed to interoperate but only across business users, a market for which none of them had a strong foothold.

If they’re not searching, they’re on social networks, and that $900 million MySpace deal obviously didn’t get everybody – Search traffic and social network traffic accounts for a significant portion of all Internet traffic. One in twenty Web visits are to social networking sites according to Hitwise’s statistics from last year. Given Facebook’s current success, that number is probably much greater. While Facebook took an initial step to get a piece of the social networking pie by solidifying a $900 million deal with MySpace, they obviously don’t have as much of the pie as they want. Will they now go after Facebook? Probably not now that Microsoft has made it’s 1.6% stake in the company. But you never know. The company has deep pockets and it may not be worth the fight. They may just buy what they need out of them.

Tap the Java developer mindset – OpenSocial is trying to do that with its equivalent “write once, use anywhere” mantra, with “anywhere” being defined as a social network that accepts the OpenSocial API. Can the many band together to beat the one, Facebook? Well, Google does have MySpace in its pocket, and it does own Orkut which I thought was a colossal loser, but appears to be doing quite well especially internationally. It wouldn’t take much for the other top players to fall in line.

Google can place ads wherever there’s a screen with content – Google makes money the more eyeballs are staring at pages of content with its ads on it. The company simply wants to slap ads wherever you want to look. That’s why they want as many people using their API as possible. More applications using their API means there will be more locations and opportunities for their ads to be seen on social networks.

Google’s audience, money, and staff dwarfs Facebook – While there’s been so much press about Facebook and its valuation, it doesn’t come close to the leverage, audience, developers, and technology that Google has.

Facebook may be kicking Google’s butt on hangtime – Google is definitely beating Facebook when it comes to page views-for which each page seen is monetized with a host of new ads. But Facebook’s stickiness could result in it winning the “length of visit” race. That’s extremely attractive to advertisers who’ll have their ads looked at for longer periods of time instead of a fleeting moment on Google as people race to click on links to get somewhere else.

Microsoft has a lot of smart developers and they’re not afraid to bully their way in – While Google may want to open up development to the world, Microsoft has a lot of smart developers on staff to compete against them. And if they want to dominate a market, they’ll throw a lot of money and mind power against it. Take a look at the history of Netscape vs. Internet Explorer. Do you remember when Netscape was the dominant browser and Microsoft had nothing? Then the software powerhouse got into the game with money, developers, and connecting the browser to its operating systems. The software powerhouse took many legal hits from it as a result, but in the end through brute force it became the dominant browser turning Netscape into dust.

You can get a small percentage and still be a winner – You don’t need to dominate this market to declare success. In Google’s eyes you do, but for the multitude of small social networks and application developers, a small percentage of a very large market could be more than enough.

UPDATE: Patrick has thrown in his two cents from our conversation as well.

{ 2 comments… read them below or add one }

David Mullings November 5, 2007 at 7:18 pm

You are correct on many fronts, the ultimate point being that companies focus on defending their IP because that is where the most value comes from in the end and businesses are built to create value.

Evelyn Sorenson April 6, 2011 at 6:34 am

I would agree on that. In to those consumers, they should also be essential on choosing on the best reviews on which would suit your need.

Evelyn Sorenson,
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