Saturday, October 8, 2016

Can Facebook Become the Next Google?

No two companies better represent the mainstreaming of tech products than Google Inc. (GOOGL) and Facebook (FB). While the former has reorganized the world's information, the latter has woven a social web for more than a billion people on the planet. Their efforts have been rewarded handsomely by the stock market, with Google and Facebook among the most highly-valued companies in the tech sector. As of this writing, Google is valued at approximately $362 billion by the markets and Facebook is valued at $241 billion.
Both companies have had similar growth trajectories, reaching exponential revenues in no time. But, going forward, the market has different expectations of Facebook as compared to Google. Thus, Facebook's shares are trading at 85 times their current earnings, while Google's are trading at a more reasonable 25 times their earning potential.
So is Facebook the next Google?
It certainly seems so.

Facebook: A Company On a Mission

The Menlo Park-based company reinvented social media in much the same way that Google reinvented search engines. It pioneered a lucrative advertising model and is making a serious bid to become the next tech conglomerate by doubling down on virtual reality (VR). (Google, on the other hand, is making serious investments in robotics.)
But that's where the similarities end. In fact, Facebook may be on its way to becoming bigger than Google. Google's dominant position is a result of growth in a single area: search. Facebook, however, has already diversified into other industries and has become a major destination for advertising and user services.
Facebook's success was achieved in an intensely competitive social media landscape and across multiple platforms. The company's development mantra – Move Fast Break Things – has stood it in good stead through its stratospheric growth. For example, the company's entry into mobile apps was a disaster with a buggy app that was slow to load. But in less than a year the app was rewritten, refined and has since become a major money driver for the social network. Facebook has grown its revenue from zero to 69 percent of its total revenues in fewer than three years. In the meantime, the company's product has evolved with user needs and market demands. It has undergone multiple iterations to incorporate features from competitors and user requests. (See also Mobile Ad competitors: Facebook Vs Google.)
The company has also made some deft business moves. For example, its 2012 acquisition of Instagram, a popular mobile social network that could have become a serious threat, was a master maneuver. The app, which subsequently has released a web version, is the fastest growing major social network and is used by celebrities and government agencies alike to connect with audiences.
Similarly, Facebook has also garnered a major chunk of the rapidly growing mobile messaging market with its acquisition of Whatsapp in 2013 for $19 billion. Facebook's acquisition of a hot virtual reality startup – Oculus Rift – can only serve the company well as VR gains a steady cult of enthusiasts and breaks out into a mainstream entertainment experience. (See also Facebook's future technologies.)

Google: A Besieged Firm

In contrast, Google is besieged on multiple fronts.
It is struggling to outline a coherent mobile strategy to investors in a mobile era. This could have serious consequences for the company's bottom line as mobile advertising is poised to overtake digital advertising as soon as 2019. In fact, the company is already cutting costs and hiring due to shrinking margins and slow growth. The company needs to diversify to maintain revenue growth and retain talent.
Google is also under attack from regulators in Europe, its second largest market, for its dominant position in the search industry. In addition to anti-trust lawsuits, the company may also face resistance from wireless carriers there. Recently, carriers leaked plans to block mobile ads of the kind displayed by Google, a move that could seriously affect the company's financial prospects because mobile searches outnumber its desktop searches and Europe is its second biggest revenue market after the United States.

The Bottom Line

Google's foray into social networking with Google Plus was a disaster and failed to produce revenues for the company. Like Facebook, Google has also made significant investments in emerging technologies. These include near term bets, such as robotics and Internet of Things technologies, as well as moonshots, such as sidestepping death and self-driving cars. But it will be some time before those bets make a difference to the company's bottom line. This is because each technology — be it is self-driving cars or robotics — requires a concert of circumstances and lobbying efforts, such as development of standards around IoT and the regulation of driverless cars.
Given these developments, it might be a good idea to rephrase the original question: When will Facebook overtake Google?

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