When I wrote a post a month ago detailing why I thought Facebook could really hurt Google (GOOG), lots of readers scoffed at my logic. So I was relieved to see that Sean Parker agrees with me. Parker, a babyfaced wunderkind tech enterpreneur, played key early roles in Facebook and, before that, music filesharing site Napster. He gave the most provocative presentation at the Web 2.0 Summit in San Francisco last week -- laying out, in broad brushstrokes, how and why he thinks Facebook will kill Google.
Parker believes, in short, that businesses that connect people are worth more than businesses that collect data. Google collects data; Facebook connects people. So network effects will go to Facebook, and not Google.
"Network effects"? Think of the term this way: With every additional member who joins Facebook, the value of Facebook increases to everyone who uses it. Each node on the network brings additional information and additional capabilities. The classic example of this phenomenon, known as Metcalfe's Law, is the fax machine: a worthless device until a critical mass of consumers had them and could make faxing common practice. In an earlier era, the success of the telephone was similarly dependent on the size of the network.
Parker argues that network effects work on the Internet as well. He cites PayPal, eBay (EBAY), and Skype as network-effects businesses that facilitate connections between users, rather than collecting or sorting information.
Still, none of them have come close to either the revenues or usage of Google. So why would Google fear Facebook?
Two reasons. One, because any given user's switching cost from one search engine to another is close to zero. Google has a great product, but the entire world could switch to Microsoft (MSFT)'s Bing search engine in a split-second with little consequence. But Facebook has insanely high switching costs. After you've built a network of friends, uploaded pictures, and used Facebook Connect to sign up for dozens of other sites, the idea of ditching it all for some new service is quite painful.
This is precisely why, even after Google came out with Gmail and a much higher amount of free memory, Yahoo! (YHOO) did not see a significant exodus from its own online email service. Yahoo offered less than Google, but switching from one email provider to another has extremely high costs to users, who loathe the idea of exporting emails, sifting through emails, organizing emails, and praying they haven't deleted emails. But switching from Google's search engine to Yahoo's is neither difficult nor particularly painful.
Another reason to fear Facebook is that search is increasingly a social act. When my wife and I were searching for a new pediatrician, I did a Google search and a Facebook inquiry. Google brought up a bunch of links on sites of varying quality that purported to rank physicians -- fair enough -- but my Facebook query got me some excellent recommendations from people I knew. I was more comfortable with Facebook's suggestions, because they came from people I knew, at least tangentially, and because I knew the information was relatively current. A Google search gives no guarantee of whether the information is current, nor of the motivations behind the strangers who provide it.
Another search that's moving into the social realm: travel. Yes, you can research a trip on the Internet, and go to TripAdvisor (IACI) and read publications. But that information is invariably dated; TripAdvisor's text comes from people we don't know with their own motives and tastes. But post a Facebook query asking for travel tips, and you'll get information tailored to you -- and likely more current, if not real-time -- from people you know and whose tastes you can consider. Twitter can do similar things, especially with information that changes daily or weekly. The old Web has trouble keeping up.
At the core of this transition is a simple realization. A huge chunk of search is people searching for information to help them make a decision. Within that chunk of information, a big subset is recommendation. Most people searching Google are looking either for a place to buy something or for some type of recommendation. But crowds are smarter than the smartest search engine. My Facebook friends (and real friends) do a much better job of cutting through the noise I'd find in a search-engine query and giving me a signal. It's a subjective signal, of course, but that's what a recommendation is.
For the first time, social media has made it convenient to tap the collective wisdom of your crowd, and people who know your crowd, to get recommendations for just about anything. Sure, you could blast friends with an email for advice in the past, but no one would dream of constantly bombarding lesser-known acquaintances for such information. By tapping into this new and powerful form of search, Facebook can also tear off a significant chunk of the value of the act of searching. Past wisdom was that people on Facebook weren't receptive to ads. Really? When I was looking for a pediatrician, I might've bitten on an ad for local practicioners. In searching both Google and Facebook, the latter became more relevant, so I spent less time conducting research on Google. I felt more comfortable that my own network would help me find the right information.
None of this means Google will die. I often disagree with the answers I get back from my social search. And the act of indexing the Internet is hugely valuable for providing a baseline of information. Google beats Facebook in many respects: Google (and other search engines) are insanely valuable for mapping and plotting directions among almost any locations.
And Google clearly gets the social web; Google Wave puts the company squarely into a form of social networking and, by extension, social search. Google is also quietly building up social tools to overlay on top of its search engine. Google has access to millions of desktops using its software toolbar: a potential Trojan Horse for a broader social network play. So don't write Google off.
Nevertheless, Parker's presentation is compelling and seems to mirror key changes in how people are using and perceiving the Internet. If I go a day without using Google, it doesn't bother me much. But I can't go a day without Facebook: the social connections keep me tuned in.
With my eyeballs and my attention come opportunities to make money. Connection, not collection, is the value generator. I will keep using Google a lot to search for information -- it's a powerful and useful tool -- but increasingly, it takes a backseat to social media and the wisdom of crowds.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.
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