Google for a long time seemed to be the undisputed champion when it comes to search on the internet. It successfully put rivals such as Yahoo and Microsoft out of the market, becoming the leading search engine in the world. But search is not where Google makes its money; it’s advertising that accounts for the biggest part in Google’s overall revenues.
So even if they are the dominant search engine, the “real war” is about advertising revenues and it is not decided yet: Even though Google’s advertising revenues were about $7 billion in Q3 2010 which is much higher than Facebook’s estimated ad revenues of about $ 1.3 billion a year, with 23.1% in Q3 2010 Facebook has the biggest share in the market for display ad impressions.
As far as this business segment is concerned, Facebook is Google’s biggest rival. It should be noted here that both companies, Google as well as Facebook started out with no real business model of how to make money: “Get a large number of users and then think about how to make money”. No-one seemed to believe at first that you can make advertising dollars on the Internet. And today they are the largest thought after internet giants.
No private data
Google on the other hand promised never to use users’ private data which puts them in an unfortunate situation. Until now Google has mainly used contextual ads, i.e., if you search for jeans, ads from online shops selling jeans will be displayed. When Google started to expand their advertising to third party sites, they kept on using contextual ads. This used to be sufficient for Google, but the current developments prove that contextual ads are not always enough. Not only is targeted advertising becoming increasingly popular among companies, but it’s also more suitable in certain situations, for example with newspapers. In this case contextual ads simply do not work: Imagine, you’re reading an article about a plane crash and an ad of the exact same airlines is displayed. That’s not good. In contrast, targeted ads work: Knowing that you prefer travelling by car anyway, ads of car rental companies could be displayed.
Social media is the next big thing. Nobody who wants to remain competitive can neglect social networks such as Facebook, Twitter or LinkedIn. Concerning the travel industry especially Facebook and targeted ads are very interesting: Facebook can become a distribution channel for the travel industry within the next few years and its targeted ads can be an effective means to reach new customers and increase revenues. Picture a college student interested in going to Miami for spring break. He will not just see randomly selected ads for hotels in Miami, such as business hotels in Downtown etc., but he’ll see ads for inexpensive hotels on South Beach, since Facebook knows that he wants to party on the beach and not spend too much money. That way the likelihood of him buying a trip increases significantly. Thus, travel companies have to make sure they are well represented there.
Facebook does not have a third-party ad system yet, but establishing one in the future would just be the next logical step. Then companies could pay Facebook to display targeted ads on their own websites. Google is well aware of all these facts and tries hard not to lose to Facebook. That’s why they hired skilled people to find a way to successfully incorporate a social component into their system. Additionally, Google gave its employees a 10% pay raise, as mentioned in a previous blog entry. Definitely a part of the reason was to prevent its high potentials from leaving Google to work for Facebook.
The buying behavior of travelers
Google’s acquisition of ITA and the alleged acquisition of Groupon could also – at least partially – be intended to improve Google’s position in targeted advertising and to get a competitive advantage over Facebook. By acquiring ITA, Google gets very deep insight into the buying behavior of travelers, and could, according to Fairsearch, also manipulate search results and list companies that have paid advertising fees on top of its organic search results. Similarly, the acquisition of the 2008 founded “deal-of-the-day” website Groupon would provide Google with knowledge about the buying behavior of millions of people. With this information Google could then create personalized ads that exactly reflect its users’ interests and preferences. However, it is still not sure, if both acquisitions will be approved by the Department of Justice.
The outcome of this “battle” between Facebook and Google is still uncertain. But although competition is a good thing for us, we should be concerned that in the near future a few companies, such as Google, Facebook, Microsoft and Yahoo, will control the internet market. Then innovation and flexibility that often come from small companies and start-ups are likely to decrease.
Image by violetkaipa