Instead of working together to reach the promised land of online brand advertising, Facebook and Google are racing to see who can get there first. *
Illustration: Brent Humphreys * Larry Page should have been in a good mood. It was the fall of 2007, and Google's cofounder was in the middle of a five-day tour of his company's European operations in Zurich, London, Oxford, and Dublin. The trip had been fun, a chance to get a ground-floor look at Google's ever-expanding empire. But this week had been particularly exciting, for reasons that had nothing to do with Europe; Google was planning a major investment in Facebook, the hottest new company in Silicon Valley.
Originally Google had considered acquiring Facebook—a prospect that held no interest for Facebook's executives—but an investment was another enticing option, aligning the Internet's two most important companies. Facebook was more than a fast-growing social network. It was, potentially, an enormous source of personal data. Internet users behaved differently on Facebook than anywhere else online: They used their real names, connected with their real friends, linked to their real email addresses, and shared their real thoughts, tastes, and news. Google, on the other hand, knew relatively little about most of its users other than their search histories and some browsing activity.
But now, as Page took his seat on the Google jet for the two-hour flight from Zurich to London, something appeared to be wrong. He looked annoyed, one of his fellow passengers recalls. It turned out that he had just received word that the deal was off. Microsoft, Google's sworn enemy, would be making the investment instead—$240 million for a 1.6 percent stake in the company, meaning that Redmond valued Facebook at an astonishing $15 billion.
As the 767 took off, Page tersely but calmly shared the news with the others on the plane and answered their questions for about 15 minutes. "Larry was clearly, clearly unhappy about it," the passenger says.
Page soon got over it, but Facebook's rejection was still a blow to Google; it had never lost a deal this big and this publicly. But according to Facebookers involved in the transaction, Mountain View never had much of a chance—all things being equal, Microsoft was always the favored partner. Google's bid was used primarily as a stalking horse, a tool to amp up the bidding. Facebook executives weren't leaping at the chance to join with Google; they preferred to conquer it. "We never liked those guys," says one former Facebook engineer. "We all had that audacity, 'Anything Google does, we can do better.' No one talked about MySpace or the other social networks. We just talked about Google."
Today, the Google-Facebook rivalry isn't just going strong, it has evolved into a full-blown battle over the future of the Internet—its structure, design, and utility. For the last decade or so, the Web has been defined by Google's algorithms—rigorous and efficient equations that parse practically every byte of online activity to build a dispassionate atlas of the online world. Facebook CEO Mark Zuckerberg envisions a more personalized, humanized Web, where our network of friends, colleagues, peers, and family is our primary source of information, just as it is offline. In Zuckerberg's vision, users will query this "social graph" to find a doctor, the best camera, or someone to hire—rather than tapping the cold mathematics of a Google search. It is a complete rethinking of how we navigate the online world, one that places Facebook right at the center. In other words, right where Google is now.
All this brave talk might seem easy to dismiss as the swagger of an arrogant upstart. After all, being Google is a little like being heavyweight champion of the world—everyone wants a shot at your title. But over the past year, Facebook has gone from glass-jawed flyweight to legitimate contender. It has become one of the most popular online destinations. More than 200 million people—about one-fifth of all Internet users—have Facebook accounts. They spend an average of 20 minutes on the site every day. Facebook has stolen several well-known Google employees, from COO Sheryl Sandburg to chef Josef Desimone; at least 9 percent of its staff used to work for the search giant. And since last December, Facebook has launched a series of ambitious initiatives, designed to make the social graph an even more integral part of a user's online experience. Even some Googlers concede that Facebook represents a growing threat. "Eventually, we are going to collide," one executive says.
It is remarkable that the most powerful company on the Web would feel threatened by one that has yet to turn a profit. (Last year, one insider estimates, Facebook burned through $75 million plus the $275 million in revenue it brought in; Google made $4.2 billion on an astounding $15.8 billion in net revenue.) And even Facebook executives concede that Google has secured an insurmountable lead in search advertising—those little text ads that pop up next to search results—which accounts for about 90 percent of Google's net revenue. But they say they are going after an even bigger market: the expensive branding campaigns that so far have barely ventured online. Once, Google hoped an alliance with Facebook would help attract those huge ad budgets. Now, instead of working together to reach the promised land of online brand advertising, Facebook and Google are racing to see who can get there first.
Like typical trash-talking youngsters, Facebook sources argue that their competition is old and out of touch. "Google is not representative of the future of technology in any way," one Facebook veteran says. "Facebook is an advanced communications network enabling myriad communication forms. It almost doesn't make sense to compare them."
FACEBOOK'S
4-Step Plan
for Online Domination
Mark Zuckerberg has never thought of his company as a mere social network. He and his team are in the middle of a multiyear campaign to change how the Web is organized—with Facebook at the center. Here's how they hope to pull it off.
1. Build critical mass.
In the eight months ending in April, Facebook has doubled in size to 200 million members, who contribute 4 billion pieces of info, 850 million photos, and 8 million videos every month. The result: a second Internet, one that includes users' most personal data and resides entirely on Facebook's servers.
2. Redefine search.
Facebook thinks its members will turn to their friends—rather than Google's algorithms—to navigate the Web. It already drives an eyebrow-raising amount of traffic to outside sites, and that will only increase once Facebook Search allows users to easily explore one another's feeds.
3. Colonize the Web.
Thanks to a pair of new initiatives—dubbed Facebook Connect and Open Stream—users don't have to log in to Facebook to communicate with their friends. Now they can access their network from any of 10,000 partner sites or apps, contributing even more valuable data to Facebook's servers every time they do it.
__4. Sell targeted ads, everywhere. __
Facebook hopes to one day sell advertising across all of its partner sites and apps, not just on its own site. The company will be able to draw on the immense volume of personal data it owns to create extremely targeted messages. The challenge: not freaking out its users in the process.
To understand Facebook's challenge to Google, consider my friend and neighbor Wayne, a PhD in computer science from UC Berkeley and a veteran of many big-time programming jobs. I know a lot about him because we are friends. I know even more because we are Facebook friends. On his online profile, I not only find the standard personal-blog-type information—his birthday, address, résumé, and pictures of his wife, son, and step-kids. I also discover that he likes to make beer, that he had dinner at one of my favorite restaurants last week, and that he likes to watch cartoons. Indeed, he has posted something about his life almost every day for the past two months—wondering whether his son's Little League game will get rained out, asking his friends what the impeller in his central heating unit does.
But if I type Wayne's name into Google, I learn very little. I am directed to an old personal Web site, with links that have almost all expired, and a collection of computer-science papers he has written over the years. That's about it.
Hardly any of Wayne's Facebook information turns up on a Google search, because all of it, along with similar details about the other 200 million Facebook users, exists on the social network's roughly 40,000 servers. Together, this data comprises a mammoth amount of activity, almost a second Internet. By Facebook's estimates, every month users share 4 billion pieces of information—news stories, status updates, birthday wishes, and so on. They also upload 850 million photos and 8 million videos. But anyone wanting to access that stuff must go through Facebook; the social network treats it all as proprietary data, largely shielding it from Google's crawlers. Except for the mostly cursory information that users choose to make public, what happens on Facebook's servers stays on Facebook's servers. That represents a massive and fast-growing blind spot for Google, whose long-stated goal is to "organize the world's information."
Facebook isn't just kneecapping Google's search engine; it is also competing with it. Facebook encourages its 200 million members to use Microsoft's search engine, which it installed on its homepage late last year as part of the deal struck between the two companies. At press time, it was also planning to launch Facebook Search, allowing users to scour one another's feeds. Want to see what some anonymous schmuck thought about the Battlestar Galactica finale? Check out Google. Want to see what your friends had to say? Try Facebook Search. And it will not only be for searching within Facebook. Because Facebook friends post links to outside sites, you will be able to use it as a gateway to the Web—making it a direct threat to Google. Why settle for articles about the Chrysler bankruptcy that the Google News algorithm recommends when you can read what your friends suggest? Already, Facebook is starting to horn in on Google's role as the predominant driver of Web traffic. According to Hitwise, Facebook in recent months has sent more traffic than Google to Evite, video site Tagged.com, and gossip mills Perez Hilton.com and Dlisted. That trend should only grow with the advent of Facebook Search.
These are just the latest moves in an ambitious campaign to make the social graph an integral, ubiquitous element of life online. In December, Facebook launched Connect, a network of more than 10,000 independent sites that lets users access their Facebook relationships without logging in to Facebook .com. Go to Digg, for instance, and see which stories friends recommended. Head to Citysearch and see which restaurants they have reviewed. Visit TechCrunch, Gawker, or the Huffington Post and read comments they have left. On Inauguration Day, millions of users logged in to CNN.com with their Facebook ID and discussed the proceedings with their friends in real time.
In April, Facebook announced its Open Stream API, allowing developers to create mashups using Facebook's constantly updated stream of user activity. Previously, users who wanted to read their friends' News Feeds had to go to the Facebook site. Now developers can export that information to any site—or to freestanding applications, much as Twitter desktop clients do for Tweets.
Connect and Open Stream don't just allow users to access their Facebook networks from anywhere online. They also help realize Facebook's longtime vision of giving users a unique, Web-wide online profile. By linking Web activity to Facebook accounts, they begin to replace the largely anonymous "no one knows you're a dog" version of online identity with one in which every action is tied to who users really are.
To hear Facebook executives tell it, this will make online interactions more meaningful and more personal. Imagine, for example, if online comments were written by people using their real names rather than by anonymous trolls. "Up until now all the advancements in technology have said information and data are the most important thing," says Dave Morin, Facebook's senior platform manager. "The most important thing to us is that there is a person sitting behind that keyboard. We think the Internet is about people."
But you don't build a competitor to Google with people alone. You need data. And Connect and Open Stream are intended to make Facebook a much more powerful force for collecting user information. Any time someone logs in to a site that uses Connect or Open Stream, they give Facebook the right to keep track of any activity that happens there—potentially contributing tons more personal data to Facebook's servers. Facebook Connect and Open Stream are also designed to make each user's friend network, which belongs to Facebook, even more valuable and crucial to the Web experience. Together, they aim to put Facebook users' social networks at the center of all they do online.
Mark Zuckerberg is notoriously cocky, even by the standards of Silicon Valley. Two years ago, he walked away from a reported nearly $1 billion offer from Yahoo for his company. He could have sold to Google or Microsoft for a lot more. His business cards once famously read: i'm ceo ... bitch . And he has described Facebook as a once-in-a-century communications revolution, implying that he is right up there with Gutenberg and Marconi.
Still, you'd think he might play it a little cool when discussing Google, not wanting to antagonize the most powerful company on the Internet. But Zuckerberg doesn't pull any punches, describing Google as "a top-down way" of organizing the Web that results in an impersonal experience that stifles online activity. "You have a bunch of machines and algorithms going out and crawling the Web and bringing information back," he says. "That only gets stuff that is publicly available to everyone. And it doesn't give people the control that they need to be really comfortable." Instead, he says, Internet users will share more data when they are allowed to decide which information they make public and which they keep private. "No one wants to live in a surveillance society," Zuckerberg adds, "which, if you take that to its extreme, could be where Google is going."
It's ironic to hear Zuckerberg paint Google as Big Brother. After all, many observers worry that Facebook itself has grown too controlling. Unlike Google, Facebook makes it difficult for users to export their contacts, mail, photos, and videos—a practice Web 2.0 evangelists say is a sign that the company values its proprietary data more than its users' experience. In November 2007, Facebook launched Beacon, a ham-fisted attempt to inject advertising into News Feeds. Users felt violated; after a month of protest, Zuckerberg publicly apologized and effectively shut Beacon down. Then, in February 2009, Facebook quietly changed its terms of service, appearing to give itself perpetual ownership of anything posted on the site, even after members closed their accounts. Users complained so vociferously—millions joined Facebook groups and signed online petitions protesting the change—that the company was forced to backtrack. The event left many people fearful of the amount of personal information they were ceding to a private, profit-hungry enterprise. "Do You Own Facebook?" a New York magazine cover story asked warily in April. "Or Does Facebook Own You?" (Facebook executives say that the company was merely updating the terms of service to match those of other sites and that there was no nefarious intent. They reinstated a version of the amendment after subjecting it to a vote of Facebook members.)
Facebook aims to put its users' social networks at the center of all they do online.
Photo: Brent HumphreysThe drumbeat of controversy surrounding Facebook illustrates the catch-22 the social network faces: It has a massive storehouse of user data, but every time it tries to capitalize on that information, its members freak out. This isn't an academic problem; the company's future depends on its ability to master the art of behavioral targeting—selling customized advertising based on user profiles. In theory, this should be an irresistible opportunity for marketers; Facebook's performance advertising program allows them to design and distribute an ad to as narrow an audience as they would like. (It has also developed a program to create ads that are designed to be spread virally.) But as the Beacon debacle showed, there is a fine line between "targeted and useful" and "creepy and stalkerish"—and so far, not enough advertisers have been willing to walk that line.
In a way, Facebook's dilemma extends from its success. Users see the site as sanctified space, a place to engage in intimate conversations with friends—not to be laser-beamed by weirdly personal advertising. But with initiatives like Connect and Open Stream, Facebook can sell ads beyond its own site. Just as Google's AdSense program sells ads on any participating Web site, Connect and Open Stream will eventually push Facebook-brokered advertising to any member site or app. But unlike with AdSense, Facebook's ads could be exquisitely tailored to their targets. "No one out there has the data that we have," says COO Sandberg.
That's where the big-budget brand advertisers come in. Google has courted them for four years, to no avail. That's because, while search ads are great at delivering advertising to users who are seeking specific products, they are less effective at creating demand for stuff users don't yet know they want. Google has tried everything to lure brand advertisers—from buying and selling radio ads to purchasing YouTube. And it is easy to see why it keeps trying. Today, global online brand advertising accounts for just $50 billion a year. Offline brand advertising, meanwhile, accounts for an estimated $500 billion.
Google's desire to crack the brand-advertising conundrum is so intense, some company executives have even considered swallowing their pride and pursuing another deal with Facebook. But whether or not it ultimately friends the social network, Google has clearly been influenced by it. On December 4, the same day that Facebook Connect launched, Google unveiled its own version, Friend Connect, which allows Web sites to link to accounts on any of the major social networks—including MySpace, LinkedIn, Ning, Hi5, and Bebo. In March, four months after Facebook reportedly offered $500 million in a failed bid for Twitter, reports surfaced that Google was holding similar talks. (A Google insider confirms the discussions.) It is easy to see the appeal: Twitter is growing even faster than Facebook—doubling its membership in March—and would give Google access to the kind of personal information that fills Facebook News Feeds. And Google recently announced Wave, a Web communications platform that encourages Facebook-like sharing and conversations. The company even seems to have conceded Zuckerberg's point about its impersonal search results. In April, Google announced a plan to allow individuals to create detailed profiles that would show up whenever anyone searches for their name. If they opt for this service—a big if—users gain greater control over how they are portrayed online, which will give them the incentive to share with Google the kind of personal information they had previously shared only with Facebook.
Google has even shown a willingness to join Facebook in gingerly tapping the third rail of Internet marketing—behavioral targeting. The search giant has long assured its users that it would never use their personal information to deliver targeted advertising, relying instead on aggregate data or search activity that preserves anonymity. ("There is a line with users that you don't want to cross," Google CEO Eric Schmidt said in the wake of the Beacon controversy.) But in March, Google started its own behavioral targeting campaign—tracking users' browsing to deliver more-customized ads. Users have the option to either edit their profiles or opt out entirely.
In September 2007, Gideon Yu was hired as Facebook's CFO. Before that, the 38-year-old had been CFO at YouTube, where he negotiated its acquisition by Google. He'd also put in four years as Yahoo's treasurer and was one of its top dealmakers. Facebook announced the hire with much fanfare. "I consider it kind of a coup that we were able to recruit him here," Zuckerberg told the Wall Street Journal. "He's just excellent."
Nineteen months later, Yu was gone. It was a short tenure—not unprecedented for a private-company CFO. But Zuckerberg turned Yu's departure into a kerfuffle by publicly trashing him, saying that the job had simply outgrown him and that Facebook now needed a CFO with "substantial public company experience." To many, the performance was a stark reminder that the Facebook CEO, while undeniably ambitious and brilliant, was still just 24 years old. (He's 25 now.)
Zuckerberg's youth has given Googlers some confidence. After all, even under the most sage and steady leadership, Facebook would be confronted with a difficult challenge: turning a massive user base into a sustainable business. (Just ask Friendster, MySpace, YouTube, and Twitter.) Through Google's own experience with YouTube, they have seen how expensive it can be to keep up with exploding user growth. They inked a disastrous $900 million partnership with MySpace in 2006, a failure that taught them how hard it is to make money from social networking. And privately, they don't think Facebook's staff has the brainpower to succeed where they have failed. "If they found a way to monetize all of a sudden, sure, that would be a problem," says one highly placed Google executive. "But they're not going to."
Facebook's naysayers have a point. But before they get too complacent, they might remember another upstart that figured out a new way to organize the Internet. For five years, it worked on building its user base and perfecting its product, resisting pleas from venture capitalists to figure out how to make money. It was only after it had made itself an essential part of everyone's online life that its business path became clear—and it quickly grew to become one of the world's most powerful and wealthy companies. The name of that company, of course, was Google.
Contributing editor Fred Vogelstein (fred_vogelstein@wired.com) wrote about Google in issue 17.02.
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