Why Google Will Triumph Over Facebook

Facebook is an enormous threat to Google (Nasdaq: GOOG  ) , that much is clear. But in the ongoing war between these two -- a war that’s being waged through big checks and sleek code -- Facebook is overmatched. Google’s moat is getting deeper and wider just as Facebook’s is running dry.

If that sounds a little nuts, it should. Facebook now hosts more than 500 million active users, a population two-thirds larger than the United States'. What’s more, estimates say the company will generate at least $1 billion in 2010 revenue, putting it in the neighborhood of top techies salesforce.com (NYSE: CRM  ) , Akamai Technologies (Nasdaq: AKAM  ) , and Netflix (Nasdaq: NFLX  ) .

Yet, by itself, growth isn’t a competitive advantage. Crocs (Nasdaq: CROX  ) was a fast grower until it wasn’t. Only now, after the hype, has this one-time highflier settled into a niche. Facebook isn’t likely to suffer the same fate -- there are too many users -- but it also lacks a clear edge over alternatives.

Here are three reasons why Google investors should keep buying in the face of the Facebook threat.

Facebookers don’t need to be loyal
Take a look at the Social Web sometime. Alternatives are everywhere. Twitter is a massive and growing alternative to Facebook that already commands a $1 billion valuation. Google has Orkut, which has proven popular overseas, and of course News Corp. (Nasdaq: NWS  ) has MySpace. Netizens who frequent the Social Web tend to use more than one service to surf, search, and post.

We’ve known this for some time. It’s the reason services such as Ping.fm have gained in popularity: They allow users to update several networks at once. There’s even software to cater to our online multiplicities. Users have downloaded TweetDeck more than 15 million times since its introduction two years ago. A rival app, Seesmic Desktop, claims more than 3 million downloads. Both numbers make clear that netizens depend on not one but many social networks.

Code is portable
Apps are what make Facebook interesting as a business. At last count, there were 200 business applications built on the platform and many more categories with at least that many apps. Zynga has collected hundreds of millions in revenue by creating social games for Facebook. An IPO seems likely.

Trouble is, Zynga doesn’t need Facebook to be Zynga. Google has invested in the company, which took steps to host games elsewhere on the Web after Facebook blocked the company’s ability to send notifications and gift requests.

No one should be surprised to see Zynga cut the umbilical cord in this way. Facebook games such as FarmVille were built with the Web standards common to cloud computing, such as HTML and Java. Open standards make code portable, and developers are taking advantage.

Consider the smartphone market. Because of Wi-Fi and in-phone browsers, apps built for smartphones tend to mirror those built for the Web, allowing coders that write software for Apple’s (Nasdaq: AAPL  ) iPhone to repeat the process for Android, economically, even in the face of the iEmpire’s draconian do-it-our-way-or-not-at-all programming restrictions. That’s why retailers and wholesalers are reporting 200,000 new Android handsets sold each day. Platform lock-in is harder to achieve, even for Apple.

Email still beats every other form of digital communication
Social-media usage is undoubtedly on the rise. In January, Nielsen said the average consumer spent 5.5 hours on social media sites in December, up 82% year over year. In June, consumers spent 22% of their time online using social media.

Now consider what these stats mean. If 22% of time online is spent using social media, 78% of our hours online are spent doing something else. I’d wager email, instant messaging, and browsing.

Email remains the Web’s killer app, and Google is better at organizing and delivering mail than most. More than 100 million of us use Gmail; Facebook barely registers as an email provider, yet is trying to get better. Unless it actually does get better, Facebook has no shot at challenging Google.

Skeptics will argue that Gmail is flawed because it forces users to view messages as conversations. Please. If this really bothers you then fine, don’t use Gmail. But at least admit you’re nitpicking. An email trail is a digital conversation, why wouldn’t Google organize email to reflect reality?

More broadly, with Gmail, I’ve created a portal for accessing every method of business communication I use daily; email, instant messaging, and, yes, social networking, too:


Using Google services makes me productive; Facebook doesn’t. There’s no reason to consider Facebook a genuine threat to Google’s business until that changes, if it ever does.

Please take our Motley Poll then scroll down to the comments section to explain your vote.

Apple and Netflix are Motley Fool Stock Advisor selections. Akamai, Google, and salesforce.com are Motley Fool Rule Breakers recommendations. Google is also a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and stock positions in Akamai and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool owns shares of Google and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy likes pina coladas, but not getting caught in the rain.


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  • Report this Comment On August 16, 2010, at 5:45 PM, PalmTree2712 wrote:

    I generally enjoy your articles, but I don't think you understand social networks.

    "Facebookers don't need to be loyal" - For anyone under 30, there are NO alternatives to facebook. Twitter is for celebrities, politicians, and their fans and Myspace is essentially a dating site. Does that mean that we won't use other social networks? No, FourSquare seems like a great idea in big cities, but we don't use other sites to do the same things we do on facebook (except for Twitter, which endangers Twitter of being obsolete, not facebook). When it comes to facebook, there is no other. We are emphatically and unconditionally head over heels in love - a fact that older generations don't always seem to be able to appreciate or understand.

    "Code is portable" - Unlike the mobile industry, apps are not what make facebook interesting. In fact, most of us don't use facebook apps at all, with a few notable exceptions (Bejeweled, Zynga Poker and Farmville). Apps are not our primary use of facebook. In fact, if you took these apps off, most of us would probably thank you so we weren't tempted to waste so much time playing these stupidly addicting games. So the code is portable - who cares? We're not on facebook for the apps.

    "Email still beats every other form of digital communication" - Email blows. It's a pain to check, it's boring, and it's ugly. You want us to respond to a message in a few minutes, facebook us. You want us to responds in a few hours, email us. Gmail is my primary email account. I like Gmail. But I look forward to the day when I can do all my communication on facebook, beacuse I'm already on the site. Does that mean Google is in trouble? No, most adults don't REALLY facebook even if they have an account. Email is their killer app. But it's not ours. And Google is not going to win our hearts over with email. Because it's email, not facebook, that you don't have to be loyal to. Facebook will win this battle with anyone born after 1980 from here on out. I speak for at least two generations when I say we love Google, but don't mess with our facebook.

  • Report this Comment On August 16, 2010, at 5:48 PM, petethepanzer wrote:

    I disagree with Tim.

    Facebook is not supposed to be the productive part of the web. It is the social organs of it and everyone is collecting at its center. If Facebook can saturate the entire worlds web users as one giant social network then they will beome a giant vacuum for advertising revenue. If this happens to be the case their revenue will explode up to google's level in 5-7 years and then pass it vigorously.

    When they IPO in 2012 I suggest Facebook as a strong buy and say they could do 5x-10x and as a once in a lifetime investment opportunity.

  • Report this Comment On August 16, 2010, at 6:56 PM, nin4086 wrote:

    author has no idea what he is talking about :-)

    2nd pepethepanzer...

    restaurants/movies/theme parks don't make us productive but they are great businesses nevertheless

    so far it is not clear if facebook threatens google's search based ad business (which is almost all of its business). but it certainly has an edge over google's ambitions in social networking, video(youtube), gmail etc.and it may threaten its mobile/android game too although not yet.

    facebooker's have no alternative but be loyal due to the network effect. my friends are there, so i have to be and so my other friends have to be there too. it is a positive spiral that has already happened.

  • Report this Comment On August 16, 2010, at 10:26 PM, damastr wrote:

    Seriously? Is there any point to this article? People keep finding new friends every day, post new pictures, videos and other content of very personal and public nature. Basically people express who they are to an entire network. I used Orkut long before I used Facebook. Now I don't use Orkut at all but use Facebook every day. As of now it doesn't seem very likely I will be attracted to any other competing site. You don't see that as a moat?

    "Google makes me productive while Facebook does not". That's not entirely true. But even if it was -- so what? Watching TV doesn't make anybody productive, yet people watch it don't they? How many episodes of Seinfeld made you sit up and say to yourself -- "Wait a minute -- what a revelation!!". But I bet you still watched them all didn't you?

  • Report this Comment On August 25, 2010, at 11:49 AM, Blandsworth wrote:

    All due respect Tim, I fear you're argument is a little off base. Comparing your opening and closing sentences highlights a blaring contradiction:

    "Facebook is an enormous threat to Google (Nasdaq: GOOG), that much is clear." And: "There’s no reason to consider Facebook a genuine threat to Google’s business..."

    The conclusion that Facebook doesn't yet spell the end of profitability for Google is probably right. But Facebook has just begun to tap into targeted advertising (Google's bread and butter), and it may expand into the wold of search. Your claim that social networking is non-essential is akin to saying relationships are non-essential.

    My feeling is that Facebook will continue to expand (China, India) and Google will continue to be Google. It doesn't have to be all or nothing.

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