August 15, 2010 3:53 pm

Google prepares for battle with Facebook

 
Sergey Brin©Reuters

Google co-founder Sergey Brin at the Buzz launch

Through acquisitions, investments and internal development, Google is piecing together the makings of a social networking infrastructure – one explicitly designed to challenge Facebook, which has quickly emerged as one of the most potent forces on the web.

But as Google gears up for this big push, Facebook is keenly watching Google’s moves, and is bracing itself for a battle that will shape a more social phase of the internet.

“We are going to see a more cohesive, confident and sensible social push from Google in the coming months,” says Augie Ray, analyst with Forrester Research. “And it comes at a time where there could really be some risk to Facebook.”

The most visible evidence of this fight is Google’s sudden shopping spree. On Friday it bought Jambool, a company that runs virtual currency systems for social games, including those played on Facebook. This month Google paid about $200m for Slide, a major developer of Facebook applications with a wealth of talented engineers. And shortly before that it invested $100m in Zynga, the largest maker of social games.

“They failed to innovate on their own so now they’re throwing their chequebook at it,” says a senior executive close to Facebook.

These moves signal a strategic shift for Google. Its previous social networking effort, Buzz, tried to summon a social network from the roughly 200m people who use its Gmail service. That effort flopped, partly due to privacy concerns, but also because Buzz had limited features, and no social games or applications. Once people found their friends on Buzz, there was little else to do. Now, rather than try to build a social platform from scratch, Google looks to be building a destination for social games and applications, and hoping the social network will coalesce around it.

Industry veterans say this strategy should give Google a fighting chance when it launches its new social push, which is likely to be called Google Me.

“They’re not buying market share, they’re buying mind share,” says Ron Conway, an angel investor who has advised both Google and Facebook. “They’re buying some of the great minds in social networking.”

No one outside Google knows exactly what Google Me will look like, and the company has suggested it is not out to duplicate Facebook. Recently questioned by the Wall Street Journal over whether Google was creating a Facebook rival, Eric Schmidt, chief executive said: “The world doesn’t need a copy of the same thing.”

But the broad strokes are coming into focus, and it is clear that if Google Me is not exactly the same thing as Facebook, it is suspiciously similar. People familiar with the plans say that Google’s social push is likely to include two elements – a suite of applications and games, based on some sort of platform.

Within Google, the project is commanding the company’s full resources. Besides spending nearly $500m on acquisitions, Google is putting its top talent on the case.

Vic Gundotra, Google’s vice-president of engineering, is running Google Me, according to multiple sources. Mr Gundotra has already proved himself a formidable adversary.

Until this reassignment, he was overseeing Android, Google’s mobile phone operating system that last week overtook Apple’s iPhone as the market leader in US smartphones.

There is another weapon Google might wield – its dominance in the search market. People close to Facebook are concerned that a search for a person in Google could deliver their Google Me profile ahead of other results, including their Facebook profile.

“The real worry is that they will leverage their position in the search market for whatever they do in social,” says one person close to Facebook. “They already did it in finance and video and maps.”

For all Google’s muscle, it faces a deeply entrenched network. With 500m members and counting, Facebook is the largest social network on the web.

And Facebook, sensing the threat from Google, is bracing itself. In recent weeks the site has refreshed core features including photo albums and posting to the news feed.

“There are substantial challenges for Google, or anyone, trying to create a product to compete directly with Facebook,” says Justin Smith, founder of Inside Network, which monitors social networking sites. “The switching costs are very high, especially when you’ve built up a network of hundreds of friends and made an archive of your life and photos.”

At stake is nothing less than the future of advertising on the internet. Google is still the undisputed champion of this field, serving up the vast majority of search advertising and hauling in $23.5bn last year. But Facebook is hot on its tail. Just six years old, Facebook is expected to make between $1bn and $2bn this year, thanks to its vast user base and its highly targeted ads.

For years, the two companies have competed for talent, luring top engineers with perks and stock options. But the heightened competition has taken this jockeying to new levels.

Google recently tried to keep two executives in India from joining Facebook by offering them 30 times their previous remuneration, according to a person familiar with the situation.

The offer didn’t work. The executives turned down Google, instead entrusting their future to Facebook.

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