The Social-Media Race: It's Down to Facebook, Google and Microsoft

Last Updated Jul 18, 2011 3:49 PM EDT

Twitter scored a coup in late 2009 when it licensed its tweet streams to Google (GOOG) and Microsoft (MSFT). The take was a reported $25 million for multi-year deals. At least, they were supposed to be multi-year. But Google recently said, "Thanks, but no thanks" and declined to re-up, presumably because it now has Google+ and less need for the tweets.

That leaves Twitter desperate for Microsoft to renew and keep at least some of that crucial revenue coming in.

It's getting ugly in the social networking space. Companies are busily trying to erect barricades -- both in technology and by leveraging consumer psychology -- around their social data, acquire more social data, and figure out how to make it all profitable enough to justify the aggregate billions of dollars invested in the space. You're going to see companies work much harder to become everything social to everyone, if only to avoid being dependent on competitors.

Who are you gonna call?
There are two reasons data has become the primary battleground in social. One is that it gives marketers a reason to spend money. The theory, apparently accepted as revealed truth, is that the more information available about users, the more effect marketing can be.

In theory, that makes sense. Practice may be a different story. As my BNET colleague Jim Edwards has pointed out, Facebook ads aren't that effective. And if Facebook doesn't collect enough data about people to make targeted advertising work, it's hard to see who could.

Probably some advertisers make good use of the information, and there's much other companies could learn. However, most seem to chase personalization because everyone else does. It's the bandwagon effect: as perfect a cross between misleading rhetoric and traditional advertising as you can get.

What's yours is mine and what's mine is mine
Of greater actual importance is the other reason for data. People use social networks -- and search engines and many other types of services -- to find people, entertainment, information, and other such things. If a company doesn't have the data and the people consumers want to get it from or interact with, that particular social network won't go anywhere.

Data is the currency of the social industry. Or, as someone intelligently formulated, "If you're not paying for something, you're not the customer; you're the product."

That's a fundamental problem for all the social networking companies. Products aren't really theirs to develop. All they can do is lure the data in and keep it from walking out the door; otherwise the marketers have nothing unique in the market. Facebook banned an ad that mentioned Google+ -- no surprise there, as the company's terms of service mention no advertising competitors.

The more serious action is making it difficult for users to pull their connection data out of a Facebook account and bring it elsewhere, like Google+. There are still ways to do it, like importing from Facebook into a Yahoo email account and then out to Google+, because it is difficult to stop up all forms of access and still claim to be social.

That's why Twitter was selling full access to Google and Microsoft. Only now, Google figured it can forgo tweets and shut down its real-time search updates. Why pay when it can develop its own flow of messages and then use them as it wishes? (Privacy settings permitting, of course. Uh-huh.) Microsoft may soon also become more independent, as there are signs that it plans its own social networking and sharing service.

Who needs you?
We're just seeing the beginning of the jockeying. All the really big companies will use their cash and muscle to ensure uninterruptable sources of social data. Google says that it still managed to get 10 million users in the last week or two. It's an amazingly fast ramp-up.

All Google's talk about letting people own their data is clever spin. If you don't have a service, what are you going to do with the data, anyway? If Google has you actively using Google+, then who cares where else you go? There are only so many places that can let you make use of all that data anyway.

The Google+ ramp up is the type that will become necessary. A company like Twitter needs to be acquired before it becomes irrelevant. What else can you expect of a Foursquare or any of the many other variations on social networking? Most won't get a chance for an IPO because the window of opportunity to be a necessary player in the industry is rapidly closing.

The premium will be on the ability to efficiently serve consumers, who probably don't want to spend too many waking hours updating and checking social networks. Eventually, people will settle on maybe a couple of social networks services that they'll continue to use. All the others will not have enough scale to satisfy investors, who will eventually pull the plug.

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Image: Flickr user Eric Kilby, CC 2.0.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.