Paul Adams is one of Silicon Valley's most wanted. He's an intellectually minded product designer with square-framed glasses, a thick Irish accent, and a cult following of passionate techies. As one of Google's lead social researchers, he helped dream up the big idea behind the company's new social network, Google+: those flexible circles that let you group friends easily under monikers like "real friends" or "college buddies."
He never got to help bring his concept to consumers, though. In a master talent grab last December, Facebook lured him 10 miles east to Palo Alto to help design social advertisements. On his blog, Adams explained, "Google values technology, not social science."
In the long history of tech rivalries, rarely has there been a battle as competitive as the raging war between the web's wonder twins. They will stop at nothing to win over whip-smart folks like Adams, amass eyeballs, and land ad dollars. There's no public trash talking à la the Oracle (ORCL, Fortune 500) vs. HP (HPQ, Fortune 500) smackdown, nor are the battle lines drawn as clearly as they were when Microsoft (MSFT, Fortune 500) took on Netscape, but the stakes are immense. These companies are fighting to see which of them will determine the future of the web -- and the outcome will affect the way we get information, communicate, and buy and sell.
Facebook and Google: Head-to-Head - Click on the picture for more.
In one corner is Facebook, the reigning champion of the social web, trying to cement its position as the owner of everyone's online identity. In the other is Google (GOOG, Fortune 500), the company that organized the world's information and showed us how to find it, fighting to remain relevant as the Internet of hyperlinks gives way to an Internet of people.
Although Larry Page, Google's co-founder and its CEO since April, was born just 11 years before Mark Zuckerberg, his counterpart at Facebook, the two belong to different Internet generations with different worldviews. In Page's web, everything starts with a search. You search for news or for a pair of shoes or to keep up with your favorite celebrity. If you want to learn about a medical condition or decide which television to buy, you search. In that world, Google's algorithms, honed over more than a decade, respond almost perfectly. But in recent years the web has tilted gradually, and perhaps inexorably, toward Zuckerberg's world. There, rather than search for a news article, you wait for your friends to tell you what to read. They tell you what movies they enjoyed, what brands they like, and where to eat sushi.
Facebook is squarely at the center of this new universe, and much of what people do online these days starts there. But Facebook's masterstroke has been to spread itself across the web and allow others to tap your network of friends. As a result, thousands of websites and apps have essentially become satellites that orbit around Facebook. You can now go to Yelp to find out what your Facebook friends say about the new coffeehouse down the street, visit Spotify to let them pick music playlists for you, or play Zynga games with them. To make matters worse for Page, much of this social activity can't be seen by Google's web-trolling algorithms, so every day they (and by extension, Google) become a little bit less accurate and relevant.
This shift to a more social web changes everything for businesses and consumers alike. Among the first industries to be rocked: advertising. Google may capture 41% of today's $31 billion U.S. online advertising market, including the lion's share of the search-ad market. But growth in search advertising is slowing, and advertisers are putting more of their limited dollars into Facebook, with its 800 million users, many of whom spend more time on Facebook than on any other site. (See chart at the bottom of the page) Facebook's display-ad revenue is expected to grow 81% this year, while Google's display-ad dollars will rise an estimated 34%. Google and Facebook would have you believe there is room for each to drive forward with unlimited success, but don't be fooled. As Stifel Nicolaus analyst Jordan Rohan explains, "It's highly unlikely that either Google or Facebook could grow by the billions that investors expect in the display market without engaging directly and stealing market share from the other."
Like Bill Gates a decade or so earlier, Page is seeing his company's grip on the tech world loosening. So he's fighting back with a mammoth effort to grab a piece of the social web. His first substantial act as Google's new CEO was to amp up the considerable financial and engineering mojo the company had aimed at Facebook's turf by releasing Google+. It's not Google's first social initiative, but it's the one that folks aren't laughing at, and Google says 40 million people have signed up in only four months. Across town Zuckerberg knows Google+ is the first credible threat Facebook has faced since it sailed past MySpace to become the world's No. 1 social network. (For Facebook there are more than bragging rights at stake: Anything that tarnishes its halo could impact its long-awaited initial public offering with a valuation that is expected to top $80 billion.) Not surprisingly, shortly after Google+ made its debut, Zuckerberg flipped on a pink neon sign at headquarters with the word lockdown, signaling that employees were on notice to work around the clock on, among other things, replicating some of the most praised Google+ features.
But defensive moves are not Zuckerberg's style, and in September, at the company's F8 developers event, he unleashed a sea of new features that alter the current service radically. And it's expected the company will launch an ad network eventually that will harness all those social actions to help advertisers target consumers better across the web. Smartly deployed, it could further threaten Google's position as the king of online advertising.
So while most of us spend our days casually toggling back and forth between our Gmail accounts and our Facebook newsfeeds, down in the heart of the San Francisco Peninsula it's war. Zuckerberg served free food this summer to willing workers on the weekends. Page is pushing his team to add features to Google+ at a furious pace: more than 100 in the first 90 days. The decisions that are being made right now -- product launches, advertising plays -- will determine which company prevails.
Larry Page was not pleased. It was a weekend day last spring, and Page, 38, was playing around with an early prototype of Google+ on his Android phone. He found it too cumbersome to post photos he had just taken. He called Vic Gundotra, Google's social czar, to complain. Gundotra tried to push back, explaining why the Google+ team decided on the approach it had taken. Page insisted that photos be uploaded with one click. At Google, what Page asks for, he gets. Gundotra ordered his team to rebuild the photo-uploading feature, and Page now gushes about the technology. "It is a totally magical experience," he said recently, as he described how easy it is to post photos from Android to Google+.
In many ways, Google+ is Larry Page's social network. Early work on Google+ predated Page's ascent to the top post, but he has been intimately involved with the project from the start. In the initial months, Page dropped by every Friday at 11 a.m. for the group's weekly product reviews. To keep close tabs, Page moved his office and much of the executive suite to the building where the Google+ team was sequestered. He blessed the project with massive resources, making it one of the largest engineering endeavors Google has undertaken in its 13-year history, and he elevated Gundotra to the post of senior vice president, reporting directly to him. Page also tied a portion of the bonuses of thousands of Googlers to how well the company did in social.
Google+ is also the first test of Page's plan to transform Google into the nimbler, more accountable company it once was, and in the process avoid the Innovators' Dilemma, the paralysis that grips so many successful companies. In the Google+ project, the company's freewheeling and sometimes chaotic approach to innovation was cast aside -- replaced with a more top-down style. Allowing a thousand flowers to bloom may still be important at Google, says Sergey Brin, the other co-founder, but "once they do bloom, you want to put together a coherent bouquet."
Maybe some discipline is what Google's social ambitions needed. Google's previous attacks on Facebook's turf were an embarrassment. Orkut, Google's first social network, was born alongside Facebook in 2004 but is largely irrelevant outside of Brazil. Open Social, a Google-led effort in 2007 to rally MySpace and other social networks into an alliance to balance the clout of Facebook, flopped. Two years later Google introduced Wave, only to kill it after a few months, and Buzz, a 2010 attempt to shoehorn Gmail users into a social network, quickly turned into Google's biggest social faux pas: Buzz exposed people's Gmail contacts to others, triggering a Federal Trade Commission investigation that forced Google to revamp its privacy policies and accept government monitoring for 20 years.
The Buzz fiasco was a wake-up call at Google. Some of its most high-profile engineers started making the case that the social web posed a vital threat to Google. As the web was being rebuilt around people -- and, in particular, around Facebook's graph of human relationships -- Google could end up on the sidelines, its relevance eroding by the day. The message rattled Google's top brass, and an ambitious project -- called Emerald Sea -- not only to create a credible rival to Facebook but also to transform Google's existing products around social media, quickly took shape. (Gundotra picked the name Emerald Sea to suggest both new horizons and stormy waters.)
After more than a year of gestation, Google finally introduced Google+ in June. The result? A social network that cloned much of what people like about Facebook and eliminated much of what they hate about Facebook. You'll find familiar home and profile pages, tabs for photos and games, and of course the endless updates from friends. Google's +1 button works much like Facebook's Like. But where Facebook is perpetually accused of running roughshod over people's privacy preferences, Google+ made it very easy to decide who can see what users post on the site. Facebook lacked a good way to separate workmates from classmates from real friends, so Google+ was built around Circles, an intuitive way to group people in buckets. Facebook takes 30% of the revenue that app developers like Zynga make on its platform, so Google+ said it would take only 5% for now. Since the launch, Google has rolled out more than 100 new features, and Page says there is much more to come. In Silicon Valley, where everyone had given up on the idea that Google could compete with Facebook, Google+ caught everyone -- including Facebook loyalists -- by surprise. "Google+ was impressive," says Joe Green, one of Zuckerberg's Harvard roommates and the founder of Causes, an application built to run on Facebook.
Until recently, the most popular person on Google+, with 598,000 followers and counting, was Mark Zuckerberg. But he has yet to make a public post, and indeed he'd prefer not to discuss Google+ at all. When pressed at a July event, he called it only a "validation as to how the next five years are going to play out." (Translation: Uh, they're copying us.)
However, inside the Palo Alto office where more than 750 engineers regularly pass by the small glass conference room in which Zuckerberg, 27, holds court, Facebook employees put in some serious overtime during the summer lockdown. This had happened only once before in recent years at Facebook: After word leaked that Google was starting work on a "Facebook killer" in summer 2010, Zuckerberg called on engineers to work nights and weekends for 60 days to revamp key social features like photos, groups, and events. Just as it did then, the cafeteria opened up on evenings and weekends this summer, and children dropped in for dinners and good-night hugs before their parents logged back on for late nights. By September, Facebook had released a slew of new features like better grouping tools to mirror those Google+ circles. Says one member of the product and engineering team: "[Google] can throw all the money in the world, including hundreds of people, at this. So people were, like, This is serious, and we should take it seriously."
That anxiety wasn't simply channeled into building a better product. In May, Facebook secretly hired public relations firm Burson-Marsteller to plant anti-Google stories in papers and blogs, a ham-fisted move that backfired when journalists discovered Facebook was Burson's client. The company defended its concerns about Google's privacy violations but took the flak for bad judgment.
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