…and possibly earlier! Take a look at the following chart, courtesy of compete.com:
While Google’s US traffic has decreased by almost 1.8% year over year, Facebook’s US traffic has increased by a whopping 21%. If the trend continues, then Facebook will be the most visited website in the US (and consequently, the whole world, or planet, or universe) by April of 2011.
What does this mean?
Well, for starters, Facebook, as a company, will have a larger intrinsic value than that of Google, which has a market capitalization of about $200 billion (P/E is at an acceptable 25). This means that even the current valuation of Facebook of $50 billion (for the imminent IPO) is a bargain, the company is worth 4 times more. But this is an obvious conclusion. What is more interesting is that Facebook has a huge advantage over Google in many areas when it comes to analyzing traffic and the quality of the websites, which can cause Google to become obsolete should Facebook decide to capitalize on this advantage. Here’s how:
- Google uses something called the PageRank algorithm to rank websites in its search listings. In short, the PageRank algorithm works this way: the more “quality” websites link to your page, the more your page becomes a “quality” page, and the more its ranking is boosted in the so called SERP (Search Engine Results Page). So, let’s assume CNN, on its homepage, links to this page that you’re reading right now. CNN is a very important website from Google’s perspective (and from anyone’s perspective), so when the Google PageRank algorithm sees this link from CNN to my page, it will immediately assume (and rightly so, because of the importance of this link) that my page is important, and it will move it up in the search results for keywords that are present in this page.
Now, at first glance, this algorithm seems to be very smart, and it is, and it made search results much more relevant, and this algorithm was the very reason why Google overtook Yahoo at the beginning of the millennium. However, the problem with this algorithm that it is now manipulated to death by the so called SEO industry (SEO stands for Search Engine Optimization). The weakness of the algorithm is that it also considers links from smaller websites, and it gives them weight. So, if a link from a much smaller website to me is worth 1% of the strength of the CNN link to me, this means that links from a 100 smaller websites (that may or may not be spammy) will be worth that precious CNN link. Now I don’t want to go into more details, but you can see where the problem lies, the algorithm that made Google the most important website in the world, and in nearly every country, is now exploited and manipulated.
But what can Facebook do better in that regards?
Have you seen those like/recommend Facebook buttons all over the Internet? The ones that you click on and a link to the page you clicked the like button on immediately appears on your wall (with something saying “Fadi likes http://…”). This is the key to Facebook’s control of the Internet. You, as a human, like a website, so it must be good, and, if you have lots of friends, they may also like this website, which will make it better… So, if Facebook has its own search engine, they just have to know how many people like a certain website (or page), and rank this website (or page) according to the number of “likes” it receives. Facebook doesn’t even need to give more weight for “likes” of someone with a large amount of friends, because, if that person has a lot of friends, and if he likes a certain page, then some of his friends will definitely like it. So this natural increase in the number of likes by that person’s friends represents the weight of that person’s “like”. Bottom line, all that Facebook has to do to weigh the importance of a certain page is to calculate the number of likes of that page, and that’s it.
Although the above ranking scheme is better than Google’s (in my opinion), it suffers from two major problems (and I will propose the solution to these problems):
- It’s easy for the SEO people (read spammers) to create fake/spammy profiles and start liking pages: This is very true, and it will definitely happen. But, it’s very easy for Facebook to detect these spammy accounts: if a user does nothing but liking pages, and all of his followers are doing the same, then most probably it’s a spammy account. Additionally, if Facebook only takes into consideration “likes” by phone number verified accounts, then the problem will disappear (well not entirely, but almost).
- People are currently finding pages on Google, and then liking them on Facebook. But what if people stop searching on Google and use the Facebook new search algorithm instead. This algorithm only finds pages that were already liked. The solution is to make a hybrid system, one that ranks (based on the likes), and one that indexes, and ranks based on the rank of the linking website. So, they will use something similar to the PageRank algorithm to give importance to websites/pages linked from “liked” pages. This way, people will be able to find new websites/pages, and Facebook’s index will always be fresh.
Obviously, Facebook can easily destroy Google should the former decide to do the above, making Google worth a fraction of what it’s worth right now in a few years. People use Google because it provides superior search results, but if something gives you better search results, then why still use Google? What makes this thing more dangerous for Google is that the public opinion nowadays no longer considers Google the “no evil” company because they are seeing that it’s spreading its tentacles everywhere (mobile, TV, etc…). Facebook still has a favorable opinion from the general public. What I’m saying is that a lot of people want to leave Google, but there’s no better option, at least for now.
Now if Facebook does the above, then it will control the search engine market on the Internet (and mobile), which means that it will consequently control advertising, and this where the money is made. Google nets about $7 billion a year in advertising, with 30% coming from the content network (people running Adsense on their websites), it is not hard for Facebook to even better these numbers, because it can present the user with more targeted ads based on all the information they know about the person in his profile, by analyzing his friends, and his activity on Facebook (Facebook should follow a payment structure for 3rd party websites running their ads similar to Google Adsense’s payment structure. Using the Yahoo “we get the dollar, you get the penny” model will deter advertisers, and will hinder Facebook’s expansion on the Internet. No need to get greedy when you own the whole world). I saw yesterday an advertisement for a mini MBA on Facebook (in Montreal’s McGill’s university), I clicked on the link immediately. What’s interesting is that a mini MBA was something I was really considering. These targeted ads are welcome by users (unlike the irrelevant game ads that we still see from time to time). As I mentioned before, Facebook has an advantage over Google when it comes to analyzing a person’s profile (they already have all the information, Google just assumes things about you if you’re not logged in).
It will be interesting to see how the market will value Facebook in a few months from now when they surpass Google as the most visited website on earth. Will they value it the same way I’m valuing it, at around $200 billion? If Facebook plays its card rights, then it’ll be even worth more than that.