Thursday, May 12, 2011

Facebook vs Google...the lesser of two evils?

After reading this interesting report from Engadget (link way below), I had some thoughts about this to share with my (imaginary?) readers. I should be studying for the final exam in Derivatives I have later today but some things are infinitely more....pressing.

This purported report highlights the growing tension between these two giants in the internet/social media industry. Over the past year, Google appears to either feel threatened by the rise of Facebook or sense of a goldmine and subsequently began developing products to compete against Zucks' (as in Facebook's CEO Mark Zuckerberg) pride and joy. Recent examples include the "Buzz" feature on Gmail and the "Like" of certain websites through Google's ubiquitous search engine. Unsurprisingly, Zucks is not content to share/cede his company's clout in the field so easily. This purported smear campaign epitomizes the brewing animosity.

Overall, I see Google as a confused giant looking to expand into other markets. The analogy to Microsoft in the late 1990s and early 2000s is uncanny. In a way, it is understandable as Google is the undisputed market leader in search advertising -- which brings in tremendous cash flow year-in and year-out. Their expansion into other internet-related realms is also mandated by their status as a public company (aka to maximize shareholder wealth). But I am perplexed as to the direction of their expansion. Instead of picking a particular segment and focusing, Google is sinking development capital into a wide variety of different markets. For example, Google's Android OS looks to compete in the smartphone business, its Chrome OS in the computer business, its soon-to-be-released music streaming service in the music industry, and it appears very much inclined to take on Facebook. Google's failed acquisition of Groupon indicates the company desires to also be relevant in that business (small business advertising?).

Returning to the Microsoft analogy, the Redmond giant diversified away from its core Windows & Office software business by expanding into the entertainment media. Its success has been debatable through the Xbox, Zune, and Windows Phone -- but do appear to be picking up steam as of late. To me, the amalgam of Google's interests also resemble someone with a mid-life crisis. Or perhaps they have grown so confident (arrogant?) in their own prowess as to seek new challenges. It's interesting to point out that a motto of Google's has long been the phrase "don't do evil". Recent spats of privacy-related fallouts certainly puts a damper on that.

In contract to Google, Facebook appears to be a company with a solid command of its own abilities and possesses a vision for its future. I still remember the days when Facebook membership was limited to college students, and there were so such thing as "news feeds", etc. So much has changed since then! Facebook has not only opened its doors to anyone with a valid email address, but also to application developers to grow its service offerings. It came somewhat of an alarm when I read a recent report on online display advertising, which stated Facebook as a runaway leader in this market segment. But in hindsight, it's not that surprising when you consider how much time people spend on Facebook.

The beauty of Facebook's business model is that it is (almost) perfectly built to cater to advertising. With regard to marketing, a major preoccupation (and cost expense) for marketers/advertisers is matching their ads to target specific demographics. They conduct a multitude of surveys every year for the express purpose of finding out the consumers' state of mind. The goal is to bridge the asymmetry of information --ultimately, to be able to price discriminate. For example, car makers would not want to waste their advertising dollars on teenagers. So how is Facebook ideally suited for advertising purposes? Well, people voluntarily post important indicators of their tastes and preferences on their profile pages! "Voluntarily" is what makes Facebook's business model a thing of beauty: it does not cost them a cent to seek out this information, instead, people donate away this precious information.

Back to the news article, it is precursor for bigger battles ahead between the two giants. Things could get dicey quickly.

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