Ok, so it's a bold title. And given that I am about as far away from Silicon Valley as you can get, you can take my soothsaying with a grain of salt. But hear me out because FaceBook represents a huge threat to Google's dominance of the Net.
There's been a lot of FaceBook bashing in the media given the recent IPO and the subsequent slide of their stock price. No one is going to gain any friends (or likes) by saying "I told you so" but if I owned FaceBook stock I would cut my losses and run. The iPhone integration announcement at WWDC next week might give it a much needed shot in the arm but there's a storm brewing in Europe and not even Apple's stock will come out unscathed. I'm thinking October sounds about right. And after the collapse there'll be bargains galore.
Enough of the wild speculation and down to something more grounded. Here's what I think Google is about to do and why. Larry, are you listening?
I don't have a FaceBook account. Never have, never will. My wife has a FaceBook account so I'm well versed in how it works. She uses it to post photos of our kids and keep in touch with family and friends (you could argue that I have a FaceBook account by proxy). It's not that social networking doesn't interest me. What put me off from the beginning was the exclusivity thing. For those old enough to remember, there were plenty of social networking sites before FaceBook. What attracted so many people to FaceBook in the early days was that it was an exclusive club only open to a chosen few. At first it was college students with Harvard email addresses. Then it was US college students followed by US high school students and then international schools. Then it was invitation only. When I finally received my invite I said "No thanks".
Zuckerberg had taken a trick straight out of Google's playbook. Google had run this game when they released Gmail in early 2004. The only way to get a Gmail account back then was to get invited by someone who already had one. It's a clever way of playing to our tribal minds which thinks in terms of "us and them" and preying on our need to belong.
Google had little choice. By 2004 everybody had an email account. There were plenty of well established services such as Yahoo Mail and Hotmail. Why would anybody want another email address even if Google offered more storage than these existing services? Those services would soon match that extra storage anyway. But an exclusive invitation-only Google one, that's another thing altogether. It made perfect sense for FaceBook to follow suit given that many people already had a MySpace page or the like. Note to self: when creating a startup make the service exclusive for the first couple of years. It'll keep costs down and help build an appetite for the service among potential users.
Of course, once enough yearning had been stirred up around these services then anybody was allowed to join.
The next play FaceBook copied was advertising. When Google launched they were purely a search company. There were plenty of other search companies prior to Google arriving on the scene but they vanished almost overnight. Google simply did search far better than anyone else. The question at the time was "how do you monetize all those eyeballs and make a real business out of a college project?". The answer was targeted "pay per click" advertising. FaceBook faced the same question so once again they followed suit as they too had a serious number of eyeballs (oh, and they hired Google's former Vice President of Global Online Sales and Operations, Sheryl Sandberg which may have had something to do with it).
Both of these companies are now facing a serious problem (or three).
While Google has expanded well beyond search in the last 10 years, the advertising revenue from search continues to account for almost all of their revenue (96% of $36 billion in 2011). Nothing else they do makes any serious money. And they've being doing a lot (Android, Google Apps, Gmail, self-driving cars, augmented reality glasses, etc.). While these are all great things if you are an investor in Google you would be keeping a sharp eye on those advertising revenues because any serious dip means the run is over and it's time to get out. If someone figures out how to do search better (unlikely, although I wish Google would return to the algorithm they used circa 2008 as search results seemed better back then) or if someone figures out how to do advertising better because they have eyeballs too (highly likely) then Google is in trouble.
For FaceBook the only reason people are on FaceBook is because everyone else is. While it's a captive audience, FaceBook is a free service. There's no real business case for such a service. Sure, they've come up with some clever things like EdgeRank, the Like Button and Single Sign-On but they're not money spinning ideas. They just make the "free" social networking experience better.
The only thing of value FaceBook has is the Social Graph. They know more about anyone than anyone else because anyone seems happy to hand over data about themselves to access the free service. However, while the value of the social graph seems enormous ($100 billion or so some thought), monetizing it hasn't come easy. And it's not for lack of trying. The algorithms FaceBook use for targeting ads to users, ensuring that users are only fed relevant advertising, are nothing short of genius. However, it's not working very well because of what those eyeballs are doing when they are on FaceBook.
With a Google search, those eyeballs are looking for something. So a targeted ad based on that search is likely to be very relevant to what those eyeballs are searching for. With FaceBook the eyeballs are there for two reasons; to post their own news or to read news of their friends. They are there to connect with others. Anything else is just a distraction.
So why should Google be worried? Organizations that have shifted some of their advertising budget from Google to FaceBook will eventually figure this out and swing it back to Google, right? Wrong.
FaceBook will try a number of things to make a go of it. Some crazy; a smartphone, charging users for features, and some sensible; advertising along the lines of Google AdSense so that readers of a Web page are hit with relevant advertising, only more relevant than AdSense. Regardless, none of these is likely to pan out with the kinds of fantastic numbers everyone in the market wants to see (AdSense represents only a quarter of Google's advertising revenue, instead AdWords is where Google really makes money, so assuming FaceBook can grab half of that AdSense revenue they only end up with $4.5 billion. Great but not stellar.).
That leaves FaceBook with only one avenue left and that is selling users' data direct to third parties. This is where the real money is and it is inevitable that they will have to head down this path no matter how many people don't like it.
All of this continues to take advertising revenue away from Google.
So what is Google going to do about protecting that revenue stream? Simply put they will have to destroy FaceBook. This is war after all. How? The answer lies in what FaceBook says it wants to be but never will. Zuckerberg is constantly claiming that FaceBook was created "to make the world more open and connected" while continuing to create a closed proprietary platform. He has to. After all it would be corporate suicide to do otherwise. When it comes to social networking Google, on the other hand, has nothing to lose and everything to gain.
Think about it, if you want to email someone you don't need to worry about which email client they are using as email is based on an open standard. If you want to publish a Web page you don't need to worry about which browser people are using to access that Web page as the content of that page is based on standards (Ok, so not every Web browser adheres 100% to the standards, I'm looking at you Microsoft ಠ_ಠ, and as a developer you do need to worry about it but for the most part it works).
Why should social networking be any different? If there was an open, standard protocol for social networking your feed could be hosted wherever you want and controlled by you. This idea has been floated before but it hasn't really taken off as there's been little impetus to compete with FaceBook. Google has that impetus.
Google+ was just the first salvo. Google are in the perfect position to define a protocol and open it up to everyone. They are no stranger to open source so they could even provide the platform. Heck, they could even become heroes. In the future everyone would tell the tale of "How Google saved privacy".
Once the old Google returns, FaceBook's days are numbered.
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