There’s nothing I like more than being early on something, and I think I’ve been pretty early in identifying Facebook (FCBK) as the number-one threat to Google’s (GOOG) dominance in online advertising.
Here’s what I wrote for Minyanville on August 4th:
Until recently, I had the mindset that Facebook and Google weren’t destined to clash.
Well, we recently learned that Facebook revenues will likely cross the $1 billion mark this year, so that idea can be thrown right out the window.
Facebook is getting big awfully fast, and a big chunk of that $1 billion is money that could have gone into Google’s coffers.
One reason Google’s Adwords pay-per-click advertising program has stayed on top is Google’s sheer quantity of data. Google’s dominance has given it oodles of information to play around with in order to produce effective ad-targeting algorithms.
Unfortunately for Google, Facebook is voluntarily handed even better data by its 500 million users.
I then opined this on September 24th:
Facebook revenues are estimated to hit the neighborhood of $1.2 billion this year — money that may have otherwise gone to Google.
In terms of core function, Google and Facebook are different animals. People go to Google to search and to Facebook to connect with people — but on the back-end, both are competing for the same pool of advertising dollars.
Evercore Partners (EVR) analyst Ken Sena, obviously reading my work, initiated coverage of Google today with an Underweight rating and a $580 target price, according to Barron’s.
Now I have no idea why a guy would want to Underweight a stock he sees going up 12% (shouldn’t that be a Hold?), but let’s look at his rationale:
“Facebook’s present growth trajectory, combined with its use of Open Graph and Likes, threatens to undermine Google’s ability to offer advertisers highest yield, which could result in a revenue share shift to Facebook and “reverse network effect” consequences for Google.
Sena compares the “Like” feature in Facebook to Google’s page rank algorithm, terming the former “FaceRank.” He estimates 20% of Google’s market capitalization could be “at risk” from Facebook in the ad business.
“…could result in a revenue share shift?”
That’s already happening.
If you look at the figures I listed above, you’ll notice that 2010 Facebook revenue estimates went from $1 billion to $1.2 billion in about a month-and-a-half.
Even crazier – I’m starting to hear rumblings about Facebook doing revenues in the $1.4-1.5 billion range this year.
Plus, if you pay attention to the Internet-marketing world, you’ll hear an awful lot of talk about how attractive Facebook’s advertising platform can be relative to Google’s Adwords. See this video by Jeremy Shoemaker a.k.a. Shoemoney for more details.
I’m not alone anymore, but I’m still a Google bear.