Ever since I made the rather controversial statement in Feb 2010 in a public forum in Singapore that Facebook will overtake Google from a traffic point of view before 2011, I have had some interesting conversation with a variety of people. I guess I misjudged. As of Sept 2010, Facebook had overtaken Google in terms of eyeballs.
Not surprisingly, it also has the largest page views and leads the 2nd contender by a huge measure. Will the people and eyeballs create a business model that can be potentially be bigger than Google which has current annual revenues of U.S.$27 billion? That’s the big question!
I have also said that while they may compete for advertising dollars, Facebook’s model lends itself to both advertising, entertainment and commerce as it becomes the Internet.
Facebook has indeed the potential to dominate everything that we do on the Internet and I just list 2 main revenue opportunities here:
The advertising revenue model:
Facebook’s advertising revenues (its only revenue stream) was projected to end up at $1.5 billion in 2010 which is an incredible increase from $635 million. My reckoning is that it may even cross the $2 billion mark in 2010 itself.
The biggest advertisers have boosted spending by at least tenfold in the past year as Facebook crossed the 500 million users mark. "Two years ago the big brands were experimenting with us, they started buying with us a year ago. Now, they’re going big." said Facebook’s COO Sheryl Sandberg in a recent interview.
If this be true, then Facebook has an accelerated growth trajectory ahead than what Google had during their initial years. As far as advertising is concerned, Facebook provides the demographic characteristics and interests, an increased social engagement through social graph and these are the buying criteria which marketers have traditionally been used to. So Facebook becomes the platform of choice foe marketers to reach a broad online audience. On the contrary Google’s target is based on the search intent and while Google is making search better by predictive technology, it could still lag behind the Facebook model.
My reckoning is that Facebook’s advertising revenue model may come more at the expense of TV advertising than the text advertising. Facebook can always create an equivalent of Google’s Adsense and AdWords model and draw some revenues from Google. I expect this may be a $10-12 billion business in 5 years.
The entertainment revenue stream:
With the success of Zynga and several other gaming companies like EA choosing Facebook as the platform, it is only a matter of time before every other gaming and virtual goods service embrace Facebook. Facebook earns a cool 30% out of all revenues the gaming revenues and revenues from virtual goods. Based on current run rate, this could be another $5-7 billion in 5 years.
There are several other revenue streams coming out of commerce. An alliance with Amazon, an acquisition of PayPal and this can become the harbinger for all revenue streams coming from commerce.
So, when will Facebook overtake Google in terms of revenues? Your guess is as good as mine! But wait, I am still mentally occupied with the question and will come to some conclusions early next year.
Subba's Serendipitous moments 
A very intricate piece indeed, Sir! I do agree with your opinion that it is likely that Facebook overtakes Google in terms of revenue. I however believe there are higher chances of them not staying through in this race in the long run.
In the very first place, I think “time spent” is perhaps not the right criterion for comparison. Facebook encourages users to stay on their site by making them play in-premise games, browsing out under controlled webpages, etc. On the other hand, I assume Google does not target people staying on their site for long, which is why we see stuff like the recently introduced “Instant”, and the enhanced keyboard navigation.
While Google’s USP is in getting users to the right place ASAP, Facebook targets people who like spending leisure/surplus time on the internet. Even the adverts on Google are as subtle as they can be, perhaps for the same reason.
Also, in terms of the scale and dynamics of operations, Google started as a search engine, but rapidly spread its wings into just about everything on the internet. You would agree that what we see on the internet(viz. the search engine, YouTube, android, earth, etc) is just the tip of the iceberg when we consider their depth of operations in research, hardware, cloud, satellites etc. This is one strength which I think is really difficult for Facebook to compete with if at all they continue to use just one website to rest their future upon.
Continual innovation in terms of both technology as well as business models is another virtue that Google kept portraying with impeccable excellence. I am yet to see that kind of movement in Facebook even starting to start. That said, I absolutely agree that Facebook is way ahead of anyone else in the web 2.0 movement and Google with its multiple tries has always failed to compete with them in their arena.
Overall, in my opinion Google has created a strong foundation of a long haul success model and is displaying immaculate ability to milk it. However, Facebook is indeed gaining momentum that no other website has ever achieved. While it is not possible to anticipate how this game between two companies will shape up, I feel this is a more battle of wider business models than individual capabilities.
Thanks a million for lightening this spark of thoughts sir…
Best Regards,
Pankaj
Comment by Pankaj Joshi — October 21, 2010 @ 9:51 pm |
I think Goldman’s valuation is grossly flawed – ridden with the same false predictive assumptions that Vinod Khosla gave you a heads up on! The Sachs traders are incented to hype securities and sectors in which they take positions, so take it with a grain of salt. They have misled people many times before, and there is no reason to believe that their psychology or intent has changed.
When the ads do not generate the expected revenues or results, the advertisers will quickly move the dollars out. And Google as an engine has many other capabilities that Facebook does not have and cannot provide. Haven’t we learnt that eyeballs (or footfalls for that matter) per se do not translate to revenue or profits?
Comment by Ram Lakshmanan — January 4, 2011 @ 9:29 pm |
I can’t agree with you more. Would you mind to move this comment to my latest blog post as it will be more appropriate there? I also think this is an apt case for the greater fool theory.
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Comment by http://blog.gorekun.com/1580 — March 31, 2013 @ 10:12 am |