Wired's Fred Vogelstein thinks that Facebook is poised to take over display advertising the way that Google has dominated search.
According to Vogelstein:
"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 having data and knowing how to use it are two very different things. And so far, Facebook hasn't shown an ability to monetize its extensive catalog of user information.
Facebook launched its advertising model in 2007 and according to Forrester marketing analyst Sean Corcoran, only 0.05% of Facebook's display ads are clicked on. That's compared to an average of 0.2% to 0.5% for typical sites and 1% to 5% range for search campaigns.
The Wired article focuses on Google's failed attempt to purchase a piece of Facebook. Instead, Microsoft bought a 1.6% stake in the social portal for $240 milion:
"Facebook's rejection was... 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."
Now Vogelstein calls the rivalry that has grown between the two companies "a full-blown battle over the future of the Internet—its structure, design, and utility." Google, on the one hand, has the algorithms that troll through the anonymous and professional content that populates the web. But Facebook has proprietary, personal information. And it's the social graph people tap into online that is increasingly informing their choices and purchasing decisions.
But the dichotomy of Facebook's user generated information versus Google's top down approach ignores a shift in the social graph that Facebook has already missed. The live stream of commentary and opinions from people you don't know in real life. As Twitter has proven, complete strangers can have an impressive effect on online decision making. And if there is a missed deal worth noting, perhaps it is Facebook's failure to purchase Twitter.
"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."
But Twitter seemed to have the same response that Facebook had to a purchase — they wanted to go it alone. If users transfer their social habits to Twitter from Facebook, the way they abandoned sites like Friendster and MySpace, Facebook could fall by the wayside.
Had Facebook secured Twitter's impressive stake on the real time user generated news and information, they could have made inroads toward becoming the dominant player in user generated live content. Now Facebook is trying to combat the fate of fickle popularity that has killed social networks like Friendster by inserting itself as a middle man between users and other websites, through services like Facebook Connect and Open Stream.
Both Facebook and Google are trying to bring the $500 billion offline brand advertising online. But Facebook's efforts at parlaying its user info into successful targeted advertising has stalled repeatedly, and online advertising is not so much about how much information you have, but how you use it. And when it comes to organizing data, Google has a leg up.
A growing concern for social media sites is that their information will be stripped from its secluded environment and monetized elsewhere. Services like Google Wave, which aims to organize online data from email, instant messaging and social sites in one place, could make the entire social media world brand agnostic.
If Google — or someone else — succeeds in creating the place where social information gets collected and aggregated into its own branded atmosphere, social media could be in the same predicament that old media is in now: hosting a lot of content it can't monetize.