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Two reasons why Facebook is about to become bigger than Google

By on October 5, 2009
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Facebook is on the cusp of becoming the dominant company on the Internet. The company has realised that the web is about so much more than just searchable information, and it is on track to beat Google to be the web company.

When Microsoft invested in Facebook at a valuation of $15 billion in October 2007, many people scoffed. (I confess I was one of them).

But we were wrong.

Facebook is just about to crack two elements that will give it unrivalled power across the Internet.


Facebook Connect

Facebook homepage

The first is Facebook Connect. If you want to comment on this blog, you can sign in via Facebook Connect. Facebook Connect takes your connections with all of your friends away from the closed environment of www.facebook.com and out into the worldwide web. You can play games on your iPhone against Facebook friends. Before long, you’ll be able to log-in to the majority of websites through Facebook Connect, rather than having to register individually for each one.

What’s in it for the websites?

Websites will soon start falling over themselves to implement FB Connect. It reduces the friction that stops visitors from registering. It makes a user’s interaction with that website appear in the user’s Facebook stream, which is both a vote of approval and a viral marketing tool. And, pretty soon, users will just expect it.

What’s in it for users?

A single login, that you can take with you across the web. Add a comment to a news story and your real friends will see it, and perhaps start a conversation with you, instead of the anonymous trolls who currently inhabit forums. It will be the first step towards the socialization of the Internet and it will be a huge improvement.

Facebook payments

But the real weapon for Facebook is payments. It is an open secret that Facebook is building a payments system, and they are clearly working on making sure that they get it right.

I can’t overstate how important I think payments will be. The first thing it will do is make a lot of money for Facebook. Companies like Zynga and Playfish are making tens, maybe hundreds, of millions of dollars from selling virtual goods on Facebook, and Facebook is getting no direct revenue from that. Yet Zynga and Playfish have to work with many different partners to generate their revenue. When Facebook offers a simple, easy-to-use, standardised payment system, it will make billing much easier and drive usage.

But that’s only the first part of the story. Let me walk you through a scenario:

You buy me a beer. I don’t buy you one back so I want to give you a fiver (I live in London. Beer’s expensive). Under your profile picture will be an option: “Send money”. I can transfer £5 to you in seconds, with no need for sort codes and account numbers, and I’m know it’s you, because we’re friends on Facebook.

"Facebook becomes a payment system more global than Western Union, more ubiquitous than PayPal and as trusted as Mastercard and Visa."

Now let’s imagine that you’ve never used this modern “Facebook payments” system. You don’t really like it. But now, you’ve got £5 in it. You could spend that money on virtual goods. Before long, I’ll bet you could spend it at Amazon or any number of other online retailers.

Or you could give Facebook your bank account details and ask them to deposit the £5. And at the same time, they’ll ask if it would be OK to take money out of your account in the future if you want to buy something using your Facebook credentials.

And Facebook becomes a payment system more global than Western Union, more ubiquitous than PayPal and as trusted as Mastercard and Visa.

Your social graph and your bank account, following you across the web

With these two elements, Facebook has blown Google out of the water. Google helps you find stuff on the web. But with Facebook, wherever you go on the web, your friends and your wallet will come with you. Microtransactions on every site becomes realistic. (Maybe, just maybe, this will allow Rupert Murdoch’s idea of charging a penny to read a single article on his sites come true).

And Facebook’s valuation of $15 billion begins to look like it might have been a bargain.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • This stuff is free and has always been free. You can have several million users, but how many of those users would pay real money for virtual objects. There are few, but I doubt it is as big as you believe.

  • A paypal on Facebook is more interesting, you act very scary to find balance and take him down to launder money (see the closure of E-Gold), while it may be used. The main issue as far as I'm concerned, culture Facebook. This stuff is free and has always been free. You can have several million users, but how many of those users would pay money for virtual objects? Really? There are few, but I doubt it is as big as you pretend to be.

  • jobypollard

    usb flash drive

    Facebook is just a social networking site. I don't we compare two different kinda sites. People from rest of the world using google. And in facebook some tennagers and most of people from america and europe using facebook….then how we are comparing this two??

  • I'm afraid I have to disagree with you, Jaz.

    Facebook Connect is bigger than OpenID, because OpenID has no initial purpose. There are already 300 million people with Facebook credentials. That's a massive headstart and, by any measure, FB Connect is already big. And I think it's only going to get bigger.

    You ask where the dollar is in these areas. In Connect, I'm not sure, although making it easy for advertisers to talk to customers on any site could be very interesting.

    But on payments, I would have thought that taking a tiny slice of much of the ecommerce spending on the web is a more interesting model than taking a slice of the advertising revenue on the web.

    For a long term, Google was a search engine without a revenue model until they created AdSense/AdWords. I think that Facebook's activities are heading towards their own breakthrough moment.

  • I'm afraid I have to disagree with you, Jaz.

    Facebook Connect is bigger than OpenID, because OpenID has no initial purpose. There are already 300 million people with Facebook credentials. That's a massive headstart and, by any measure, FB Connect is already big. And I think it's only going to get bigger.

    You ask where the dollar is in these areas. In Connect, I'm not sure, although making it easy for advertisers to talk to customers on any site could be very interesting.

    But on payments, I would have thought that taking a tiny slice of much of the ecommerce spending on the web is a more interesting model than taking a slice of the advertising revenue on the web.

    For a long term, Google was a search engine without a revenue model until they created AdSense/AdWords. I think that Facebook's activities are heading towards their own breakthrough moment.

  • Jax

    Sorry man but I think you're out of your mind.

    While I agree that anything is possible I don't think those features are killer features. OpenID has been kicking around for ages and has the same facility (one login for many sites) but it ain't that big and there is certainly no dollar to be made with this feature. The money to make there is programmers getting paid to integrate with facebook connect but that isn't money for Facebook.

    A paypal for Facebook is more interesting, you do have the very scary balancing act of finding and taking down money launderers (see the demise of E-Gold) while making it usable. The main issue as far as i'm concerned is the Facebook culture. This stuff is free and has always been free. You might have many millions of users but how many of those users would pay real money for virtual items? Really? There are some but I doubt it is as big as you make it out to be.

    Google will probably be a superpower for many years to come. As it stands it is a Mecca for programmers world-wide. Therefore they have a lot of very smart people working for them and some of the most interesting working cultures I've heard about. They have a plethora of technologies that provide services for people and business alike and generate revenue:

    Search + Adsense (sure, Facebook has this too but it is less context sensitive, thus less valuable for advertisers),
    Maps, licensed for business,
    Google Apps, licensed for business,

    They also have the web browser Chrome and Android, although they don't make much money from those as that's more branding and getting more people looking at adsense links.
    Wave is also the closest thing I guess they have to a “facebook killer” on the way as well.

  • dsi

    Nice post Nicholas, it's a huge inside information about facebook. Thanks for sharing information with us.

  • Thanks, Nic. I think that it *has* to get regulated because it's going to be a bank, and that will bring it to the attention of the competition/anti-trust authorities too. Will be absolutely fascinating.

    And @Falsedetailsprove this: thank for your that cogent and compelling refutation.

  • Nice post Nicholas. I'm in total agreement that these two developments are big news. Facebook Connect has the potential to be everything that Microsoft dreamed about with Passport and the OpenID sort to be (at least from a user perspective). This is so big it might get regulated!!

  • falseDETAILSproveTHIS

    Nah. Won't happen.

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