Friday, January 21, 2011

Should Google Be Worried About Facebook?

This is a simple diagram known as a Business O...
With the recently announced shakeup in leadership at Google there has been a lot of speculation on the underlying cause.  Some of that speculation has centered on the threat of Facebook and other social media sites to Google's current dominance in the ad revenue space.  It's always wise to keep an eye on your competitors but I don't think the overlap between these two companies is as large as most people seem to assume.

From my perspective Facebook is like a never ending party while Google is the 21st century equivalent of the phone book.  I don't go to Facebook to find stuff to buy, I go there to hang out with my friends and find out what they are up to.  If somebody in my friends network recommends a product then yes, I might check it out but it's difficult to see how Facebook is going to be able to derive revenue from that other than indirectly through page impressions on their ads.

It is true that there are only a limited number of on line advertising dollars out there and both companies bottom lines derive substantially or exclusively from that pool.  Over the past couple of years I've spent much more time on Facebook than Google and have never once clicked on a Facebook delivered ad.  I have been known to tell them that an ad doesn't interest me but they are still doing a lousy job of figuring out what to try to sell me.  Google has had a much better track record and while I don't make it a regular habit I do occasionally end up buying something as a result of seeing one of the ads they deliver.

In theory both companies have a lot of useful data about me and should be able to do a great job of targeting their pool of ads to maximize the chances of me clicking through.  Again though we get back to the fact that when I'm using Google I'm searching for something, and therefore receptive to offers which is not the frame of mind I'm in when I frequent Facebook.

Where Facebook excels is in situations where I have an established relationship with a product or company.  Through the "like" mechanism on Facebook I have a way of both showing my interest and "keeping in touch".  I don't believe Facebook charges companies for providing this conduit.  If I'm correct then again, Facebook isn't deriving any revenues directly from that interaction.

So, in summary Google appears to be a much better advertising channel when a company is looking for motivated buyers with specific needs and Facebook is a superior venue for maintaining and building existing customer relationships.  Google has a well established and lucrative business model while Facebook may be vulnerable as they don't appear to be deriving revenues directly from the things they do that create the most value (customer recommendations and enabling companies to build communities around their products).

I haven't given this topic a lot of thought and would be very interested in what others think.

Image via Wikipedia
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