Last Updated Sep 17, 2010 5:05 PM EDT
Any company has a strategic weakness. For Google, it's the complete dependence on advertising revenue, largely based on search. Social networking -- and no doubt that Facebook is the current ruling monarch -- is a potent force that threatens how people look for information, which is another way of saying how Google makes money. As it looks one way at Facebook, and then over to Microsoft, which might get access to anonymized Facebook data, CEO Eric Schmidt is sounding more nervous. For good reason.
Google is an ad revenue junkie. Given the amount of money the company makes off advertisements, especially those tied to search engine activity, who could blame it? But the world is changing quickly. People begin to see social networks as a viable way to gain information and recently Google saw a big year-over-year drop in the number of searches. That may be a perturbation, but then again, perhaps it's not.
Certainly Google doesn't act as though it was. Look at how the Wall Street Journal story I mentioned before quoted Schmidt:
The best thing that would happen is for Facebook to open up its data," Mr. Schmidt said. "Failing that, there are other ways to get that information." He declined to be specific.If that doesn't smack of a bully attitude fueled by strategic desperation, I don't know what would. Quick, call the social network data enforcers. But, seriously, what could Google do other than make appeals directly to users or see if some third party has gained access directly from Facebook? As if another business would give up its data lifeline to make the search engine giant happy.
And then there are the brewing patent wars. Facebook (partly through its acquisition of Friendster) has been on a social networking patent frenzy. But Google has also been busy, filing for patents in the social network space, as shown by some applications recently made public. The company has been working on a social network advertising model and a mechanism to let advertisers bid on social network users.
No wonder Schmidt and Google are nervous. The can see the very real possibility that their grip on Internet advertising could loosen enough to hurt the bottom line, and they see social networks as an important new medium for them to deliver advertising. If only someone would give them the data they need. Facebook's data would let them develop their own hooks into social networks. Making the matter more complicated and irritating is that Microsoft might get the data. That would give Bing something substantial that Google lacks. If you see Schmidt's knuckles turn white as he grips things and tries to keep a smile pasted on his face, you know why.