The Hired Guns Blog

We hear a lot these days about Internet behemoths like Google, Apple and Microsoft–along with that relative up-and-comer Facebook. The first three companies I mention are worth $186B, $305B and $219B, respectively–they aren’t going anywhere anytime soon.

But I think lots of people have grossly underestimated Facebook. There’s lots of confusion about a $70B valuation for a company involved in a pretty squishy line of work–”social media.” But people are missing the bigger picture. Facebook has 600 million users, and that figure is growing. People who predict its demise perhaps continue to think of it as just status updates. But it’s a lot more than that, and it doesn’t hurt Facebook’s market share that millennials are happy to concede privacy for ubiquity; indeed, many find the very idea of privacy quaint.

Facebook sits on, I think, a far more valuable data set than the giants–it has a wealth of information about people, information that by and large is contributed voluntarily. Let’s agree that, on its surface, Facebook is as easy a company to mock as it is to admire. Many think that Facebook has taken advantage of unsustainable trends, and like Myspace before it, it’s destined to fall to earth. But that’s a mistake born of thinking of Facebook simply as a way for friends to chat with friends.

Facebook’s real value will come from its “tentacles” strategy–extending the experience of recommending, liking, and conversing away from Facebook.com to many other sites around the web. It’s then taking that massive data set and turning it into insights and actions about how people influence others. As Facebook’s coverage grows, its users find themselves increasingly engaged with a “relevant web”–one where the online or mobile experience is about news, information, and experiences specifically relevant to each user. Your news feed on Facebook and the people you follow on Twitter are both examples of the relevant web. Google sees the value in the tentacles: it recently pushed out a new “+1” feature on an “experimental” basis. The feature makes Google search results more social in two big ways: it shows web content that your friends have written and search results that they have recommended.

Google says that +1 is a way to harness the power of the crowd to make search results more relevant. The way people learn about things is becoming less about a search engine and more about the social media sites or applications they use. But the question remains, can Google pivot quickly to include a social component to organizing the world’s information? At some point soon you may never need to visit a search engine to find things of interest to you, and that thought keeps Google up at night.

Don’t believe me? Soon after Google co-founder Larry Page took over as CEO last week, he decided to tie every single full-time employee’s 2011 bonus to Google’s social media strategy this year.

Why? Facebook represents by far the biggest threat to Google’s market dominance. Instead of spending years trying to build a better search engine, as Microsoft and Yahoo did, Facebook changed the goalposts–if you give people the tools to inform and influence each other, a search engine becomes less important. Often, people find things to consume and to buy on the Internet using Facebook or Twitter without ever needing to search on Google or Bing.

One other proof of Facebook’s joining the major leagues is that it’s trying out a clever competitive strategy that’s benefited Google for years–attacking a main competitor’s primary strength. In 2008, “Google Docs” arrived, forcing Microsoft to spend time and money defending its key offerings rather than branching out. In 2009, Google rolled out the Android operating system to provide an open-source alternative to the closed iPhone. And now Facebook just announced something that will compete with what might be Google’s most important (and least publicized) competitive advantage: Facebook is now open-sourcing its server and data center designs. In other words, it’s going to publicly open up to other tech companies the challenge they all face: that of storing massive amounts of data at the lowest possible cost. It’s a point of pride at Google how much R&D they’ve assigned to their data centers, which are treated at the company like state secrets. Facebook hopes to achieve roughly the same results at a fraction of the cost through crowdsourcing. It’s a great approach.

Thinking farther down the road, Facebook has a possible path to creating its own “currency” using credits earned by influencing, recommending, doing, visiting, and other online activities. This may help popularize micropayments, which many think is the next big wave for e-commerce.

So as we peer into the future, there will certainly still be a place at the table for all the tech companies mentioned above. For now, though, the really interesting competition, and one that will more affect how we interact with the Internet and each other, is between Google and Facebook.