Facebook (NASDAQ:FB) recently demonstrated its renewed focus on SMBs, or small and medium businesses, at the kickoff event for the Facebook Fit tour in New York City. The social media giant talked about how it has been ramping up its advertising services and tools that mainly target SMBs, as well as large corporations.

Facebook as a threat to Google
Google (NASDAQ:GOOG) (NASDAQ:GOOGL) remains the undisputed leader in online advertising, owning about 32% of the digital advertising market. Google generates more ad revenue than any other company, and finished fiscal 2013 with more than $51 billion in ad revenue, compared to Facebook's $2 billion.

Facebook, however, is increasingly emerging as a growing threat to Google, mainly because of its powerful mobile platform. Facebook has more than 30 million small businesses with active pages. More than 19 million of these businesses manage their activity via mobile.

Attractive new tools
Facebook announced several new ad tools during the event, including Lookalike Audiences. Lookalike Audiences refers to the ability of an SMB to upload customer sets, which Facebook would then use to find a larger audience with similar characteristics.

Meanwhile, Facebook has borrowed a few plays from Google. Its self-service ad tool is, in effect, a knock-off of Google's Adwords. Facebook is, at the end of the day, an ad company, and its business model bears a striking resemblance to Google's. Both companies get the bulk of their revenue from ads.

However, certain products or services cannot easily translate across the two platforms. For instance, Google dominates paid search, while Facebook does not have a product that can compete directly with this. Facebook, on the other hand, dominates social media advertising, while Google has barely managed to scratch the surface with Google+.

Advertising as a Percentage of Revenue













Source: Google 10-Ks, Facebook 10-Ks

Google's display network is much bigger than Facebook's, hence its much higher revenue. Facebook's ad revenue, however, has been growing at a much faster clip than Google's. Facebook saw its ad revenue grow 257% from 2010-2013, compared to 79% for Google, over a similar period.

Mobile share
Facebook touted its mobile capabilities during the event, as well as an app called Page Manager, which allows customers to track engagement and launch campaigns from their mobile devices.

When it comes to mobile ad revenue, the story is pretty much the same for the two companies, with Google dominating the mobile advertising market and Facebook playing second fiddle. But, to its credit, Facebook has managed to close that gap considerably since 2012.

Source: eMarketer

Internet advertising grew 13% between 2012-2013, from $104 billion to $117.6 billion. Mobile advertising, however, grew at a much faster clip -- 50% last year. Mobile ad revenue currently accounts for just 11% of total online ad revenue, leaving plenty of room for growth, while desktop advertising accounts for the other 89% of online ad revenue.

Looking at the business models of Google and Facebook, it's quite clear that the two companies are targeting a similar audience with similar products. So, it's only natural to ponder whether Facebook has the potential to ever become as dominant as Google in online advertising.

Facebook has natural limitations
Facebook faces a special dilemma regarding placing ads on its pages. The company must perform a delicate balancing act between delivering value for clients (marketers) without making fans angry by shoving too many ads in their faces. It's ironic that Facebook's bread and butter is online advertising, yet people don't specifically go to Facebook looking for ads. In fact, ads on Facebook are viewed by many people as an antisocial offering on the social platform.

In contrast, Google, has free rein regarding ads. The search giant displays ads to users in direct response to specific words that appear in their search queries. 

Nate Elliott, a Forrester researcher, wrote an open letter to Mark Zuckerberg lambasting Facebook for failing marketers. According to Elliott, Facebook shows each brand post to just 16% of its users, despite spewing billions of ads on a daily basis. To make matters worse, fewer than 15% of those ads leverage Facebook's huge cache of social data in a bid to target the most relevant audiences.

Source: Forrester Research

From an investor's perspective
Facebook is growing its ad revenue, and its top line, much faster than Google, which is what really matters for investors. Although the social platform may not have the potential to become as dominant as Google in online advertising, it, nevertheless, has plenty of room to run, making it a good investment.

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