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Sensing Threat From Facebook, Google Forays Into Social Networking

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Google's (Nasdaq: GOOG  ) impetus to develop its own online social-networking platform to challenge Facebook's hegemony gained steam as it ups its efforts to negotiate with various online games makers, a WSJ reports says.

The report attests Google's strategy to grow in concentric circles -- diversifying into avenues from online search, music, smartphones, government contracts, etc., to build a holistic IT behemoth.

However, its current plunge into social gaming is part of a broader social-networking initiative. People close to the source said Google is in talks with Playdom; Electronic Arts' (Nasdaq: ERTS  ) Playfish, and Zynga Game Network. Recently, Google bought a stake in Zynga, the company behind popular games such as Farmville and Mafia.

The present push is congruent to its business model whereby it generates revenues from advertisements, and even the social networking sites follow the same business model. Presently, the social networking domain is ruled by Facebook and Twitter.

Google's entry in this domain would open fresh options for advertisers and reduce their reliance on Facebook and Twitter. The new venture is sure to pit Google against Facebook, which has been touted as a potential rival for Google. The possibility that Facebook can follow Google's success mantra whereby it shot to glory from being a search engine to multiple platforms, Facebook can also launch into multiple platforms from its social networking base.

Facebook is also encroaching on Google's core business of Internet search, whereby users at Facebook are using the network to guide them to various topics and products -- the results of which never appear on Google search. And as customers spend more time at social networking sites it just gives more breadth to Facebook to offer multiple services like messaging facilities, search, etc., thus turning into a one-stop shop for users.

Advertisers also benefit from a social networking site as users engagement with the ad is for a longer duration than a search engine site -- a dream for advertisers.

The demand for social games is on the rise with Zynga's "Farmville" boasting about 60 million monthly users. Zynga posted $300 million in revenues for year 2009 and bagged some $520 million in venture capital funding. Thus, Google's buy of Zynga's stake is just a way of taking away some of Facebook's sheen.

WSJ reports that in countries such as China and Japan, social games generate billions of dollars in revenue. In the U.S., social gaming was a $700 million market in 2009, according to estimates by ThinkEquity LLC, a research firm. That figure is supposed to triple by 2012, the firm said.

Despite its late entry, Google is sensing the drift as it possibly sees that Facebook model could bring about a paradigm change in the online industry and could face a stronger challenge from it than Microsoft (Nasdaq: MSFT  ) .

International Business Times, The Global Business News Leader

This article has been lightly edited. Microsoft is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Electronic Arts is a Motley Fool Stock Advisor choice. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Google. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

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