A couple of weeks ago, I updated this blog with my latest thoughts about the ecosystem play. I followed that up with a more detailed analysis of Apple (AAPL) and why I think it remain a screaming buy. This week, I spent more time looking at the other plays and in an unexpected way, I ended up seeing the need to write about both Google (GOOG) and Facebook (FB) together. As you can imagine from my previous writings, I’m much more convinced about Facebook’s long term growth potential but I think both companies compete much more than most would imagine. Both companies are convinced that the most important factor in growing their businesses is growing the online audience. Facebook has its Internet.org initiative and has been working hard on helping several emerging countries connect to the web. Google has several such initiatives both in emerging countries such as Loon but also through what looks like an increasingly serious effort to become an ISP (Google Fiber). They are making great progress in connecting more and more people online. The big question of course is.. what is the web?
Phase #1 – The Search Era
When Google became a major online player, it offered a unique way to search the web and thanks to its innovative Pagerank algorithm, Google quickly became the best search engine out there and the only search engine that was able to index (most of) the entire web and deliver quick and solid search results. That is mostly how internet users discovered content. They’d open a browser, go to Google and find whatever they were looking for. At this point, Facebook was a non-factor. I won’t go on and on but search has obviously been the biggest battle on the web to date and Google emerged as the very clear winner.
Winner of Search Era: Google
Phase #2 – The Social Era
After years of having users searching the web through search engines, a transformation started happening thanks in large part to Facebook and Twitter as most users started spending time on social websites to share thoughts, photos, videos and more. Google certainly tried with several different efforts (Blogger, Orkut, Google Wave, Google Buzz and Google+). There are many different theories as to why Google has failed so badly over and over and my personal opinion is that Google started by underestimating the impact of social and was simply too much of an algorithmic company. In contrast, Facebook not only launched the most successful social network in history with over 1 billion users but also was able to buy what is possibly its biggest competition in Instragram. This is proving a bigger and bigger problem for Google as Facebook is not only hosting content from users and businesses but now moving to a phase where it will be hosting content within its walls. The web is moving outside of Google’s reach both in social networks but also inside of mobile apps.
Winner of Search Era: Facebook
Phase #3 – The Mobile Web (apps,o/s)
A couple of years ago, Google looked like the clear winner in mobile. Not only was it dominating in terms of market share with Android but Google remains the biggest player in mobile search and owns one of the major app stores (Google Play). That has however been more and more contested as mobile moves to an “app world”. With most users now spending most of their time inside of apps rather than searching the web, the battle has turned to apps and in that world, Facebook is the clear winner. Not only does it have the top app in terms of usage (Facebook) but it also ranks very high with other apps such as Instagram, Messenger, WhatsApp, etc. It will be interesting to see how Google will try to turn this around.
Winner of Search Era: Facebook but Google is obviously still in the run
Phase #4 – Video
As video continues to gain in importance, most big players are making some kind of play. Some such as Twitter have several different angles including the recently launched Periscope. Clearly though, the top video player is Youtube which Google purchased for $1.65B back in 2006 (what a bargain!). Youtube remains the dominant player but Facebook seems to be emerging as a credible threat and its recent changes to allow embeddable videos will make it an even stronger one. Some metrics including the number of videos viewed tell a story of Facebook overtaking Youtube which seems like a stretch given how Facebook has enabled the autoplay function. But the trend remains clear:
Winner of Video Era: Google so far but it’s clearly still in play
Phase #5 – Messenging
I wish I could call this a battle but for some reason Google has barely even tried to compete in messenger services. I 100% agree with this quote: I wish I could call this a battle but for some reason Google has barely even tried to compete in messenger services. I 100% agree with this quote:
— dustin curtis (@dcurtis) March 25, 2015
Yes, messenger has only one basic use – sending messages to friends and family but as has been displayed in Asia already, it can become a platform in itself as messenger services gain the ability to be used to send payments, used by businesses, etc. Facebook displayed its clear intentions at its last F8 developers conference and with 2 of the dominant messenging services (messenger and WhatsApp), it is clearly in a great position. Yes, messenger has only one basic use – sending messages to friends and family but as has been displayed in Asia already, it can become a platform in itself as messenger services gain the ability to be used to send payments, used by businesses, etc. Facebook displayed its clear intentions at its last F8 developers conference and with 2 of the dominant messenging services (messenger and WhatsApp), it is clearly in a great position.
Phase #6 – VR/AR
It is very early but it certainly looks like at some point the big battle will be somewhere between augmented reality (AR) and virtual reality (VR) players. It’s very early to call winners and I’d have to give Google the edge here given its massive investments in things like artificial intelligence, etc. That being said, Google’s first actual product, Google Glass was quite a failure given the hopes that Google’s Larry Page had for it. Facebook bought one of the leading players, Oculus which is one if not the biggest name out there.
Winner of VR/AR: Google slightly although it’s very early to tell
In The End
As I look at things, it becomes increasingly clear why Facebook has been doing so well. Yes, Facebook remains a non player in online search but that is just one of 6 phases and in all phases it is either leading or quickly gaining ground. As a Facebook investor, I’m confident that the company will continue to grow extremely quickly as it leverages its app, messenger, social and video platforms. I’m much more concerned about Google though. Search is a decreasing part of the online experience and apart from video, where Google’s Youtube is dominant but losing ground to Facebook and others, Google has yet to establish its presence in other phases. Yes, Android remains dominant but it’s less and less clear how Google will be able to use that in a world where forked versions of Android can now exclude Google’s core services.
Disclosure: Long Facebook (FB)