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Summary:

Google (GOOG) announced its OpenSocial strategy last week, starting with some of the smaller (albeit fast-growing) social networks, and quickly ensnaring MySpace (NWS), Bebo and a bunch of other companies to join its efforts. Nick O’Neill, the brilliant young man who writes the AllFacebook blog, described […]

Google (GOOG) announced its OpenSocial strategy last week, starting with some of the smaller (albeit fast-growing) social networks, and quickly ensnaring MySpace (NWS), Bebo and a bunch of other companies to join its efforts. Nick O’Neill, the brilliant young man who writes the AllFacebook blog, described it as a coalition of the willing.

On the surface, it seems like a laudable effort to create a common social platform in which widgets are written once for multiple platforms, allowing for the leverage of data across the web in a seamless manner. It’s being pitched as an open social graph. What it really is, however, is the first defensive move by Google, a company whose only strategy – until now — has been to stay on the offensive.

The Palo Alto, Calif.-based upstart has been upstaging Google and stealing its talent, a good enough reason to get any company steaming mad. Remember the public search feature Facebook launched — in hindsight it seems like a move to grab traffic from Google and boost its own user base. But that was penny ante stuff.

There is clearly no love lost between the two companies. The scorched earth strategy adopted by Google with OpenSocial reflects the fact that Facebook threatens to run away with what may be a huge new market for social networking-oriented advertising and as such, doing what until now had been the unthinkable: putting a hand in Google’s till.

In the 12-odd years since Netscape launched the consumer browser and made the Internet part of our daily lives, the web has been all about public information. There has been an information explosion, and since 1997, Google has been making sense of all that public information, collating it — search is just the tool — and tacking ads right next to it. A friend described it best when he said, “Google took the entire Internet and indexed it with keywords instead of URLs.”

And then along comes Mark Zuckerberg with his fun little social network, Facebook. The network keeps growing and has millions of users. Most of them are college students, (looking to hook-up) and the information is kept private – only Facebook knows everything they are doing. Google’s spiders are rebuffed and sent away. Then Facebook announces a new strategy and millions rush into this private club, sharing their likes, dislikes and everything in between. And still, Google is kept out. It’s a scary proposition for a company whose very existence depends on open access to all information.

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This seemingly public yet private Internet starts to grow at an unprecedented rate. According to ComScore data, while Google saw its page views double in the 12 months ended Sept. 30, Facebook saw its traffic zoom five-fold (see data). This trend of hypergrowth for semi-public/private pageviews is going to continue, while the open web that Google is used to indexing is beginning to show signs of fatigue.

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The difference in the two companies’ web strategies — open vs. private — is going to be reflected in their diverse advertising strategies. Google tries to personalize ads based on the content of the pages you are viewing. Facebook, on the other hand, knows a lot more about us — who our friends are, what we like, what groups we belong to, and even when we like to use its service. So what can Facebook do with all that information?

It can develop and deliver highly contextual and personalized ads — the ultimate goal for Google. Unlike Facebook, where people gladly share their personal information mostly due to an illusion of privacy, Google has to give away web services for free in order to get the right data sets needed to deliver more focused advertising. (Venturebeat has some insights about the soon-to-be-announced Facebook advertising platform.)

Nevertheless, Facebook has a lot to prove — anecdotal evidence suggests pretty dismal returns on advertising thus far — and needs to deliver an advertising platform that is exponentially better than Google’s keyword-based systems. When given the option of a more effective advertising channel, online advertisers are happy to shift their loyalties.

That said, OpenSocial is a pretty clever idea, especially for Google. The Mountain View, Calif.-based search giant doesn’t need to own the No. 1 social network, or even operate a social network at all. All it has to do is give application providers a way to monetize their applications.

In other words, with OpenSocial Google has extended the life expectancy of its AdSense. It still remains to be seen if OpenSocial partners end up using Google’s advertising platform. In fact, a lot about OpenSocial remains unknown at this point, but one thing is clear: It’s giving Facebook a reason to pause and do a quick reality check.

This open vs. private battle is going to occupy the headlines for some time. In the meantime, wait for Facebook to make its next move.

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  1. Alexander van Elsas Tuesday, November 6, 2007

    Om, interesting observations on the differences in apporaches. But honestly, I don’t think Facebook is going to be scaring Google. Facebook sits on value creation in their walled garden. It has 50Mln users, but relative to the Internet population it is still a small number. By increasing ad pressure on the private space of the Facebook user they will scare off users, more than they will provide them value. Interestingly enough, Google also works in a walled garden. Only it encloses the entire Internet, and now Google tries to extend it into mobile as well. Google doesn’t need to monetize within Social Networks as they can monetize outside and do a better job at it. They can spread their ads across multiple platforms and many more users. And they provide it at a more convenient time for the user (when he is actually searching for it). I’m not a big van of the main stream web 2.0 business model of free (ad-based) services. It forces everyone to monetize the network instead of thinking about creating user value and monetizing that. That is why Facebook doesn’t open up, it will endanger their advertisement revenues. With the “Google Everywhere” web operating system forming I don’t think Google has much to worry about. I think Facebook should make some bold moves (similar to Google)and look at the mobile space to create new revenue streams. When in doubt, follow the money!

  2. Daniel Berninger Tuesday, November 6, 2007

    Notice the initials for OpenSocial -> O/S.

  3. Excellent piece Om. Google are obviously seeing Facebook are a big longterm threat.

    I’ve been wondering if the new Google OS for mobiles is part of this; Facebook will become massive via mobile.

    Perhaps this is a dual strategy of cutting off a potential future problem?

  4. Great article Om, one correction though. The name of the brilliant young man who writes allfacebook.com is actually Nick O’Neill. It’s an excellent blog and I suggest anyone who is interested in facebook happenings checks it out. Thanks again!

  5. OM – great digest thus far on the subject matter. Brief, but you hit all the significant points. I hope writeups like this bring some sanity back to the OpenSocial/FB discussion. You, Don Dodge (credit to Don for stepping up right away) are in a small bunch of people taking a sane view of these recent announcements – the rest of them have engaged in delusional ways – in an unsuccesful attempt to occupy mindshare.

  6. Forgive me, but how is Facebook providing ads. In-house or MS?

  7. I don’t think Google is afraid of Facebook in the same way they weren’t afraid of Youtube. The company’s strategy is to be a part of growth markets.

    With Youtube Google already had Google video and they were looking to own the video space so they won the bidding war.

    Similarly, with social networks they have orkut, but that is meaningless is the social platform wars. So they create their own.

    In any growth market Google just wants a piece of the pie…

  8. Have to say, excellent article Om — very well written, articulated with some very insightful points!

  9. Rick,

    FB is currently providing ads via Microsoft. Those are mostly display ads. They were also selling something called flyers which are pretty lame and people have had a dismal response from them.

    But FB is expected to announce a new system today which will be their own ad-platform. I will update after i get more details.

  10. Really nice article Om, though I’d disagree on one count. I think people on Facebook are much more aware these days about the privacy issue, but it seems more like they are willing to let that information get gathered in return for the amount of things they can do on Facebook, and the fact that all their friends are already on it too.

    Not that it majorly changes anything you wrote, but I think it’s interesting to note that many are aware of what’s going on (at least to a larger extent than before the ruckus about news feeds and everything) and are willing to let it happen.

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