Google to take on Facebook

Video games the first step in GOOG social networking

   

It’s getting increasingly difficult to escape the influence of Facebook. Every product you buy, from your non-dairy creamer to Dr. Scholls’ insoles, invites you to become a fan on the omnipresent social network. Investors are now used to almost weekly grumblings of a Facebook buyout or a Facebook IPO. It seems the company is on everyone’s mind all the time.

If any company can relate to Facebook’s virtual monopoly over a section of cyberspace, it’s Google Inc. (NASDAQ: GOOG). The search engine has become synonymous with surfing the Web, with the verb “Googling” actually enjoying a place in the Oxford English Dictionary.

But Facebook better watch out — because if Google has its way, “Facebooking” will never have the chance to become a verb. That’s because the internet juggernaut is creating a Facebook competitor of its own and is looking to take over the social-networking scene.

In this morning’s edition of The Wall Street Journal, it is reported that Google is meeting with numerous online gaming companies in an effort to build a social network that can compete directly with the privately held Facebook.

The WSJ cited “people familiar with the matter” who say Google is working closely with Electronic Arts (NASDAQ: ERTS) subsidiaries Playfish and Zygna Game Network. Google recently purchased a significant stake in Zygna — in addition to Playdom Inc., the online game developer who Walt Disney (NYSE: DIS) recently purchased for $763 million.

While it may seem like a stretch to link online video games to social networking, it’s important to remember that gaming — and the advertising associated with it — represents one of Facebook’s most significant revenue streams. FarmVille, an online game made famous on Facebook, currently has some 61 million users; 30% of revenue made on FarmVille as it’s played on Facebook goes directly to the social-network company, as does 30% of revenue generated on all games on the site.

It’s no wonder that Google wanted a piece of Zygna, FarmVille’s creators, and now wants more direct access to its audience.

This new initiative in social gaming is just the latest maneuver made by Google as it attempts to cut out its own portion of the social-networking landscape.

In February, Google launched Google Buzz, a social-networking tool that is an added feature to its popular e-mailing service Gmail. Buzz features much of the same functionality as Facebook, allowing Gmail users to share status messages, links to Web content, photos, videos and other information as well as integration with media-sharing services like Picasa, YouTube and Flickr, in addition to other social networks like Twitter.

Google Buzz has, however, been all but ignored by Gmail users and was savaged by tech critics after its release.

Google also developed the devoted social-network website Orkut after the success of MySpace and Freindster in 2004 (after a failed attempt to acquire the now diminished Friendster). While Orkut has become a massive success in other countries, particularly India and Brazil, it has failed to make a dent in Facebook’s massive audience of 500 million users.

With numerous corporate acquisitions of social-game developers in recent weeks, it would be wise to keep a close eye on just who will control the Web portal where they are played.

For investors waiting for the long-rumored public offering from Facebook, it might be time to stop waiting and start looking to Google for the future of social networking.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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Article printed from InvestorPlace Media, http://investorplace.com/2010/07/google-take-on-facebook/.

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