Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Analysis: Google v Facebook Is About . . . Fast versus Sticky - Which Strategy Will Win?

Posted by Tom Foremski - October 4, 2010

Google's most important launch this year was its recent debut of Google Instant search which cuts user search time by as much as 40%. Google users are collectively saving 11 hours per second. That means 11 hours per second being spent away from Google search.

Google is betting it that if its users spend less time on search then it will make more money.

This is a far different strategy from that of Facebook which wants to be the stickiest place on the Internet.

Nielsen estimates that each month, an average US internet user spends around 2 hours on Google, and more than 7 hours on Facebook.

It'll be interesting to see the latest Nielsen numbers following the launch of Google Instant Search. What's certain is that the disparity in user hours will widen, and so will the disparity in their respective business strategies.

How is less time on your sites better than more?

It seems very counter-intuitive. Shorter visits means less time that users spend potentially looking and clicking on advertising -- which can't be good. Yet Google is staking a multi-billion dollar a year business on the bet that fast is better than sticky.

And it seems to be working.

Facebook is very sticky yet its revenues are a fraction of Google's (as far as we can estimate since Facebook is a private company).

The Facebook strategy favors a more-closed-than-open platform approach that seeks to provide a semi-porous walled garden -- a type of post Internet-modern AOL strategy.

Google's strategy firmly supports an open web. It sees the Internet as its platform, it is Google's Internet. It is the by far most successful company at monetizing the scale of the Internet and also in promoting web standards.

Big "I" versus little "i"

Facebook has created a simulacrum of the Internet -- a mini-Internet.

Each Facebook user is essentially a single web site, each profile page is a home page for a personal web site.

Facebook makes it easy for each user to update and maintain their personal "web sites" and it helps promote and distribute that content through automatic feeds.

Which company has the larger business opportunity?

Which is a larger market, the Internet as a whole, or a subset of the Internet as represented by Facebook?

Clearly, Google has the greater business opportunity because it isn't as restricted as Facebook.

Clearly, there is more to be gained in trying to monetize the entire Internet rather than a subset of the Internet.

Sticky money ratios...

Google's efficiency in monetizing its users is truly impressive when compared with Facebook.

Google generated nearly $7 billion in revenues in its most recent quarter.

Since an average U.S. Google user spends 2 hours per month with Google, that represents about: $600 million per average user month per hour (in the U.S.).

This stickiness-to-revenue ratio, or what might be better called the "sticky money ratio" is an interesting benchmark.

If Google can get its users to spend less time through Google Instant Search, say 1.5 hours per month and raise revenues it could boost its sticky money ratio to $750 million per average user/month per hour. That's a tough act to follow.

Facebook's sticky and closed strategy is generating a fraction of Google's revenues. And it is Google's sticky money ratio that Facebook will be judged by investors -- like it or not.

Sticky and closed is a safer, if less profitable strategy.

By keeping a mostly closed environment, Facebook gains a large measure of protection against Google's great ability to use its scale to monetize large numbers of Internet users.

Google can only access relatively small parts of Facebook.

By keeping control over its mini-internet, Facebook has more time to figure out business models without any danger from competitors. After all, Facebook controls the entire economy within its walls. That's a very good position to have.

However, it is worth pointing out that if Google had users spending 7 hours a month -- as they do on Facebook -- at its current sticky money ratio, it would have reported almost $25 billion in revenues instead of the $6.8 billion in its most recent quarter. A potential $100 billion company.

Facebook has a long way to go to match Google's monetization efficiencies but that also shows off the huge business opportunity it has. And possibly, sticky money ratios will be a good way to measure the competitive performance of each company.

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Please see:

Analysis: Google Sets Major Relaunch Of Search - SVW


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