Yahoo's Carol Bartz Calls Facebook the Competition

Yahoo (YHOO) CEO Carol Bartz says Facebook is probably a bigger rival than Google (GOOG), according to Bloomberg, which quoted comments she made in New York on Tuesday. It is an odd admission, but nonetheless shows how Facebook's size and dominance in display advertising presents a challenge to major portals like Yahoo, Microsoft's (MSFT) MSN and AOL (AOL), as well as Google.

Yahoo has formed a search alliance with Microsoft's Bing. The new combined venture will probably have close to 30% of the U.S. search market, compared to Google's 65%. The ratio may stay the same because of Google's broad acceptance, but search advertising is not growing at the pace it was two years ago. That makes it a somewhat less attractive market for the portals. Yahoo and its competition bring in a great portion of their revenue through display ads.

Facebook has 500 million members worldwide. Its U.S. audience has grown large enough to challenge the portal giants -- even Google, according to research firm Comscore. And, unlike the others, Facebook continues to grow. In October, Facebook was the fourth largest online property in America with 151 million unique visitors. Yahoo had 180 million. AOL had 110 million. All of Microsoft's sites, including MSN, had 180 million unique visitor, about the same as Google, which includes YouTube, the world's largest video-sharing site.

Facebook also has about a quarter of the display advertising inventory sold in the U.S. It sells that inventory at much lower CPMs (cost per thousand views) than the portals. That may force portal CPMs lower, as more and more marketers move to Facebook as a primary medium. Portals may need to offer competitive rates to maintain display market share.

There is also evidence that people use Facebook as their primary Web destination. Based on the recommendations of "friends," users go to other websites, including the portals and large news and entertainment sites.

If Bartz is right, she has a huge problem. She has no social network strategy of her own.