Google and Facebook: How two giants can transform the landscape in a day
Oct 29th 2009 3:30PM
Updated Dec 4th 2009 5:22PM
That's because search giant Google unveiled what appears to be a revolutionary GPS guidance unit for smart phones running Google's Android operating system. Collectively, those two GPS companies lost more than $2 billion in market cap. Even shares of iPhone maker Apple (AAPL) fell by a startling 5%, more than retracing all the recent gains the stock had made after posting stellar earnings last week.
Apple was also reeling under the early ad and media onslaught by Verizon Wireless's new Droid phone, a Motorola (MOT) handset that has reviewers raving and could be the first breakout Android phone. (Sam Gustin describes how Droid takes on Apple's geek chic here). Incidentally, Motorola beat earnings estimates on Oct. 29, and its shares rose by nearly 10%.
Meanwhile, social networking giant Facebook was meeting in Palo Alto, Calif., with developers to unveil a raft of changes covering how third parties could interact with Facebook users (Inside Facebook reported on-site in great detail what these changes mean). In short, they could blow up business models and rock the burgeoning Facebook economy by giving users more control over what types of alerts and notifications they see and how easy it will be for Facebook applications makers to drive traffic to their Facebook pages.
TechCrunch reported that the CEO of Zynga, one of the leading social gaming companies on Facebook, canceled an appearance at Harvard Business School in order to huddle with his team and plot a course through the rapidly shifting Facebook landscape.
A Whole New Route for GPS
What to make of all this? While the internet and mobile communications are a rich landscape, the big dogs still hold an enormous sway over the fates of dozens of companies.
Take the case of the GPS makers. Two years ago this was an incredibly robust sector, and for good reason. A GPS unit in a car had, over the course of a few short years, become both cheap and essentially mandatory. As an application, GPS by Garmin, TomTom and other makers, was extremely useful, making it much easier to navigate to unfamiliar destinations without resorting to a map or relying on a co-pilot riding shotgun.
Still, these devices were largely disconnected from the internet, portraying static images of roads, relying on downloads to upgrade maps and providing limited capabilities to route a driver around traffic hazards. And they were rather inflexible. For example, everyone in San Francisco knows that taking the 101 Freeway south in the mornings into Silicon Valley is horrible compared with taking the equally speedy and far less trafficked 280. Good luck convincing your GPS unit to send you on the 280 instead of the 101. Sure, it can be done, but it's not intuitive and it surely isn't simple.
Need Directions? Just Ask
Now along comes Google with its new Google Navigation service. First, there's the price, which is free. Very hard to compete with that. Second, Google beats the pants off the existing navigation devices by allowing voice commands. You tell your phone where you want to go, and it will guide you there.
And you don't have to use exact addresses. Rather, you can say "I want to go to a Chinese restaurant in Palo Alto," and it will give you a menu of Chinese restaurants in or around the city. Pick one, and Google guides you there.
It also has real-time traffic information, which is both free (most other GPS systems charge for it) and more accurate. Then there's the high-fidelity satellite imagery from Google Earth that gives drivers an actual picture of the street-level surroundings as you drive a route.
It's a wonder the shares of the GPS guys didn't fall further. But this is a classic case of how Google, with one shrug and the ability to tap into its vast store of data, can completely redefine product categories and turn entire segments into mere features on the global Google operating system.
Multiple Whacks at Apple
Why were Apple shares tumbling? First, Google Navigation is clearly the killer app that could push consumers to quickly move to Android. The iPhone has no app for that, yet. Second, Google Navigation cuts to the very quick of Apple's business model. GPS navigation applications on the iPhone are among the priciest, running from $50 to $100 per download. Remember, 30% of that money would be going to Apple.
GPS applications also provided one of the most compelling reasons to pay for an actual subscription service in order to get faster map updates and real-time traffic info. That's another revenue stream gone in a Google second.
Since most pundits were expecting the entire GPS segment to migrate over to smart phones, that could conceivably mean, over time, billions of forgone revenues for Apple. It's hard to get people to pay for things when a perfectly good version is free.
All's Not Well Down on the Farmville
In the case of Facebook, the social networking giant briefed developers yesterday that they would no longer be able to add their notifications to users' update streams without getting them to opt in affirmatively. Social gaming sites such as Farmville (a virtual farm game) gain huge purchase and new users through constant updates posted in players' news streams informing all their friends on the latest tidings down on the farm.
By forcing Zynga, the parent of Farmville, to ask players for permission to access update streams, Facebook could slash Farmerville's traffic by double digits and hammer its growth rates. Zynga, which is hiring 160 people now and, according to sources, on track to do $300 million to $500 million in 2009 revenues, will have to figure out new ways to play by the ever-changing Facebook rulebook to bring in users.
Another key change Facebook made was reserving the right to reject applications it didn't think were appropriate. In the past, Facebook had bounced apps only after an outcry. Now, it's adopting a proactive approach that implies more screening. This, of course, introduces new uncertainty into the Facebook applications market and, by extension, more costs. As anyone following the Google Voice versus AT&T saga on Apple iPhones can attest, application-approval politics are testy at best when one party is a truly dominant player, as Facebook is at this point.
None of this is to say Facebook was wrong to make these changes. As a user myself, I'll appreciate more control over what I decide to see and how I choose to configure my Facebook experience. But if I were in the Facebook economy trying to earn a buck, I'd be feeling whiplash. Ditto if I were a venture capitalist who had bet big on Facebook application plays.
The changes illustrate just how easily Facebook can and will upset and reconfigure a growing economy that's completely reliant on the social networking kingpin. When web giants like Google and Facebook walk, the ground shakes, edifices topple, and the landscape changes -- sometimes in just one day.
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.