Facebook's got Google running scared
Why Google is spooked by Facebook and would dearly love to squash it, says Fortune's Josh Quittner. — (Fortune Magazine) — Google is the elephant in nearly every corner of the Internet, from search and advertising to web-based e-mail, online mapping, and home-brewed video.
Context & Ripple Effects
For most of 2007 the running question was who should fear Google: the San Francisco Chronicle asked it in May, and the Economist reprised it in August, casting Google as the elephant spanning search, advertising, webmail, mapping, and video. Fortune's Josh Quittner now inverts the frame — the elephant itself is spooked, by Facebook.
The corpus gives the claim some ballast beyond bravado: a SearchIgnite/RBC Capital Markets study found spending on Google search ads dwindling, Google has begun recruiting Facebook application developers to run AdSense ads on application pages, and analysts point to self-reinforcing network effects keeping Facebook popular simply because it is popular — even as Web 2.0 names like Facebook, YouTube, and Digg have yet to convert that popularity into substantial revenue.
First-order effects
- Google is planting its monetization layer inside the rival's walls, recruiting Facebook application developers to run AdSense on their application pages rather than waiting for those audiences to arrive via search.
- Advertisers weighing the SearchIgnite/RBC finding that search-ad spending is dwindling get an early signal to test social placements alongside their search auctions.
Second-order effects
- Google courting Facebook's developer ecosystem legitimizes the app platform for other advertisers and monetizers, strengthening the very network effects Fortune says make Facebook hard to squash.
- If attention keeps migrating to social platforms while search spend thins, Google's pricing power in its core auction business comes under marginal pressure, pushing it toward distribution plays on surfaces it does not own.
Third-order effects
- The inversion of the 'who's afraid of Google?' framing points toward a contest over chokepoints: whether the search index or the social graph becomes the primary router of commercial intent online.
- Because the leading Web 2.0 properties are popular but not yet substantially profitable, the structural winner will be whichever player first converts social attention into durable ad revenue — a race whose outcome in late 2007 is genuinely open.
The trend: Online advertising's center of gravity is beginning to shift from the search index toward social platforms, forcing Google to compete on rivals' turf rather than merely absorb challengers.