This post is reprinted from Jeff Matthews Is Not Making This Up.
When a few weeks back my friend and occasional interviewer, Henry Blodget, the CEO of Business Insider, tweeted word of a new BI piece defending Google (with the characteristically understated headline, “Like Hell Facebook is Killing Google“), I tweeted back to Henry that I’d be happy to take the other side of that argument.
“Awesome!” he responded, “Would love to hear details.”
It’s been a month, but with quarterly earnings report season winding down, the daily torture of listening to so-called analysts pestering men and women busy running billion-dollar global enterprises in a time of unprecedented volatility and competitiveness with questions no deeper than “how should we think about your tax rate?” and “how should we think about sales this month?” and “how should we think about margins this week?” is almost over, and the hype about Facebook’s impending IPO is heating up…so here goes.
In “Like Hell etc etc,” which you can read here, Henry correctly points out that Google is currently 10-times larger than Facebook, revenue-wise, and then argues Facebook won’t be able to close the gap as quickly as Facebook fans presume, for a very simple and logical reason:
Because as the current revenue levels for both companies are demonstrating, search is a vastly better advertising product than social networking.
So much better, in fact, that, when it comes to head-to-head business competition, the two companies aren’t yet even in the same league.
And why is search such a better business than social networking?
Because search is the best advertising product in the history of the world….it is advertising space that can capture the consumer’s attention at the exact moment that the consumer is looking for something to buy.
As for the advertising potential of Facebook’s social networking structure, Henry likens it to “hanging signs on the wall of a house during a party and sending sales reps to mingle with the crowd”:
Yes, you can target which parties you pay to hang your signs on the walls of.
Yes, you can make those signs appealing to those at the party.
But the fact remains that the people at the party, who are sharing stories and photos and news and gossip, are not at the party because they want to buy something.
They’re at the party because they want to socialize.
And any time you do more than passively hang in the background at the party, they will likely be annoyed by your intrusion. And, annoyed or not, when they do notice your ads, their reaction will most likely be, “Cool–if I ever decide to buy a car/boat/stereo/meal/flowers/bull-whip, maybe I’ll look at that kind.” Then they’ll go right back to their party.
Henry’s argument has crisp logic to it—as you would expect from a guy who was one of the very first to recognise the ultimate potential of Amazon.com at a time when that potential was not obvious to many.
Still, I’ll take the other side of it, with just as simple an analogy: Facebook is the Cable Television of the Internet.
To put this is terms of Henry’s “house party” analogy, television is akin to “hanging signs in rooms” where people are doing something that has nothing to do with buying something: they are simply watching TV.
Yet television advertisers—especially cable television advertisers—know precisely which room will be occupied by which type of people, and will happily pay to advertise in one room or another, regardless of whether the party-goers are thinking of actually buying something at that moment, because, eventually, they will.
After all, young men don’t watch TV thinking, “I need to watch this football game to determine which beer will make me attractive to women,” but the fact is that young men with a surplus of testosterone tend to be watching those games, so Budweiser showers cash on ESPN.
And nobody watches “Top Chef” thinking “I need to determine which food processor they use so I can buy one,” but the food processor company knows that “Top Chef” viewers tend to be the ones who buy that stuff.
And while Google search is, indeed, as Henry points out, immensely effective when it comes to advertising products and services to people who are looking for something, the fact is that only a very tiny percentage of people doing searches on Google are looking for anything other than how to spell a word, or get directions somewhere, or look up a crossword puzzle answer, or finish their history paper with the help of Wikipedia, or check a restaurant menu…none of which has anything to do with buying something.
So, while Google is a company I’ve admired from Day One for many of the reasons Wall Street distained it early on (including a management team totally focused on the long run, paying almost no attention to quarterly earnings), Facebook will, absolutely, hurt Google.
In fact, it already has, if my own experience advertising a similar product using both Google AdWords and Facebook is any indication.
The product I advertised is “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2011). I advertised the earlier, print version on Google, and the more recent e-book on Facebook.
And while both Google’s and Facebook’s platforms are similar in form, ease of use and detailed statistical reports, Facebook created demand I could monitor on Amazon.com in near-real-time, while Google’s impact was hard to see and impossible to value.
In short, Facebook worked far better than Google AdWords.
Google Adwords is elegantly simple: you write a headline, a brief description, and copy-and-paste the URL you want the ad to click through to. Then you tell Google which words you want your ad to appear with, pick a country or city or town where you want the ad to be triggered, and Google suggests a price-per-click to pay, which you can accept or not. (Google’s algorithms know what they’re doing so it’s easiest to go along with them.)
Obviously, I picked words like “Warren Buffett,” “Buffett” and “Berkshire Hathaway” for my “AdWords.” When those words were searched for, my ad would appear—assuming my price was in the range. If somebody clicked through, I’d get billed.
Sounds logical, and it is. But there was a glitch: it turns out most people don’t know that “Buffett” is spelled with one “T”—so Google suggests you buy other words. “Buffet,” for example. And “Warren” with one “N.” And phrases that wouldn’t necessarily cross your mind, such as the following, none of which I am making up, including the spelling:
“What is warren buffet buying” [he never discusses what he’s buying]
“Books by warren buffet” [he has never written a book]
“Autobiography of warren buffet” [there is no such thing, but people search for it anyway]
“Where does warren buffet live” [this is where it gets creepy…]
So you add more words and phrases to your list than you might think, to cover all the bases, and provide a credit card and a daily dollar limit or time limit or both for the campaign. Google takes care of the rest, allowing you to monitor the results on your AdWords page with slick charts and tables showing all kinds of statistics—the main one being how many people actually click on your ad.
The problem is, while you can and will see a lift from folks who “click-through” a Google ad, the odds can be against you, because, unless you’re a bottom-feeding trial lawyer looking for “mesothelioma” clients, click-through rates can be pathetically low.
After all, people looking for a Buffett book will just get on Amazon and search for “Buffett” (or “Buffet,” but not, likely, “where does warren buffet live”…). And people searching Google to figure out where Warren Buffett lives aren’t necessarily interested in buying a book about him—nor would I want them to buy my book.
The result, in my case, was no discernable benefit.
Facebook’s advertising platform is very similar to Google’s, mechanics-wise: you create a brief headline, a brief description, select a picture or a graphic, select your parameters, and name your price.
But it is those parameters that make Facebook geometrically more useful than Google.
For while Google allows you to narrow down the geographic territory in which your ad will appear, Facebook allows you to pick the type of person who will see your ad.
Right now, for example, “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2011) is being advertised to college graduates in India, Dubai and China, where there is a growing base of investors who admire Warren Buffett.
We’re also advertising to college graduates in the United States who identify themselves as “liberals” or “conservatives” because Buffett has interjected himself into the U.S. Presidential campaign in a way that has made him a hero to the left and a self-loathing billionaire to the right.
The benefits—unlike Google AdWords—are discernable: “Secrets…” is regularly the most-downloaded Kindle book on Warren Buffett behind “Snowball,” which has rather a fancier advertising budget than yours truly.
But the magic of Facebook’s targeting doesn’t stop with countries or education. If I wanted to, I could advertise to all 10,141,480 Facebook users with birthdays that happen in a week or less.
Think about that.
And if you really want your head to spin, think about this: according to a friend in retailing, the average Facebook woman updates her relationship status to “Engaged” within two hours of the guy actually proposing…so Facebook sells that relationship status information to retailers who have bridal registries.
As my pal told me, “We’ve been looking for this for 50 years.”
Now, for the record, I have no investment in Facebook shares, and this blog is not a recommendation or endorsement of, in ANY way, Facebook stock, which may turn out to be the biggest disaster since eToys. It is, merely, one individual’s view of Facebook’s business model based on real-world experience.
Indeed, to the question, “Is Facebook going to kill Google?”
I’d say, “No.”
But, to the question, “Is Facebook the next Google”?
I’d say, “Almost certainly.”
Jeff Matthews Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2011) Available now at Amazon.com
SEE ALSO: Like Hell Facebook Is Killing Google