In this blog post, we will compare the revenue structures and advertising platform strategies of Google and Facebook to take an in-depth look at who their real competitors are.
Google (holding company Alphabet) is the world’s largest company by market capitalization. Who can compete with this giant, whose market capitalization easily exceeds that of an average country? Would you believe it if someone said that Google is at a disadvantage in this competition?
One of the best books on IT that I have read, “A History of Almost Everything,” describes the history of the IT industry from its inception to 2010 as a three-country saga, with Steve Jobs’ “Apple Kingdom,” Bill Gates’ “Microsoft Empire (hereinafter referred to as MS),” and Sergey Brin and Larry Page’s “Google Republic.” Other companies are considered small countries on the periphery or countries that rose briefly and then disappeared. As you can see in this book, when people are asked to name Google’s competitors, they usually mention Apple and MS, and with the tremendous growth of Chinese companies in recent years, smartphone manufacturers such as Huawei are also mentioned. Are any of these companies Google’s real competitors?
In order to identify Google’s true competitors, we must understand the essence of Google as a company. Google, Apple, Microsoft, and Huawei are researching similar fields. They develop their own operating systems, manufacture smartphones, provide various IT-related services, and are now turning their attention to artificial intelligence. Although they compete in the same field, they are companies with different origins and roots. Companies exist to generate profits, that is, to make money, and they are organizations that are sustained by money. Google, Apple, Microsoft, and Huawei are similar in their research fields, but their revenue structures that sustain their businesses are completely different. Apple, Huawei, and other companies are manufacturing companies before they are IT companies. Most of their revenue comes from manufacturing and selling hardware. For Apple, iOS is nothing more than a service to sell its iPhone hardware. Microsoft is a typical software sales company. Most of Microsoft’s revenue comes from selling the software itself or from software users. When we buy a laptop with Windows and MS Office, part of the money goes to Microsoft. Or, companies have to pay to use MS Office.
Google is different from these companies. Google is an advertising company that generates most of its astronomical revenue through advertising. To be precise, it is an “advertising platform” company. An advertising platform is a bulletin board that allows advertisers to advertise to potential customers. When we look at Google from the perspective of its revenue structure rather than its field of research, it is closer to a broadcasting company than Apple or Microsoft. BBC, CCTV, and KBS are also advertising platform companies. They offer various programs to attract potential customers and display advertisements in exchange for money from advertisers. When you look at it this way, isn’t it exactly the same as Google?
However, broadcasters are not Google’s real competitors either. Generally, advertisers with money are the ones with power, and broadcasters are the ones without. Broadcasters have no information about their customers, so they have no choice but to run indiscriminate advertisements. Google, on the other hand, has a wealth of information about each of its customers. Unless users are careful, Google knows not only their personal information but also where they are and what they are looking for. This allows Google to provide customized ads that broadcasters cannot. The effect of customized advertising has been revolutionary, and because Google has customer information, the relationship between advertisers and broadcasters has been reversed. Unless broadcasters improve their current system, they will not be able to compete with Google.
Some readers may already have guessed the answer. If you don’t know, think about it one last time before looking at the answer. What advertising platform company has a similar revenue structure to Google and provides personalized advertising services? I’m sure half of you used this service on the bus this morning. The answer is Facebook, the social networking service company. Isn’t that interesting? On the surface, Facebook and Google do not seem to be competing with each other at all. Have you ever seen an article about Facebook and Google going head-to-head? Facebook has no interest in creating an OS like Android, does not manufacture smartphones, and does not provide services such as Google Search, Gmail, or Google Drive. All it does is manage its social media platform well. Similarly, Google has no interest in social media. How can a social media company be a real competitor to a transnational corporation like Google?
What about their competitive relationship in personalized advertising platform services, which is the revenue structure of Google and Facebook? I believe that Facebook is not only on par with Google, but actually has an advantage. There are two reasons for this.
The first is the usefulness of the information collected. Google and Facebook collect information about individuals in different ways. Google obtains information such as search keywords and visited pages through Google Search, and obtains user location information from Google Maps and Android phones. Facebook, on the other hand, obtains information through personal profiles, posts that have been “liked,” and hobby groups that users have joined. Now, consider the difference between the information Google has and the information Facebook has. That’s right. On Facebook, information about individuals is expressed very “actively.” “I live in Seol.” ‘I am a 20-year-old college student attending Seoul National University.’ ‘I don’t have much money because I’m a student.’ ‘I like soccer and am interested in soccer equipment.’ ‘It’s exam season, so I want to keep watching funny videos.’ Every action you take on Facebook is extremely useful information for advertisers, and you do not hesitate to express this information. On the other hand, Google’s situation is different. It must combine a sufficient amount of location information to determine the user’s place of residence, and it must analyze a sufficient amount of Google searches and YouTube search keywords to determine the user’s interests. Even then, there are various variables, such as the user refusing to save search keywords or not logging in. As such, Google users are very “passive” in expressing their information to Google. Therefore, the information Google obtains is much less useful and of lower quality than the information Facebook obtains.
The second is the legitimacy of information collection. As mentioned earlier, Facebook users express their information very actively, and they must do so in order to use the service properly. You must enter your school and student ID number to connect with your friends, join your favorite soccer group, and “like” your favorite hobbies to continue receiving information. Therefore, the process of collecting information on Facebook is user-driven and therefore legitimate. Google is different. Most services provided by Google require a Google account to collect user information, but many users dislike this. They can use Google’s services without providing their information, but they are unlikely to like Google having their personal information. In this way, I believe that Facebook has an advantage in terms of the legitimacy of information collection. There are many issues surrounding the collection of personal information by IT service companies, and for personalized advertising platform companies that require personal information, it is a matter of life and death for the company. Therefore, if regulations on personal information collection are strengthened, it is clear that Google will be hit hard.
In addition, Facebook has a powerful weapon in the form of a community based on user interaction. The power of this community is an important factor that makes advertisers choose Facebook more actively. The data generated through the process of users voluntarily creating and sharing content and constantly interacting with each other is a very attractive asset for advertisers. The dynamism of this community is a strength that Google cannot easily match, making Facebook’s advertising platform even more robust.
Facebook and Google each have their own strengths, but Facebook is in a more advantageous position than Google in terms of personalized advertising platforms. This is thanks to the usefulness and legitimacy of the information it collects and the power of its community. The competitive landscape between the two companies will continue to change in line with changes in the IT industry and regulations. However, at present, there is no denying that Facebook is Google’s true competitor.
