How Facebook Can Put Google Out of Business

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Editor’s note: Guest author Ben Elowitz (@elowitz) is co-founder and CEO of Wetpaint, an online publisher with an audience of 10 million monthly uniques, and author of the Digital Quarters blog. Prior to Wetpaint, Elowitz co-founded Blue Nile, the online retailer of luxury goods. He is an angel investor in media and e-commerce companies.

I was surprised to hear former Google CEO Eric Schmidt publicly lament lost opportunities and missed chances to catch Facebook the other day.

I used to envy Google and the vast digital empire that Schmidt commanded.  Google had one of the most intricate monopolies of all time. It had the most impressive dataset the world had ever seen; the most sophisticated algorithm to make sense of it; an audience of a billion users expressing their interest; and more than a million advertisers bidding furiously to reach those consumers at just the right moment.

What’s more, it had captured the ultimate prize: increasing returns to scale. Only Google could spread such huge R&D costs among an even more humongous query volume, all while offering advertisers the chance to reach most of the population with one buy. Google had earned its success.

It competed on being smarter.

It was.

And it won.

Google’s business strength was simply taken for granted; so much so that even deep-pocketed competitors like Yahoo and Microsoft stopped trying to outdo Google’s massive scale and core algorithmic know-how.

And that’s why I used to think that Google was unstoppable.

Until I realized one very important thing: despite the fact that Google goes to great lengths to keep its index fresh by indexing pages that often change every hour, or even every few minutes, and despite its efforts at realtime search (including searching the Twitter firehose), its dominant dataset is dead, while the Web is—each day more so than the last—vibrantly and energetically alive.

Indeed, Google’s revered and unparalleled dataset is increasingly dating itself as an ossified relic akin to the Dead Sea Scrolls—outshined by the freshness of the living, breathing organism that is the social Web.

Like dusty and determined archaeologists, Google’s massive bots crawl the Web looking for the artifacts of digital civilization. And what they find is fossils—in the form of pages and links: the leave-behinds of writers, contributors, and casual end-users who have deposited traces of themselves in the skinny crevices and dark recesses of the Internet. Google analyzes these remains, and yet it has almost no first-hand knowledge of any of the users who created this content—or those who are searching for it.

Enter Facebook.

Since its founding in 2004, Facebook has focused on enabling social connections, not on search. And yet, in the process, Facebook has created a platform that knows more than 600 million people, complete with identity, interests, and activities online. The company’s relentless and organic expansion—from an application to an emergent social operating system—has enabled it to know its users, not only on the Facebook.com domain, but also on other sites, as they travel throughout the Internet.

While Google has amassed an incredible database consisting of the fossilized linkages between most Web pages on the planet, Facebook possesses an asset that’s far more valuable—the realtime linkages between real people and the Web.

What does this mean, and what are the implications here?

Well, in a nutshell, Facebook has stored a treasure trove of distinctive data that, if fully utilized, could put Google out of business.

Yes, put Google out of business.

Here’s why.

Facebook’s data allows it to do more than just guess what its customers might be interested in; the company’s data can help it know with greater certainty what its customers are really interested in. And this key difference could potentially give Facebook a tremendous advantage in search when it eventually decides to move in that direction.

If Google’s business has been built on choosing which Web pages, out of all those in the universe, are most likely to appeal to any given (but anonymous) query string, think about this: Facebook already knows, for the most part, which pages appeal to whom—specifically and directly.

And, even more powerfully, Facebook knows each of our individual and collective behavior patterns well enough to predict what we’ll like even without us expressing our intent.

Think of it: Facebook can apply science that is analogous to what Amazon uses to massively increase purchase likelihood by suggesting and responding to every minute interactive cue. Whereas Amazon relies on aggregate behavior, Facebook adds in the intimate patterns of each individual—along with their friends and the behavioral peers they’ve never met all around the world. And each of them is logged in and identified as a real person.

When Google was born, its advantage stemmed from its ability to collect and analyze superior data. While other publishers looked myopically at each page on the Web as a standalone realm, Google found that the link relationships between those pages held more valuable relevance data than the pages themselves. All of a sudden, the isolated views of players like AltaVista and Yahoo began to look one-dimensional. And ownership of what is now the $20-billion-plus search advertising market was cemented.

In the last several weeks, Google has indicated how important Facebook-like social networks are to its still-vast ambitions. One proof point is the launch of the new +1 product; another is the company’s internal announcement that bonuses will be tied to success on the social Web.

It may seem that this is about capturing a new market opportunity. But, trust me, it’s not. In reality, it’s Google’s recognition that Facebook has the same kind of advantage over Google that Google is used to having over its competitors.

And Google is smart to be scared.

Very smart.

But, if the truth be told, it will take far more than +1 to measure up to the whole new human dimension of the Internet. After all, the human organism is home territory for Facebook and utterly foreign turf for Google’s algorithmic machine.

Photo credit: flickr/Ken and Nyetta