So Microsoft has paid $240m for 1.6% of Facebook which makes Facebook potentially worth $15bn. The question on almost everyone’s lips; is it really worth that much? Well when you look at everything Facebook potentially opens up, it may well be. Here’s why:
First, This deal potentially gives Microsoft a new advertising platform that will enable it to compete much more effectively with Google for ad revenue. Facebook merges the capability to collect individual level member data with the ability to show ads. So it’s like fully segmented direct marketing in an online display environment. Or put another way, it’s like Google Adwords with customer data as the driver of ads served rather than the keyword terms being searched. Microsoft has a 5% share of the paid for search market versus Google’s 75%. If Microsoft’s strategy is right, they may well significantly increase their share of online ad revenue.
Second, the marketers holding the ad revenue purse strings spend large chunks of their time trying to segment consumers into groups that are more or less likely to use a given product. It’s currently a rather inconclusive and imprecise science. But because Facebook is about both individual level data and shared interest groups, it opens up huge opportunities to understand much more about how consumer groups are demographically defined. The organisation that holds that type of information will hold an interesting competitive advantage.
Third, we’re not just talking about a traditional online display ad revenue model here; we’re talking about a totally new way of consuming certain types of communication. This land grab is also about the big games of web TV and telecommunication. Facebook may become the place where consumers go to access these services and that sort of portal has an almost incalculably high commercial value.
Whilst many critics have scoffed at this deal price, it may not be as high as it looks. Unless of course something new comes along and entices people away from Facebook just as quickly as they moved in.
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Microsoft+Yahoo! Search: 1+1 doesn’t equal 5
Healthy competition between media owners and communications suppliers is a good thing and should be encouraged. Competition keeps products healthy, prices fair and consumers happy. But I’m not sure a Microsoft/Yahoo! search merger is sufficient to create any notable or lasting impact on the current structure of search marketing.
The problem is that Google is the giant in search - especially here in the UK where it has an 81% market share. That leaves Microsoft, Yahoo! and some others carving up the remaining 19%. The problem with these percentages is that they are real peoples’ behavioural preferences. Changes in industry structure and product ownership will not necessarily change consumer behaviour.
History tells us that dominant brand positions can be very difficult, if not impossible to dislodge. In fact category leaders are not dislodged; categories are dislodged. We can use transport examples to illustrate the point. The leading stagecoach companies gave way to the leading railway companies who in turn gave way to the leading car companies. But the leading stagecoach company didn’t become a leading car company. New entrants created and dominated new travel categories.
So change may not come until someone new invents search 3.0 or even search 4.0. or Web 5.0 - or ‘Somethingtotallynew 1.0′. And that will happen, just as the behemoth Microsoft once looked like it would never lose its dominance, so too will Google one day be eclipsed. But in the meantime, Microsoft and Yahoo! will be hard pushed to displace Google when it comes to search.