Google has reached its share of dizzying heights—a share price of almost $700, a penchant for consistently beating Wall Street's financial expectations, and an outsize influence on the computer industry. It has done so by controlling the rich vein of advertising that flows from Internet searches. But there's a new online frontier Google (GOOG) has largely failed to tap: the rapidly growing world of social networks, which promises advertisers the ability to reach users where they live online.
While Google has concentrated mostly on placing ads based on what users are trying to find, social networking sites such as Facebook and News Corp.'s (NWS) MySpace have begun targeting users based on who they know—or more precisely, the tastes and demographic information they expose while socializing online. Aiding the social networks in that effort are legions of independent software developers who write so-called widgets, or applications such as games and quizzes, that can keep users glued to a site.
For software creators, it's a way to get their handiwork in front of millions of social networkers. For the networks, opening up to developers means more ways to engage users and the advertisers who want to reach them.
A Developer-Friendly Tool
Now, Google wants in on the action. On Oct. 30, the company announced the release of a tool called OpenSocial, which will let software developers write programs for a variety of social networking sites that support the technology. Today, that includes not only Google's Orkut, but also Ning, LinkedIn, and Hi5 Networks.
The idea is to create specifications common to all the sites, rather than forcing programmers to use separate standards for each. Google also has support for the technology from companies including Slide, the top maker of widgets for Facebook and MySpace, and iLike, whose software lets users compare musical tastes and find out about concerts. "The work is dramatically reduced," says Ali Partovi, CEO of iLike. Software vendors Salesforce.com (CRM) and Oracle (ORCL) have said they plan to use OpenSocial.
In the future, Google plans to let developers use OpenSocial to gain access to data from its own widely used applications, including Gmail and the iGoogle personalized home page, and share ad revenue with its partners. Google believes it has a trove of data on users' social relationships in its e-mail and other software, which it can mine to better target those ads. "That's certainly an area that's rich with opportunity," says Joe Kraus, a director of product management at Google.
Facing Down Facebook
If the plan is successful, Google could bring its leverage to bear on the social networking market and potentially slow the momentum of high-flying Facebook. "This is an open version of what Facebook has done," says Marc Andreessen, a co-founder of Ning, which provides tools for building social networks. Andreessen was the founder of Netscape Communications in the '90s. It's still unclear whether enough developers will cotton to Google's new platform to make it a success, but if they do, OpenSocial "poses a real challenge" to Facebook, he says. "The idea of a closed, differentiated Facebook network—this announcement changes that significantly."
For Google, OpenSocial is the first step in a plan to hit back at Facebook and Google's chief rival, Microsoft (MSFT), which on Oct. 25 announced a $240 million investment in Facebook (BusinessWeek.com, 10/25/07), beating out Google for a stake in the fast-growing company, now worth an estimated $15 billion. So far, the companies haven't made any announcements about technical integration of their software, though Microsoft has said it's helping Facebook with technology that could turn the social network's data on members' names, connections, and tastes into user directories that are accessible by business software programs.
David to Google's Goliath?
Facebook could encroach further on Google's turf: It's rumored to be working on an advertising network it will announce Nov. 6 in New York. At the Web 2.0 conference in San Francisco earlier this month, Facebook CEO Mark Zuckerberg said the company is interested in applications related to online ads.
"One of the next transformative uses of the Net is through the relationships embodied in your social network," says Reid Hoffman, co-founder and chairman of LinkedIn, which on Nov. 2 plans to release an application programming interface that will let developers create applications that leverage users' LinkedIn networks on other sites. OpenSocial is "an indirect shot" at Facebook, says Hoffman, an early Facebook investor. "It means that there isn't just one social platform on the Web."
Facebook is amassing a wealth of data on its 50 million users' social connections, ages, tastes, and shopping habits, thanks in part to the site traffic spurred by popular third-party applications from companies such as Slide and iLike. In a Web advertising market where finely slicing segments of users is key, the social networks' storehouses of data on users' demographics and online behavior could be a boon to advertisers, which are warming to the sites. "If the rumors are true and Facebook is about to launch an ad network, that would be a huge step for the industry," says Andreessen. "Advertising that's super-targeted is incredibly useful."
Google's Expansion Hopes
Google already has a foothold in the market for social networking ads. It serves advertisements to users of MySpace as part of a $900 million deal put in place in 2006. On Oct. 17, MySpace said it would make data on relationships among its 110 million users available (BusinessWeek.com, 10/18/07) to outside developers and share revenue from related advertising with them.
With OpenSocial, Google hopes to extend its presence on the social Web. A critical first step will be convincing outside software makers to embrace its approach. "To the extent that OpenSocial has elements that allow us to make money, it will be more attractive," says Keith Rabois, vice-president of strategy and business development at Slide. "To the extent it doesn't, Facebook will be more attractive. That's a key element that drives any venture-backed business."