Facebook Faces Uphill Battle With Google

| About: Alphabet Inc. (GOOG)

The Internet is new, brand new, and with two thirds of the world without Internet access, the race to expand the Internet to the most secluded parts of the world has just begun. Currently Google (NASDAQ:GOOG) is at the forefront of expanding Internet access to the rest of the world using techniques such as Google Loon.

At the moment, Facebook (NASDAQ:FB) and the 1.15 billion monthly users should not be concerned with Google or Google Plus, but over the next seven years as Google expands Internet availability, concerns should rise. With over 500 million users, Google Plus claims to be the second largest social media platform, recently overtaking twitter. These numbers are somewhat skewed as there are only 235 monthly users. Of course, this is still an impressive amount of users when taken into account Google Plus was launched only two years ago in June of 2011.

The above chart shows the time it took for different social media sites to reach 50 million users. Google Plus did it in 88 days, 15 times faster than Facebook. It should be noted though that Facebook was unheard of when launched while Google was worth billions of dollars when Google Plus launched.

Throughout this article, I will examine how the expansion of the Internet to undeveloped countries may aid Google and hinder Facebook

Background Information

As of 2013, 7.1 billion humans live on this earth; 61% of those humans have no access to the Internet. For many living in developed countries, it is hard to comprehend that only 39% of the world has access to the Internet as the Internet is how all business is done in the developed world. 40% of the world having Internet may seem low, but just 8 years ago, in 2005 the number of Internet users was incredibly lower, with only 16% of the world's population online.

Google's executive Chairman Eric Schmidt is highly optimistic about the future of the Internet claiming that by 2020, the entire world will be online. Although 100% of the world's population having access to the Internet is near impossible, 80-90% of the world being online within 7 years could be plausible.

Project Loon is Google's most recent revolutionary undertaking, and although still in its infancy, has already started to provide internet to parts of the world. The goal is to provide affordable Internet access to the entire world with solar powered balloons floating in the Earth's stratosphere. Google claims all that will be needed to connect is a special antenna on top of their house or building. This antenna will bounce signals between balloons and then back to Earth thus providing Internet. Google started testing 30 of these balloons on New Zealand's south island back in June. The tests seem to have worked out in New Zealand as now Google has started taking applications for testers in California's Central Valley area.

This red ball is the antenna that would be placed on top of homes to pick up the signal from the balloons in the sky. This Internet would also still work during a blackout.

Although this idea may sound philanthropic, it is a safe bet to say Google has more up its sleeve than just providing Internet to the rest of the world because it is the right thing to do. It is plausible that this is the most intricate advertising scheme of all time, and Google's first step in eliminating Facebook. The potential billions of people that would use this Internet would be using Google's Internet, thus would be more drawn to, if not forced to, use Google's search engine, Gmail, and Google Plus. If Project Loon is successful, Google has the potential to double or even triple the amount of users that currently use Google services, thus having the ability to double revenues.

While this article was being written, Mark Zuckerberg announced a partnership between Facebook, Nokia, Samsung, Opera, Qualcomm, Ericsson, and Mediatek to create Internet.org. Internet.org is a website whose aim is similar to that of Google's Project Loon, to connect the world with internet. It appears that Google is not a partner so it looks like the competition to expand the Internet has already begun.

The main difference between Internet.org and Project Loon appears to be that internet.org is more focused on expanding mobile phone access to the world, hence why partners include Nokia and Samsung.

Similar to Google, Facebook claims its intentions are pure, and that it is not doing this for profit, as Mark states

"If we really just wanted to focus on making money, the first billion people who are already on Facebook have way more money than the next 5 or 6 billion people combined."

Although this quote is true, you can only milk your customers so much before needing some new ones.

Facebook vs. Google Plus

The above chart created by Searchmetrics shows the amount of "shares" that Google Plus and Facebook received in May of 2013, and then proceeds to forecast the next three years. A "share" is when a user takes someone else's post such as a company or friend, and clicks "share" so that all of their own friends can see it. "Shares" carry more weight than "likes" and allow business to advertise to thousands, possibly millions of more users.

Searchmetrics based this chart off of the monthly growth rate of "shares" by both Google Plus and Facebook, from November 2012 to April 2013. The findings showed that between November and April, Facebook "shares" grew by 9.5% a month while Google Plus shares rose by 18.5% a month. It is projected that by February of 2016 that Google Plus will then exceed Facebook for the amount of "shares" per month. These findings should be taken with a grain of salt since they are based off of few variables, but it does show Google Plus is just beginning its growth spurt while Facebook seems to be getting closer to its final height.

The difference in revenues is what really separates the two dot.com giants, as Facebook made a mere 5 billion compared to Google's 50 billion last year. Google's ability to create more relative, profitable advertisement allows them to rake in tremendous amounts of money while Facebook is left scratching its head. Google Plus, Gmail, and Google searches are all tied together allowing Google to gather a greater amount of information about someone, thus having a greater value per user.

Future Predictions

Seven months ago I wrote an article titled "Is it too soon to Like Facebook" when the stock was priced at $28 a share. I concluded that it was a good time to buy Facebook, of course that was before Google's project Loon was announced. Although I believe Facebook will start to lose popularity over the next seven years, Facebook's growing revenues will likely propel the stock to climb for a few more years.

At this point in time Facebook could still be a buy at $38, but out of principal I never recommend buying a stock at an all time high. Facebook does have a chance of staying relevant in the social media world, but it would require incentivizing users to stay with Facebook. Pushing more ads onto the site most likely will not get it done. Facebook seems to be interested in following Google's path of distancing itself from only making money through advertising; that could be the difference between Facebook staying afloat or not.

Currently there are few details regarding Facebook's involvement in internet.org. One thing that is obvious though is that Facebook is not going to sit around while Google hands out internet village to village.

Google, on the other hand is down 5% on the past 3 months, and is looking like a lucrative buy. Although many of Google's future projects are hard to envision, each of Google's projects have the ability to rewrite history, generate large revenues, and push this company to superstardom. With projects such as self-driving cars, Google Glass, Google Fiber, Project Loon, and other far-fetched Sci-Fi ideas, the possibilities for Google seem endless.

The race to expand the internet to the world has officially begun. Whether Facebook is going to be able to keep up with the much more powerful Google has yet to be shown, as Google has already been testing Project Loon for the entire summer. If you are interested in buying Google or Facebook, waiting a few weeks to see what exactly internet.org is all about could prove beneficial. Regardless, Facebook already has some ground to make up and if it doesn't start running faster, Facebook may be left behind.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.