Why Is Google Afraid of Facebook?

Google (GOOG) announced its OpenSocial strategy last week, starting with some of the smaller (albeit fast-growing) social networks, and quickly ensnaring MySpace (NWS), Bebo and a bunch of other companies to join its efforts. Nick O’Neill, the brilliant young man who writes the AllFacebook blog, described it as a coalition of the willing.
On the surface, it seems like a laudable effort to create a common social platform in which widgets are written once for multiple platforms, allowing for the leverage of data across the web in a seamless manner. It’s being pitched as an open social graph. What it really is, however, is the first defensive move by Google, a company whose only strategy – until now — has been to stay on the offensive. [digg=http://digg.com/tech_news/Why_Is_Google_Afraid_of_Facebook]
The Palo Alto, Calif.-based upstart has been upstaging Google and stealing its talent, a good enough reason to get any company steaming mad. Remember the public search feature Facebook launched — in hindsight it seems like a move to grab traffic from Google and boost its own user base. But that was penny ante stuff.
There is clearly no love lost between the two companies. The scorched earth strategy adopted by Google with OpenSocial reflects the fact that Facebook threatens to run away with what may be a huge new market for social networking-oriented advertising and as such, doing what until now had been the unthinkable: putting a hand in Google’s till.
In the 12-odd years since Netscape launched the consumer browser and made the Internet part of our daily lives, the web has been all about public information. There has been an information explosion, and since 1997, Google has been making sense of all that public information, collating it — search is just the tool — and tacking ads right next to it. A friend described it best when he said, “Google took the entire Internet and indexed it with keywords instead of URLs.”
And then along comes Mark Zuckerberg with his fun little social network, Facebook. The network keeps growing and has millions of users. Most of them are college students, (looking to hook-up) and the information is kept private – only Facebook knows everything they are doing. Google’s spiders are rebuffed and sent away. Then Facebook announces a new strategy and millions rush into this private club, sharing their likes, dislikes and everything in between. And still, Google is kept out. It’s a scary proposition for a company whose very existence depends on open access to all information.
This seemingly public yet private Internet starts to grow at an unprecedented rate. According to ComScore data, while Google saw its page views double in the 12 months ended Sept. 30, Facebook saw its traffic zoom five-fold (see data). This trend of hypergrowth for semi-public/private pageviews is going to continue, while the open web that Google is used to indexing is beginning to show signs of fatigue.
The difference in the two companies’ web strategies — open vs. private — is going to be reflected in their diverse advertising strategies. Google tries to personalize ads based on the content of the pages you are viewing. Facebook, on the other hand, knows a lot more about us — who our friends are, what we like, what groups we belong to, and even when we like to use its service. So what can Facebook do with all that information?
It can develop and deliver highly contextual and personalized ads — the ultimate goal for Google. Unlike Facebook, where people gladly share their personal information mostly due to an illusion of privacy, Google has to give away web services for free in order to get the right data sets needed to deliver more focused advertising. (Venturebeat has some insights about the soon-to-be-announced Facebook advertising platform.)
Nevertheless, Facebook has a lot to prove — anecdotal evidence suggests pretty dismal returns on advertising thus far — and needs to deliver an advertising platform that is exponentially better than Google’s keyword-based systems. When given the option of a more effective advertising channel, online advertisers are happy to shift their loyalties.
That said, OpenSocial is a pretty clever idea, especially for Google. The Mountain View, Calif.-based search giant doesn’t need to own the No. 1 social network, or even operate a social network at all. All it has to do is give application providers a way to monetize their applications.
In other words, with OpenSocial Google has extended the life expectancy of its AdSense. It still remains to be seen if OpenSocial partners end up using Google’s advertising platform. In fact, a lot about OpenSocial remains unknown at this point, but one thing is clear: It’s giving Facebook a reason to pause and do a quick reality check.
This open vs. private battle is going to occupy the headlines for some time. In the meantime, wait for Facebook to make its next move.