The new year is always a time of perceived change, though of course the simple transition between two calendar dates doesn’t drive change itself. Rather than talk about the coming year in general (which I’ve done in our Annual Technology Forecast issue for Netwatcher in any event), I’ll focus here on the immediate “changes” the industry is dealing with.
The comment over the holidays that Facebook has overtaken Google in popularity is a potentially seismic shift, but not for the reasons that have been suggested. Yes, this is “bad” for Google, and yes, it shows the “power” of social networking. But the real problem is that it may show that our use of the Internet is getting harder to monetize. Somebody searching for “HDTV” is very likely to be thinking of buying one, and thus there’s value in selling ads to them. Somebody chatting on Facebook is another matter altogether.
First, there is no easy way to establish the commercial goals of a Facebook comment. Not only is it hard to interpret whether a reference to “HDTV” is soliciting buying advice versus talking about moving furniture around, it’s certainly an intrusion if Facebook started scanning our text for ad opportunities. Thus, it’s very likely that social-network advertising will be more like banner ads, which are less visible, less clicked, and less valuable. We’re shifting users to a place where fewer ad dollars are likely to follow.
Second, social networking is the framework for viral campaigns, not for direct ad sales. If you want to leverage Facebook or Twitter or whatever, you have to start buzz and then let social networks propagate it. That could generate more clever YouTube commercials but it’s not likely to generate direct ad sales.
Third, it’s an indication that in an effort to find the Next Great Thing, we’ve left the “great” category completely, at least insofar as creating and sustaining the Internet ecosystem is concerned. You can argue that search provides a value to the Internet overall, a value of organizing and finding stuff in the vast repository of Internet data. You can argue it promotes education. It’s hard to make either argument about social networking. I’m not saying people don’t like it, or that it is culturally revolutionary, only that it’s not moving the Internet to a better place in terms of sustainability.
For Google, you can argue that social networking is something that you can lose in by missing out on it, or lose by capitalizing on it. If Google contributes to a social-network war that adds further to the time spent on social networks instead of on searches, then Google is contributing to a shift of focus away from profitable search ads toward less profitable display ads, and moving away from its own strength. Would it be better to sit this out and let nature take its course? Remember that Second Life was a craze a while ago, and most have forgotten it completely. Not to mention MySpace. Twitter is used by less than 10% of the online population, according to a recent study.
But if you sit out social networking as a Google, you ignore the insidious truth here, which is that the “growth of the Internet” is growth in increasingly non-commercializable areas. We are likely seeing the inevitable plateau in online ad revenue approaching. It’s not that ad revenues won’t grow, but that they’ll not explode in new areas where people can make a ton of money, and that means VCs and growth companies like Google will have to look elsewhere to make a killing.