Monday, November 29, 2010

Google has one last chance to buy Facebook

The Internet went already through several battles on its platform. The first one was a battle for the browser, which was also completed with a dramatic judicial final. Browsers in the meantime became nearly uninteresting commodity, on which now (almost) nobody earns money. The second battle focused on the search engine. Search engines are now at the peak of their career. They earn money so well that the winner of this battle Google has become a powerful global corporation. On the Internet, however, nobody does have anything certain forever. We are now ready for the next, already the third major battle: this time to fight for the platform on which it will be possible to build personalized search and personalized mass advertising. The winner of this "internet personalization layer" will be granted huge income from the modern advertising industry. Today there are only two serious rivals: Google and Facebook. If Google doesn’t buy Facebook now, it may eventually regret its decision.

The magic of advertising market

Advertising market was, is and always will be very lucrative. The need to sell is the basic need of all commercial firms from the dawn of business. Internet brings to this area a breakthrough innovation: for the first time in history it offers mass advertising aimed at individual needs and preferences of specific customers. Yes, especially the apparent contradictions in the words "mass" and "personal" is the key to huge earnings mass personalized advertisement will bring.

Two types of advertising

Personalized advertising was always available: but it required a personal work of people. The more customers we wanted to reach, the more people we had to involve in the sale: we had to hire more dealers, more salesmen, more call center operators. Advertising could therefore always be personalized, targeted to the specific needs of buyers, but couldn’t be in the same time a mass.

Also, mass advertising is available here for some time, specifically, since the invention of mass communication media - print, radio and television. It is able to reach millions to tens of millions of people in a single moment, but all of them with the exact same message. Men are then offered hairspray, ladies are offered sports car or a razor blade to shave beards. Mass advertising is relatively inexpensive, which unfortunately leads almost to its "abuse", which results in its overabundance. People are today approached by advertising from all sides. And since most of the advertisements are not relevant to them (they are not targeted), people take advertising as something annoying, something that is just a waste of their time and thus should be ignored ("ad blindness"). But this forces advertisers to try even harder – to try everything to win customer’s attention. Advertising thus became increasingly obtrusive and annoying. This is however, paradoxically, against the two "golden rules of successful sales. Perhaps these rules would not hurt to recall:

1. Try to solve customer problems;

2. Contact the customer when it is convenient for him.

In other words, the seller should always try to respect the needs of customers and context of their situation. If the customer looks at a football match right now, let’s assume he cares about the match, not about buying a new car. Conversely, if the customer is walking down the supermarket, now is the right time for commercial information. Advertising in such a situation will be perceived by the customer as a useful information and he will be keen to listen.

Era of mass personalization

Personalized online advertising is the right tool to solve this dilemma. The Internet is a two-way mass-media. It can deliver a personal message to the billions of people, but in the same time it can do it individually, with knowledge of the situation and context. And it can do so automatically, because the internet is basically an interconnection of computers on which programs communicate with target users according to pre-written rules. The role of precious personal sellers, dealers or call center operators can be taken over by these cheap computers and their programs. Internet thus offers the same level of economic efficiency as public broadcasting, but unlike public broadcasting it is able to customize the messages and provide an optimal time of delivery. For the first time in history, advertisement can be mass, inexpensive and yet individually addressed to specific potential customers. But this is exactly the combination every commercial company called for for years! In addition, personalized Internet advertising does not reach customers only on the Internet - thanks to consumer electronics devices it extends its reach to our daily life. Advertising (and not just the Internet one) will thus change from today's untargeted, flat and annoying form to a useful information respecting the person addressed and the context of his situation.

More effective sales

This offers truly exciting possibilities for both sides of the sales relationship. Seller will be offered personal contact right to those potential customers who might be interested in their product: we can then address just those car owners who are just now considering a replacement of their vehicle, only those tourists who now go around my restaurant and love the type of food I cook, just those travelers who are just looking for bed this evening near my hotel and could thus fill my unsold capacity. This new way of advertising is also advantageous for buyers. Buyer will be interested in receiving commercial information of the areas that interest them, and when it is useful to them. If I am walking down a mall, I would be happy to learn that the shop left to me offers the gaming console I have already asked for, and that if I buy it right now, I get a personal discount of 30%. Finally, people will not be bothered by advertising; on the contrary, they will look forward to it.

The need for a single platform

To build such an advertising system, we certainly need to know users; that means we have to know about them as much information as possible and we need to watch their behavior for as long as possible – and all that of course regardless of the device that the users are using. The same user should therefore register with the same username and password on his computer, on his cell phone, video console, television or an electronic book - personalization must be at the user level, not at the device. The platform must be capable of processing data from a large number of users and automatically monitor their activities (shopping behavior, topics read on the Internet, books read, movies watched, even their movement in the real world as tracked by GPS). All this information should then be automatically added to their profile and then groups of “similar" people should be calculated. The platform should also be massively used in order to compare the behavior patterns of as many people as possible. The more users the platform will have, the better it will be suited for targeted advertising.

It is therefore necessary to create a platform that will meet the following two criteria:

1. It is mass-popular

2. People spend as much time as possible using it.

Let's see, who is now closer to this “golden platform”. Facebook or Google?

The Facebook approach

Social network Facebook was founded in 2004 as a small student platform. By today it has more than 500 million active users, far beyond the academic realm. Gradually, Facebook is offering more and more services that compete with the general Internet services. The last of its major innovations is email called Facebook Messages, which the company launched on 15th November 2010. With this email, users get address @facebook.com and can send mails with attachments to anyone on the Internet. This email platform competes head-on-head with Google’s Gmail. But Facebook has also other services in competition with established Internet applications: for example, a photo album with no limit on the number of uploaded images and with the possibility to tag other users on photos (competes with Flicker and PicasaWeb) blogging tool Facebook Notes (Blogger.com competition), discussions organized by businesses, schools or other criteria (competition of Google Groups), not to mention the personal websites of users, which competes to Google Sites. Plus a large number of third party applications, the possibility to update user status, shared "wall" where users can write messages and post attachments, the "news feed" informing users about changes in profiles and activities of their friends. Facebook is just a small "Internet-in-one”. Everything is extremely well integrated, the user gets all the features easily, the system constantly advises them, which other functions they could still try. Whether you want to find friends, classmates, or attend one of the many forums, you are still in one application enjoying the same interface. Besides, nearly all of your friends are already there - Facebook is now by far the most popular social networking platform. Thanks to it all these services like search and discussions gain even greater meaning and usefulness.

This leaves Facebook with a real wealth of personal information. Facebook is well aware of the value it has in their users and tries to use the data collected from users in contextual advertising. Let us mention the Facebook Beacon project in 1997 (ended in 2009), which sent data from external websites to Facebook, ostensibly for the purpose of allowing targeted advertisements. This project is proof that Facebook knows which direction it should take.

In summary, Facebook gradually grew into a natural platform for the Internet - it's kind of a small Internet of its own, which integrates all useful functions, but which does not suffer from the complexity of the "big" internet. With some exaggeration we can even say that Facebook is the "Internet for ordinary consumers." But that is the majority of the Internet users.

How can Google compete?

But what is a competitive platform Google could stand against Facebook? Google has its applications in most areas of Facebook functionality. These applications usually existed long before Facebook and offer more functionality than Facebook. But does Google have a single product that could stand Facebook as its direct rival? I am afraid that here the answer is negative.

Google applications grew up as completely separate platforms, created by different teams, or even purchased as finished products. As a result, these applications are not integrated together - except the login where the same Google Account is used. An additional problem is that the functionality of many of these applications overlaps considerably. For example, several Google products have characteristics of social network, namely Gmail with Google Buzz, PicasaWeb, Blogger, YouTube, Google Maps with Latitude and Orkut. In all these applications you can add "friends" and see what these friends do. Unfortunately, by adding friends in these separate applications you end up with a number of different, separate sets of "friends." To tell the truth it results in a chaos, with whom we actually take up with.

Chaos in friends :-)

In fact, Google applications are very good individually. In particular, Google has an excellent e-mail system Gmail, which is combined with chat, video chat and calendar. In February 2010, a feature called Buzz was added to Gmail allowing short messages to be shared with "friends." This step actually moves Gmail into a sort of a social network. To share photos, however, you have to use other application, PicasaWeb, which, unlike Facebook limits the number of photos uploaded to 1GB of storage space, the additional space must be paid for. Here, users can also comment on their photos and send messages, but those comments are separate from Gmail or Gmail Chat. If the user wants to blog, it can do it of course as well. But then he must turn to another distinct system: blogger.com. There, your blogs can be followed by other people via RSS feed and similarly you can follow other blogs (again, the analogy of "friendship"). For the blogs of your friends (the analog of Facebook News Feed) you can use an excellent RSS reader Google Reader (another separate product), which works regardless of platform where your friends are blogging.. Unfortunately, this creates yet another separate group of your "friends". Google has also excellent maps, enhanced with an interesting community feature Google Latitude. With this feature, you may disclose the location of yourselves to your friends and vice versa. Adding "friends" into Google Latitude creates unfortunately again a separated “set of friends”. The popular video server YouTube is also a sort of a social network. Its users can rate videos, can comment on videos and recommend videos to others. However, this interaction is again separated from the interaction on Gmail, Google Buzz, Blogger, and PicasaWeb. YouTube users can also watch other people’s “channels” - again, an analogy of friendship, but separated again from all other sets of “friends” in Google's portfolio. And to make matters even worse, Google also owns a "full-fledged" social networking site Orkut. This network has 100 million active users, especially in India and Brazil - and certainly cannot be considered a failure. Unfortunately, friends in this network are yet another separate set of friends you have in Google.

Can this all be ever integrated?

Google thus has all the functionality which Facebook offers, and usually at a higher level, but unfortunately, these functions are spread among a number of very different applications. Google’s applications are excellent and in many cases even the best on the market. Thanks to them, Google owns also a large amount of data about their users. But these data are again held in separate applications, without the possibility to access them uniformly. Our conclusion? Google lack an uniform platform that could compete with Facebook.

In contrast, Facebook went through a very different process. First, it created its own platform, only then it built all of its functionality on top of it. Thanks to this approach Facebook created its own “small Internet,” which is well integrated on a single platform. As a result, there is only one “set of friends” on Facebook and there is just one platform all the applications run on. Facebook can thus be much more efficient in collecting information about its users. And last, but not least: it is also much easier to use.

This is a big threat to Google. Google is aware that it has no other option than to win users for its own plaftorm, Google Account .

How to get users to Google Account?

The easiest way is to gain market share by "brute force"; in other words, Google must engage in this combat all of its popular services. A similar strategy has been already used by many companies in the past: for example, Microsoft has built the success of its Office suite on the success of its Windows operating system. Google has already made the first step: unified login of all applications in its portfolio via a single Google Account.

But Google has two other irons in the fire. They are the popular Android operating system and the forthcoming Google Chrome OS. For manufacturers of mobile phones and PCs both platforms are very appealing for their zero price and high quality. And they are very attractive for users, too - along with a mobile phone or PC users get some very useful applications (such as maps, navigation, and online Google Docs office suite). But to make this system work, users must have a user name and password on the Google platform, otherwise its operating system will not even start.

The Android platform is expected to increase the number of its users by 500% in the next 3 years. Already, there is no doubt that Android aspires to the position of the main platform of mobile devices. But even if this actually happens, Google will still be far from victory. It can easily occur that although most of the devices will be using the Android operating system and Google Chrome, all of them will also carry an Facebook icon on their desktop. And this icon will be in addition present also on all other platforms that are out of Google’s control. Android's success will be then possible to compare with the success of the Internet Explorer browser. The battle was won, but unfortunately on the wrong battlefield.

Should then Google buy Facebook?

Would it be therefore a solution for Google to buy Facebook?

According to SecondMarket Inc., as of November 2010 the market value of Facebook is U.S. $ 41 billion and Facebook is the third largest web company in the United States after Google and Amazon (just before eBay). Google's market capitalization is around U.S. $ 190 billion. Acquisition would be possible, but it would not be in any way cheap for Google.

Another problem would be that Facebook functionality massively overlaps with Google’s. In the case of purchase, therefore, Google has either to abandon some of its own applications or integrate them into Facebook. If it decides to integrate it would be a very complex task – both in terms of technology and marketing.

Yet it is perhaps still a better option for Google than the prospect that in a few years, Google will compete with Facebook in a match of equals. Although Google will have better and more sophisticated applications, Facebook will be easier to use and better integrated. And the majority of users will be on its platform.

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2 Comments:

Anonymous Anonymous said...

This comment has been removed by a blog administrator.

2:38 PM  
Anonymous Ayka | Cartridges Lexmark said...

With the attention that Facebook is getting, it will really take a lot of effort to get it sold to Google. It offers personalized marketing and there are millions of users that will come along with the purchase.

6:11 AM  

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