Analysis: Outdueled by Microsoft for a high-dollar stake in Facebook, Google seen rebounding quickly. Almost everything Google touches turns to gold, but its social networking efforts have lacked that magic touch. As business interest in social nets grows, that leaves a sizable gap in Google's offerings.
In early October, Microsoft dealt a blow to the search giant's efforts, winning a stake in fast-growing Facebook. Just weeks later, though, the Googleplex appeared poised to strike back—potentially on a grander scale than onlookers thought before.
Before the Facebook fight came to a head, Google CEO Eric Schmidt had trumpeted the relevance of social networks, telling reporters at a recent Google conference, "It's a very real phenomenon." At the same gathering, Schmidt talked up Google's hope of selling ads on Facebook, just as it does with MySpace, the leading networking site in page views. Google's own social net project, Orkut, has fizzled domestically, though its traffic numbers fare well worldwide versus industry leaders.
Was Microsoft Sandbagging?
Microsoft CEO Steve Ballmer had said earlier this fall that social networks ran the risk of becoming a "fad," but maybe he was sandbagging; Microsoft beat out Google for the partnership, paying $240 million for a stake of less than two percent in Facebook, which is now valued at $15 billion. Microsoft's business focus helped it achieve victory over Google, which Facebook might have viewed as a competitor, according to a blog post by Gartner analysts Andrew Frank and Allen Weiner.
A win would have elevated Google to the forefront of what may be the next technology boom. The ad deal with MySpace keeps Google in the game, but Facebook was seen as the real prize. It's growing faster than MySpace, and speculation of its value—and future potential—has been the talk of Wall Street for months. But Google is not done yet.
"Why would I jump to Google for social networking?" asks Rich Lyons, president of an eponymous consultancy specializing in social networking for businesses. "(Google would) have to give them a reason. It would have to have a feature function that would set them apart."
The answer, Google hopes, may be "Maka-Maka," the goofy code name for its new social-net initiative. As businesses are finding value not only in opening social avenues to their employees but in integrating data-sharing services and applications to improve efficiency, Google has an opportunity to couple a networking service with its host of Web-based applications, which have garnered attention as an alternative to Microsoft's long-dominant Office tools. The idea behind Maka-Maka is to infuse a social networking layer into its applications. That includes capabilities for Orkut, iGoogle, its desktop apps, and, ultimately, integrating interfaces with other social networking services.
Rumors about Google introducing a multimedia phone, which Lyons says would give it a perfect platform on which to bulk up its social networking capabilities, also came into play: The Wall Street Journal reported that firm was in negotiations with Verizon and Nextel to offer phones running on a Google operating system.
Blending networking with mobility could be a powerful opportunity for Google. A win in January's wireless spectrum auction could give it added ammunition, but Google faces stiff competition in that showdown. And as the social net business has shown, not even Google wins them all.
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