Google (NASDAQ:GOOG) has ceded no small amount of territory to social network Facebook. The company’s new Google+ social network is about more than just stealing away Internet surfers’ idle time from Mark Zuckerberg’s phenom. Despite impressive growth during the past three years, Google has watched its display advertising business trounced by Facebook again and again.
Where Google trailed just behind Facebook in the race to catch leaders like Yahoo (NASDAQ:YHOO) and AOL (NYSE:AOL) back in 2009, Facebook is poised to lead the display ad market by the end of 2011 with $2.19 billion in revnue. This is compared to eMarketer’s projection that Google will pull in $1.15 billion this year, the first time Google will pass the $1 billion mark in display advertising.
Now, Facebook is gunning for the market that Google spent $1.65 billion to try to control. Facebook video is gunning for YouTube.
Research group comScore (NASDAQ:SCOR) published its report on the online video market for July and found that Facebook has pulled into the No. 3 spot among website-based video providers. The social network enjoyed an audience of more than 51 million unique video watchers over the month. Although it didn’t top the Sony- (NYSE:SNE) and Vivendi-owned music video site VEVO, it did beat out AOL, Yahoo, Microsoft‘s (NASDAQ:MSFT) video sites, Viacom‘s (NYSE:VIA) video sites (like MTV), and Hulu. Google’s YouTube still leads by a wide margin with 158 million unique viewers — more than three times Facebook’s audience — but it’s the growth of that audience that should worry Google.
In January, Facebook had just 42 million unique viewers per month. It was in March that Facebook started partnering with movie studios to offer low-cost movie rentals. Its first partnership with Time Warner (NYSE:TWX), offering a $3 rental of The Dark Knight, has been successful enough that other companies are joining the fray. Miramax Films announced Monday that it is opening its own Facebook movie channel, Miramax eXperience, that lets users rent from a library of 20 movies at $3 for 48 hours. Movie rentals are now purchased with 30 Facebook Credits, the social network’s virtual currency.
On a long enough timeline, Facebook might not need to match Google for unique viewers — it might simply have to surpass them in revenue. Facebook’s users already have embraced purchasing the network’s virtual currency for use in social games like Zynga’s Farmville, and leftover Facebook Credits from bulk purchases will lead to increased rentals. Although Google recently bulked up its own rental business on YouTube, it will struggle to find an audience that isn’t accustomed to using the site as a pay service.
It’s advertisements that ultimately will deal the killing blow (if it comes) in the battle. Advertisers likely will flock to Facebook as its audience continues to grow, as it has over the past seven months. Research group Tubemogul found that around 40% of viewers on Facebook watch a video, including advertisements, to completion. Only about 25% of the audience continues to watch ads on other video sites.
Maybe Google+ will take the world by storm during the next two years and shrink Facebook’s audience. Google will take back its hopes of becoming display ad king (in addition to its title of contextual advertising king) and YouTube finally will start earning its keep. Maybe not. Either way, the technology company has yet another fight on its hands.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
