Facebook Vs. Google: The Battle For Internet Dominance

Google and Facebook will continue to duke it out over the top spot in the display ad market.  Mark Zuckerberg’s social network remains one of the main competitive risks to Google’s absolute dominance of the Internet.

“Facebook has posed serious problems for Google, most notably by walling off the social network’s content from Google’s search engine,” explained Baird’s equity research analysts in a note on Friday.

The problem, for Google, is that its business model relies on its ability to “index the web.”  Thus, when Facebook walls-off its site, it’s essentially blocking a significant, and growing, portion of the web.  “Google’s index has been faced with an ever-increasing blind spot for search,” wrote the analysts.

Google remains the undisputed king of the Internet.  It clearly dominates search advertising, with over 65% of the U.S. market and more than 50% of the global market (Yahoo has 16% share in the U.S. whileMicrosoft’s Bing has been growing fast and now accounts for 14%).  It has one of the fastest growing mobile operating systems, Android, where its share is even larger than in PCs and growing faster thanApple’s iOS.  In 2012, Google will rake in more than $36 billion in revenue.

But Facebook is creeping up.  Mark Zuckerberg’s social network has risen to become the second most important online property, behind Google.  Facebook reaches about 43% of the web over the last three months, according to Alexa, and counts with more than 5% of global page views.  It makes the difference in engagement, though: users spend an average of 24 minutes and 45 seconds on Facebook, compared with 11 minutes and 52 seconds on Google.

Facebook’s social networking model creates a host of problems for Google.  The social network counts with more than 750 million users, 50% of which log on daily.  This translates to about 700 billion minutes of usage per month, or about 16 hours per user, with about 70% of those coming from outside the U.S., according to Baird’s analysts.

This directly undermines Google’s communication tools, particularly Gmail, both in its chat and e-mail forms.  While the company founded by Sergey Brin and Larry Page has launched its own social network, Google+, a report by Enders Analysis from December 19 suggests it will “remain niche.”

Furthermore, Facebook could jeopardize Google’s online dominance by developing its own search capabilities.  Currently, Facebook’s search capacities are very limited, but “theoretically [Facebook could] enter the market by first creating a vertical search engine focused on social, and then broadening the scope to encompass more generic search capabilities,” explained Baird’s research analysts.  Thus, Facebook would count with a differentiated search product aided by the “valuable social signals [that] could be used to improve search relevance.”

Google seems set to continue to grow its businesses in 2012 and beyond, particularly given its dominant position.  There is little doubt that Google will loosen its hold on its highly profitable search business in the medium-term, but it definitely faces a powerful challenger with Mark Zuckerberg’s Facebook.  The social network is one of the largest display players, and, sitting on the number two spot of the web, has the opportunity to eat into Google’s formidable share.  The battle for Internet dominance promises to be an interesting one.