John Shinal's Tech Investor
Google attacking Facebook's home turf8/2/12 2:40 PM ET (MarketWatch)
SAN FRANCISCO (MarketWatch) --
That thinking assumes the No. 1 social network will have plenty of time and a clear road to figure out how to profit from its huge base of users. Once Chief Executive Mark Zuckerberg and company do that, the thinking goes, it will just take a couple of years before Facebook (FB) grows into its pricey valuation.
Yet Google's deal for Wildfire -- whose software helps businesses and individuals run effective marketing campaigns on social-media sites -- shows that Facebook's competitive landscape is far from static.
In fact, Google (GOOG) is the third large company in as many months to attack Facebook on its social turf.
Taken together, Oracle, Salesforce and now Google -- which reportedly paid $350 million for Wildfire -- now have invested more than $1.3 billion to acquire software and expertise targeted at the advertising market for social media.
This tells me that the obstacles in Facebook's path to success are not only internal ones relating to management execution. The fight for social-media ad dollars is going to be a bare-knuckle brawl among companies with deep pockets.
A nascent market
The recent wave of social-media acquisitions does have one silver lining for those who believe Facebook's stock is a buy right now, even though the company is trading for about 11 times its expected 2012 sales.
The deals show how seriously these established tech players take the threat that Facebook poses, and how large they think its market might be. Buying Wildfire also means Google is placing more bets in the market than experimenting with its own social network, Google+.
Right now, social-media marketing consists mainly of contests, coupon-like promotions and similar campaigns. The secret sauce for Wildfire, a company I first wrote about last summer, is its ability to create what is essentially a custom application for every client.
The start-up says it has 16,000 customers, including more than half the top brands in the Fortune 50 -- among them giant consumer companies such as AT&T Inc. and Sony Corp.
This type of marketing is still in its infancy, but as it grows more sophisticated, these campaigns all will be targeted based on the behavior of social-media users and the personal data contained in their profiles (just as search advertising is now targeted at keywords typed into search requests).
That's an adjacent market for Google, which is why its acquisition of Wildfire seems like a good strategy. The moves by Salesforce.com, the pioneer of online customer-tracking software, and Oracle, the database giant that's now attacking Salesforce in that market, are a bit more of a stretch.
But their presence in social media suggests they will try to broaden it into one that allows businesses to not only target potential customers with ads, but service existing ones as well by sending messages to their social-media pages.
Danger of a walled garden
It's easy to think that Facebook has firm control of this landscape, thanks to its 900 million global users. If Google wants to target them with ads, Facebook could try to block the move or charge rivals for access to its valuable user data.
Facebook just set up its own online exchange to make it easier for advertisers to target consumers, by accessing what the company calls a user's "social graph." This demographic and online-behavioral data directs which Facebook users see the so-called sponsored stories and other social ads that Facebook has begun rolling out.
Yet keeping that ad exchange sealed off as a walled garden may be harder than it seems, for two reasons.
First, Facebook isn't the only social-media site in a world that also includes Twitter,
Second, Facebook's earnings report last week made clear that its most active users are the roughly 500 million or so who access the social network every day via a mobile device. Those are the users that will be most valuable to online advertisers and marketers.
They're also the ones Facebook has the least control over, because unlike Google -- or
As I've written before, mobile advertising also is much less lucrative than selling ads viewed on desktops or laptops. Read previous column, "Where the fat mobile margins are."
No one knows exactly how all this will play out, but I think it's likely that large corporate advertisers are going to want exposure to more social-media users than just those on Facebook.
If Facebook tries to keep its data sealed off from Google or other rivals, its ad exchange could end up withering like the one
To be sure, buying a hot start-up is nowhere near a guarantee that Google, Salesforce or Oracle will succeed in building a social-media ad business. Microsoft's soured aQuantive deal is a reminder of how difficult it can be for a large company to integrate a small, fast-moving one. Read previous column on how tech acquisitions have a dismal track record.
Facebook is no plodding giant. The company has shown itself to be nimble when developing and improving its software. All that self-reported data in user profiles make its social graph a gold mine for advertisers.
Make no mistake, Facebook has positioned itself to be the biggest player in the market for social-based advertising. But with deep-pocketed rivals gunning for it, no one should assume the top social network will have that market to itself.