Facebook vs. Google

By Alexander Chepakovich, CFA 2011-12-14

In my opinion, Facebook is mounting a war it cannot win. Undeniably, it enjoys the first-mover advantage, and in the world of social networks this is almost everything. Almost, but not quite everything. Google, with its Google+ social platform, is a formidable threat to the Facebook's dominance.

For one, if you compare objectively the two, you will see that Google+ is simply a superior service. It is more engaging and versatile. Plus, Google introduces new functionalities at a mind-boggling pace and, besides just the social platform, it provides users seamless integration with the whole variety of other services it offers. Add to this far superior (and not just in numbers) technical capabilities, and you will see why Facebook has all reasons to worry.

By the way, I was never very impressed by the service offered by Facebook. In principle, it has quite basic functionalities, though introducing more complex ones (like searching for people in a certain location or of similar background, for example) should not be that difficult.

What concerns me more, however, from the investor's point of view, is that Facebook apparently is way too preoccupied by boosting its registered users number (it calls them 'active users' but I do not buy that).

From just cursory random searches one can see that there are a lot of entries from Wikipedia (the free encyclopedia), and I mean not just people but articles about things! Are they also counted as active users? Is it a place for them at all to be there?

Another aspect of concern is employment of all these high-profile power brokers to represent the Facebook's interest in Washington. Can anybody give a rational justification of this, other than to increase hype about the company and its visibility before the much-talked about IPO? I guess, one needs this when the product or service leaves much more to be desired. One might even think that the service does not sell itself anymore.

I cannot say that Google+ boasts only genuine users, either. There are plenty of non-person profiles in it, too. Plus the common for all social media plague: spammers of all sorts, who register plenty of fake profiles, too.

Now, returning to the Facebook vs. Google dilemma, I have no doubts that Google+ with time will overtake Facebook, and the latter will rapidly deflate soon after that. My advice to investors is to look for substance behind the hype.