"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change." - Darwin
With the Facebook (FB) IPO around the corner I thought now would be a good time to discuss something I have been giving a good deal of thought over the past few months; the rise of the Social Web OS. Those of you that have read my bearish Microsoft (MSFT) articles know how much of a believer I am in the Google (GOOG) business model, and how for the most part I think that over time Google's approach will eventually leave Microsoft dead in the water.
But lately I have been asking myself, what if Google never gets the chance to finish what they started? What if Facebook beats them to it?
The Facebook Opengraph Protocol is a major threat to Google's core model as it is rewiring the web around Facebook. What started out as a harmless 'like' button or 'recommend' button on a web page has morphed into something much more powerful. How many new apps now bank on access to FB data to function and when was the last time you saw a startup launch without a Facebook Connect log in? Facebook is now outsourced development infrastructure for anyone doing anything online.
It is the social brain of the web, and by providing free access to this infrastructure they are making it virtually impossible to compete with them. Insert a few lines of code, and just about any activity can be connected back to Facebook and stored in your timeline. What you read, when you read it, who you shared it with, and how you felt about it. (By the way I am not a fan of the readers, but there is no denying their proliferation.) Only Facebook has access to all of this information.
So where does this leave Google?
Google's mission is to organize the world's information and make it universally accessible and useful. But how will Google complete this mission if they can't access Facebook? As Opengraph continues to grow, the degree of relevancy Facebook's data set should increase exponentially. They will know more about people and human connectivity than anyone can possibly imagine. This is of course horrible news for Google because they have seemingly no way of stopping this shift in the balance of power. Creating Google Plus doesn't do it because the activity and sharing is all going on Facebook, and Facebook is making that transition almost seamless.
Consider a site like Pinterest.com which had 100 million visits in March, a number that puts it right behind Twitter's 180 million visits and Facebook's staggering 7 billion; their network has grown almost entirely on the back of Facebook Connect and the use of Opengraph to integrate user activity into Facebook. What happens to a site like this if Facebook decided to not allow them to access their Opengraph protocol or use their authentication plugin? What about all the startups that are now launching that have decided to only use a Facebook login? As you can see the Opengraph protocol is leading to a lot of power being ceded to a for profit soon to be public corporation.
Will Facebook ever start charging for access to information? Will the pricing be tiered based on the amount of information your application requires? What options will you have when that day comes if all your users are logging in via FB Connect and if key elements of your core functionality depend on access to Facebook feeds and user information? As you can see, Facebook is holding some very valuable cards that it is not yet playing. Those people that just view Facebook as an ad seller and virtual goods broker are seriously underestimating the model.
What should Google do?
I see only one possible solution at this point and that involves buying Twitter immediately, and starting to build competing infrastructure around that network. It won't be the same as Facebook, but it's a step in the right direction, particularly when you consider all the real time information available on Twitter. The other option is of course to develop a killer product like the Google Glasses which will pull people back towards the Google ecosystem, but that is not going to be easy as any new product's success will most likely be measured by how well it integrates with Facebook. Though maybe through Gmail and phone contacts Google can pull off some sort of more intimate smaller mobile network, but that remains to be seen.
Oh, and there is a third option which I jokingly alluded to at the start of this note, and that is to start allowing people to connect to Google Plus through Facebook Connect. It would require swallowing some pride, but it would solve the Friends problem pretty quickly and make for one interesting legal argument once Facebook blocks them.
How should you play this as an investor?
The easy answer is to own Facebook if you can get in for something around $100 billion because that is going to end up looking like a steal as ridiculous as that might sound. And you are probably going to want to stick to that view until some signs start to appear that the unique advantage they have is starting to fade. You can also continue to own Google which I personally think is cheap and benefiting from a lot of current trends in mobile and display that are shifting in its favor, but do so knowing that there is one huge risk out there that with each passing day is becoming more and more of a real threat to their core revenue model.
If Facebook is going to lay the Golden Egg of data by virtue of its Opengraph, Google's core search monetization platform is going to quickly lose value. This is a zero sum game, and as more people pick up on that it is arguably going to become one of the most interesting battles in technology. I for one am rooting for Google because I think they really are a remarkably innovative company, and they are clearly the underdog here. Yes, Google is an online underdog again - who'd have thought that would happen so soon.
"A man's friendships are one of the best measures of his worth." - Darwin
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.