Wednesday, 14 November 2007


Microsoft is scared of Google, Google is scared of Facebook, and Microsoft is Facebook's friend. And Ning, the start-up co-founded by Marc Andreessen - who also founded Netscape, an old Microsoft arch enemy - has teamed up with Google, and other Facebook haters to set up Opensocial. Sound like an episode of a bad soap opera? It would be a bad soap opera if this war wasn't reshaping the face of the Internet, and if tens of billions of dollars weren't at stake. Google is worth $207 billion and Facebook $15 billion.

There are a few key reasons why Google is scared of Facebook: Google's search engine doesn't work inside Facebook; Facebook's growing traffic and stickiness; and perhaps most importantly, why go outside of Facebook for search when Facebook has that search box in its top left hand corner that MSN might one day power for general search and kill the Goose that lay the golden Google egg.

Opensocial is a platform that allows interoperability within the alliance of social networks, including, Friendster, hi5, Hyves, imeem, LinkedIn, MySpace, Ning, Oracle, orkut, Plaxo,, Six Apart, Tianji, Viadeo, and XING. More information here on Opensocial. If it succeeds Facebook loses its stranglehold on social networking and people will be able to network across these different sites with different friends, meaning Facebook loses its walled garden status built on a proprietary platform.

For me the interesting thing about this war is how they are starting to differentiate themselves in the eyes of advertisers. In London's Evening Standard, Chamath Palihapitiya, Facebook's vice-president of product marketing and operations, described Facebook as involved in the more lucrative business of "demand generation" - getting consumers to want something - whereas Google was engaged in "demand fulfilment" - supplying an existing need.

The products Facebook have launched to do this demand generation are social ads. The power of these social ads is that they act a little like a member-get-member recommendation, and the example shown here shows how it might work for video rentals. Facebook describes these ads as follows:

"Instead of creating an advertisement and hoping that it reaches the right customers, you can create a Facebook Social Ad and target it precisely to the audience you choose. The ads can also be shown to users whose friends have recently engaged with your Facebook Page or engaged with your website through Facebook Beacon. Social Ads are more likely to influence users when they appear next to a story about a friend's interaction with your business."

The success of the social ads is dependent on precision targeting, but only some of my friends influence me on film, and others don't. Facebook is going to have to develop some very clever algorithms to apply this targeting. Successful algorithms are key, as demonstrated by Google's PageRank algorithm - this is now a hygiene factor if you want to be in the online advertising game.
Assuming they get the algorithm working, the real challenge that Facebook has is that demand generation is harder than fulfillment. Getting somebody to want something is harder than helping them find what they want. This means that Facebook's model will be about low clickthrough rates and high costs per click. But hold on, isn't that what you can get with online advertising on Google's recently acquired Doubleclick network?