John Akerson's Thoughts

Business, technology and life

Google v Facebook

There is an important equation for the competition between Google and Facebook. 
Google and Facebook are both enormous companies, both are Internet companies, and both are at their core, fueled by competitiveness and greed. Sure Google has that “Don’t be evil” philosophy that was their corporate value at one point. I think Google abandoned that when they joined Verizon in the destruction of net neutrality.

But that is not the issue here.

The issue is a string of Tombstones the people erect at Google’s feet, as if Facebook has vanquished it at something.  These are ironic and irrelevant tombstones, and thoroughly inaccurate and deceptive.   Adam Rifkin wrote a good one yesterday on ”Why Google has no Game.”  His main point was that Google doesn’t really get social engagement. His underlying idea is that social engagement is a sort of be-all-end-all of internet value.

My initial reaction was that he was wrong. I read comments on his blog like this one: “if Facebook shut down today it would not impact on my life in any tangible way. However, if Google shut down, I’d be in deep trouble!” (attributed to Kullar) 

I agree with that, and would take it a few steps further.

For me – I would miss neither, but by a narrow margin, I would miss Google more, and here’s why. Google does things with the Internet, on the Internet, to the Internet and for the Internet. Facebook wants to be its own “internet.” That strategy didn’t work for AOL. Facebook is inherently more profitable than AOL because Facebook tries to be its own “internet” without the costs that AOL had in creating its own content. But that is a moot comparison because AOL isn’t AOL anymore. A better question to ask is whether Facebook more profitable than Google. Is it? No. absolutely not and it is not even close.

Why is Google more profitable? Facebook screams “We have 500 million users.” but users don’t translate directly to profitability. Google is more profiable because it is just inherently more valuable. Why? Because Google has enormous data on what people DO, around what people WANT, and around what ultimately inspires people to ACT – essentially Google knows who, what, where, when and to some extent, why people want, what they want, what they do about it, and what causes or inspires them to act – across the entire scope of the Internet. (not just Facebook’s 500 million members – but the ENTIRE internet) Facebook only has data around what people SAY on Facebook. I think Google’s data is inherently more valuable, more relevant, and I think it will only sap their energy if they chase Facebook. I don’t see any benefit for them.  Where is the profitability in chasing Facebook? Particularly when Facebook is a mastadon, big, plundering, and at some point, Facebook’s sub-glacial pace and lack of creativity and profitability will doom it to extinction.  Google has all that data, and as the icing on their profitability cake, they really know how to monetize their data.

I think it is all about money. Follow the money, the revenue and profits.  In that regard, Facebook is not really any competition for Google at all.  People have been surprised by estimates that Facebook’s 2010 revenue could be as high as $1.2b. This is so surprising because Facebook’s 2009 revenue was estimated at $800m.  ON that view, Facebook has increased income by 50% year to year. That seems great, but there are two critical issues with those numbers. One is that Facebook’s numbers are unaudited. It is a privately owned company, so there’s really no hard firm way to know if those revenue numbers are accurate.   The second and more important problem with those numbers is that they are only stating REVENUE… not Profits, not Income.

How does that compare to Google?  A quick glance at Google’s AUDITED and reported numbers shows that  Google’s Q2 revenue was 6.8b – their revenue for 2009 was $23.6b
Google’s net income was >$6.5b in 2009.  That is INCOME. Profit. That is actual money that they made.  Here’s another interesting statistic.

Google’s Q1 and Q2 revenue last year was about $5.5b each quarter.
Google’s Q1 and Q2 revenue THIS year was about 6.8b each quarter.

To put this in another perspective -> Google’s QUARTERLY INCREASE in revenue this year over last year is about $1.3b. To emphasize, that is the INCREASE PER QUARTER, and it exceeds Facebook’s annual revenue estimates.

Google is chugging along at a roughly 28% profit rate.  Again, since Facebook is privately owned, nobody really knows if Facebook has ANY profit, or what their profit rate might be.

So – what is the Google vs Facebook equation? $ = G > F.  It is that simple.

August 26th, 2010 Posted by | Business, Competitive Advantage, Technology | no comments