Search Versus Social

Search Engine (Google) Versus Social Networking (Facebook) Students are free to choose any search engine or any social networking site when answering a question on this subject. However the module leader recommends you choose Google and Facebook since these were studied as part of the module and the competition between these two firms is well documented in wider literature.

Figure 1: Magazines dedicated to Facebook and Google If asked to effectively compare and contrast two key Internet focussed companies students should remember to critically assess the companies and not just describe aspects of their operation(s).

There are various ways in which this could be done but a useful approach (given the limited time an exam presents) would be to offer a Strengths, Weaknesses, Opportunities, Threats (SWOT) analysis.

This provides a natural and concise structure in which to respond to the specific question posed. This also offers the opportunity for students to re-visit the worksheets used during the module that, amongst other things, asked students to conduct a brief SWOT analysis (See Figure 2).

Figure 2: SWOT Analysis Screenshots from Module Worksheets

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In addition to the worksheets there are plenty of resources on NOW including lecture PowerPoint files, WikiBook PDF documents, as well as numerous articles tagged on Delicious and postings on the module blog, which are both searchable See Figure 3).

Module Blog

=http://phil-wane-ics.blogspot.com/

Phil on Delicious

= http://www.delicious.com/Moonglum

Figure 3: Blog and Delicious Services Even rudimentary Google searches will return large number s of results analysing Facebook, Google, and sometimes even both companies given their well known rivalry. Of course students do not have to use a SWOT analysis approach to tackling this topic but whatever approach is used should be in part analytical since it is not sufficient at Level 3 (Final Year Undergraduate) to simply describe stuff.

Google Overview There are materials that cover this in various ways (see NOW) but here’s a brief reminder: Google excels at providing search results to users. It is free to use. Google makes the majority of its revenue from a highly sophisticated advertising system called PageRank. There had been some very successful search engines before Google emerged but their use of an innovative algorithm and simplistic (uncluttered) interface proved very popular with users and with advertisers trying to connect to those users. Google cross-subsidises a number of other services (Blogger, Google Maps, Google Earth and YouTube to name just a few) although these also generate revenue, which is primarily from advertising. Would-be advertisers have to be convinced that the Google system is efficient (and they seem to be so) but it is not without possible issues, such as Click Fraud.

Google has expanded rapidly and now occupies a dominant position in the Internet search and advertising markets in many areas of the world. However this now leaves it with the dilemma of whether or not to expand into areas like China (on going internal wrangles over this) which are politically contentious or South America or parts of Asia which may simply be less profitable or have entrenched local competition. Google has also been subject to (and is currently subject to) investigations into whether Google is a monopolistic entity, which may lead to restrictions to counteract this possible position, and Google has also been subject to legal scrutiny over issues of privacy (invasion thereof). Topical examples would include the particularly strong reaction against Google Street View in a number of key markets including Germany.

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Google itself continues to seek new opportunities for enhancing revenue and one area it is currently expanding into is that of mobile search. There is a growing market for search from mobile devices such as “smart” phones, laptops and tablets style devices. Location based search and marketing are a current area of growth for many technology companies including Google. Google has suffered criticism in some quarters for failing to maintain a sharp focus on the key area of search. For example Google fell behind some companies in indexing services like Facebook and Twitter. This requires the adoption of search techniques capable of returning results in near real-time; Google has now addressed some of these failings with newly updated search features. Google has also suffered from some high profile failures, for example the launch of Google Buzz, which suggested that Google understood technology better than it understood the people who wanted to use it.

Google has proved to be a very adept and efficient (and so profitable) provider of search services linked to targeted advertising. However its reliance on advertising does leave it vulnerable to global downturns in advertising where it may be gaining a growing share of a shrinking market. Google has also come under intense regulatory and legal scrutiny over issues of monopoly (also known as antitrust in the US) and privacy. There is also some evidence that key Google engineers and computers scientists are willing to leave the company for newer companies, such as Facebook, and evidence of this can be found in the recent surge of bonuses paid to key Google staff on top of already generous remuneration packages. So whilst Google may still be rather imperial it is not invulnerable.

Facebook Overview There are materials that cover this in various ways (see NOW) but here’s a brief reminder: Facebook is currently the dominant social networking site in most of the more heavily networked parts of the world. Facebook is not the first social networking but it is the largest and most successful to-date. It is free to end users and makes a lot of income from targeted advertising.

Facebook has managed to extend its reach beyond individual users into the corporate realm and many large institutions now have official Facebook sites. Facebook was initially a rather exclusive social networking service but eventually opened up to all users with an email address. Facebook and large numbers of developers who piggy back on the Facebook platform offer registered users a large range of facilities and by offering these services and tools, they are able to gather large amounts of user data. This enables Facebook to offer potential advertisers highly targeted advertising. However this has also lead to privacy issues and the Facebook Beacon Project was a good example of this.

Facebook users increasingly access the site via mobile devices and the demographic is maturing as older people become aware of the opportunities presented by this high profile social network. One possible advantage that Facebook has over a search based site (like Google) is that users sometimes spend long periods on the site while making use of the various services, communicating with their “friends” and updating their profiles and so forth. This “stickiness” presents more opportunities to target users with advertising and other promotional strategies.

Facebook now faces issues as to where to target future expansion and may face enquiries into antitrust (monopoly) issues if it can demonstrated that it has become the dominant provider of Internet based advertising in particular locales. Facebook has also suffered from a number of privacy related issues. In some instances large quantities of user profile data has been extracted from the site by third parties, and in some instances, by Facebook itself for use with commercial partners. Facebook has also suffered from a number of instances of high profile individual breaches of privacy, or where 3

users have used Facebook as a platform for committing, or consorting to commit, various crimes.

Cyber stalking/cyber bullying are recurrent problems on the site (just as on sites like MySpace and Bebo) and Facebook has been named, along with Twitter, as being an Internet based service where legal rulings are flouted, for example discussions about individuals subject to protective court orders of various kinds, including injunctions and super injunctions in England. There are also issues around how much user data may, or may not be, handed over by Facebook to various police and intelligence agencies.

The Business Models Facebook and Google both rely on the majority of their revenue from targeted advertising. Both companies need to expand into the growing mobile internet access market in order to continue to target users with personalised, profiled, targeted advertising, if they are to maintain revenues. Both companies have expanded rapidly although Google is the more mature company, in the sense that its impressive growth may have begun to plateau, and that the technological lead (and so commercial advantage ) that it once held over all rivals has now diminished. Not gone but not completely dominant either. Facebook would still appear to be in a period of rapid expansion but there is the possibility that numbers of new users will begin to peak in the not too distant future.

Facebook also faces the problems of the potential disengagement of some existing users as new alternatives inevitably come along and some early adopters my not want to be solely based on a social network now used by their “mums and aunties�.

An examination of Facebook and Google (materials on NOW, module blog, and the wider web) will reveal that something they have in common is the reliance on targeted advertising. In order to continue to grow and remain free to end users they must continue to be successful in attracting would be advertisers while looking for other possible sources of revenue. It is worth bearing in mind that people use Facebook and Google in different ways, indeed many people use both of these sites.

Key Economic Concepts It is worth bearing in mind some key economic concepts that can be applied to this topic. This next section is not an exhaustive list but is to remind students to use the language of their discipline where possible. Since you are economists you should strive to link theory to practice in places.

Like many Internet based businesses Facebook and Google are free to end users. One reason for this is the tendency for demand for Internet based goods and services to be highly elastic. Premium priced services do exist but tend to serve niche markets and are the exception. Where there are many possible substitutes available (and there usually are on the Internet or World Wide Web) then ceteris paribus demand for goods and service will be highly price elastic.

It is sometimes said that Google and Facebook are monopolies in their respective fields (search and social networking services) but how might an economist test this? One possible approach would be to calculate the concentration ratio for the respective sectors. This might not be straightforward but would be one possible option. Another would be to look for evidence of monopoly or super normal (sometimes called abnormal) profits. There are other economic terms of possible relevance; students are advised to consider what they might be. It is not necessary for this module to demonstrate a detailed knowledge of their application to the specific situation outlined here but 4

student should strive to demonstrate an awareness of how key economic concepts might be of relevance.

Visualising the Topic There are different ways of picturing this particular topic and one useful way is through the use of a Venn Diagram (See Figure 4). Students do not have to use diagrams of any kind in their answer (though they are welcome to do so) but this simple diagram might aid focus and revision.

Targetted Advertising

Facebook

Google

The diagram is a rather simple one but serves to show that Facebook and Google both rely on targeted advertising and one could annotate some of the other overlapping sections to indicate where some of their services overlap: Google has a social networking site and offers online storage and ways to communicate (amongst other things); Facebook offers search facilities, online storage and ways to communicate (amongst other things).

Figure 4: Venn Diagram – Facebook and Google

Online Advertising

Google

Facebook

A stacked Venn diagram helps illustrate that Google and Facebook are sub-sets of the total online advertising market. A market that may grow or shrink. Were we to model this over time we might also see the relative importance of Google and Facebook change (their bubbles would grow or shrink) and may even “change places” entirely.

Figure 5: Stacked Venn – Google and Facebook as part of Online Advertising Market.

Diagrams 4 and 5 above both show different ways to visualise the topic; you do not have to use diagrams in your answer – unless you want to. Be sure to answer the question, and if it naturally divides into parts, then answer all parts. Remember to link theory to practice where right to do so.

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