Like Hell Facebook Is Killing Google (GOOG)

mark zuckerberg laughing

Image: Getty Images / Justin Sullivan

He has every reason to be thrilled. But he’s not killing Google.

Henry Blodget


For the past couple of years, one meme has grown ever louder:

Facebook is killing Google.

Facebook is taking over the Internet, this story goes. Facebook now has ~800 million global users, half of whom log in every day. Facebook now accounts for something like a third of all pageviews in the U.S.  Google is miles behind in social, despite the huge numbers for Google +. Facebook consumes an astonishing percentage of time spent online. And so on.

And most importantly for the Facebook-is-killing-Google meme:

Facebook (and Twitter) are now the means by which many people share content online.

And all of that is true.

But none of it means that Facebook is killing Google.

To get a quick reality check on whether Facebook is killing Google, all you need to do is glance at these two numbers:

  • $40 Billion
  • $4 Billion

What are those two numbers?

Those are the approximate revenue numbers for 2011 for Google and Facebook respectively.

Google’s 2011 revenue will be about $40 billion, Facebook’s will be about $4 billion. Google, in other words, is 10-times Facebook’s size.

But, but, but, you say…

Google is still 10-times Facebook’s size because Facebook is just in the early stages of generating revenue. When Facebook gets its revenue engines really cranking, it will blow past Google in no time.

No, it won’t. Not unless it figures out a way to insert itself between consumers who want to buy specific products and companies that make and sell those specific products, the way Google has.

If Facebook builds a products and services search engine, for example, and somehow captures a huge amount of Google’s global search share then, yes, Facebook will in fact be “killing” Google.

Until then, all the “time spent” and “pageviews” and “users” metrics are pretty much irrelevant.

Why?

Because as the current revenue levels for both companies are demonstrating, search is a vastly better advertising product than social networking.

Vastly better.

So much better, in fact, that, when it comes to head-to-head business competition, the two companies aren’t yet even in the same league.

And why is search such a better business than social networking?

Because search is the best advertising product in the history of the world.

Social networking, meanwhile, is a relatively lousy advertising product (relatively).

US Digital Advertising By Segment

Search is taking over the world. Click for more

The reason the search business has swallowed such a huge percentage of global ad spending in only a decade is that it is advertising space that can capture the consumer’s attention at the exact moment that the consumer is looking for something to buy.

When you search for a product, you are telling the world you are interested in that product. And there is no better and more efficient time for those who make and sell that product to try to get your attention than at the moment you announce that you are interested in it.

That is why search spending has gone through the roof.

And what about social networking?

In contrast to search, social networking advertising is like hanging signs on the walls of a house during a party and sending sales reps to mingle with the crowd.

Yes, you can target which parties you pay to hang your signs on the walls of.

Yes, you can make those signs appealing to those at the party.

But the fact remains that the people at the party, who are sharing stories and photos and news and gossip, are not at the party because they want to buy something.

They’re at the party because they want to socialize.

And any time you do more than passively hang in the background at the party, they will likely be annoyed by your intrusion. And, annoyed or not, when they do notice your ads, their reaction will most likely be, “Cool–if I ever decide to buy a car/boat/stereo/meal/flowers/bull-whip, maybe I’ll look at that kind.” Then they’ll go right back to their party.

Yes, Facebook has a great business. Yes, Facebook is rapidly becoming the place where the whole world hangs out and socializes online. Yes, “online” will soon become synonymous with “everywhere,” meaning that Facebook is rapidly becoming the place where the whole world hangs out.

And by commanding that much of the world’s attention, Facebook can’t help but build a humongous and profitable business.

But advertising “where people hang out” is still fundamentally different and less valuable than advertising “to people who are looking to buy your product when they are looking to buy it,” which is what Google does.

And that’s why Google’s revenue is 10-times Facebook’s revenue, despite their both having similar enormous global reach.

chart of the day, google, yahoo, facebook revenue first six years, dec 2010

Google’s revenue grew much faster than Facebook’s, even with a smaller Internet.

But, but, but, you say. I used to get all my content from Google. Now I get it all from Facebook and Twitter. How can it be that that this won’t kill Google?

Listen carefully to what you’ve just said and you’ll find that you answered your own question.

People do now find more of their “content” via Facebook and Twitter than they do from Google, at least relative to a few years ago.

But Google doesn’t make its money from “content.”

Google makes its money from commerce.

And people do NOT get most of their commerce content from Facebook and Twitter.

When you want to buy something, where do you start?

Facebook?

No.

You start at Google or, increasingly, Amazon. Or, if you’re a regular customer of a store that you know will have the product, you might start there.

You might ask for recommendations about what to buy from your friends at Facebook and Twitter. But when it comes to actually researching and buying it, you’re likely going to start with a search. And that search is where the real money is going to be made.

Is Facebook going to build a huge, profitable business that will change the world?

You bet it will. It’s already doing exactly that.

Is Facebook killing Google?

No way. At least not yet.

For Facebook to kill Google, Facebook needs to find a way to insert itself between a consumer looking to buy a product and the folks who buy and make that product. Or, via “credits” or another payment mechanism, it needs to find a way to take a healthy piece of every transaction.

And right now, Facebook is nowhere near that point.

Right now, Facebook is just a gigantic global party with sales reps wandering around and advertisements on the walls.

And that business, no matter how big it gets, is still in a different league than Google’s.

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