Facebook Inc (FB) and Alphabet’s (GOOG, GOOGL) Google seem somewhat peripheral to one another at first glance. One is a sprawling social media giant, the other a sprawling search engine. In truth, they are direct and fierce competitors.
GOOGL and Facebook duke it out over online advertising revenue, a massive market that, including mobile, is worth about $230 billion annually, according to eMarketer.com.
Ultimately, it’s a larger chunk of that pie that FB is after with its most recent move into live streaming videos, which is a project simply called “Live.”
One of the fastest-growing areas in digital advertising is video, where ad spend rose from $11.2 billion in 2014 to $15.4 billion in 2015, according to Statista. Facebook sees the opportunity, which is why it’s rapidly expanding its video capabilities; last quarter, FB reported an average of 8 billion video views per day.
GOOGL doesn’t routinely break down its YouTube stats — and there are some glaring problems with the way that 8 billion-view figure is calculated — but suffice it to say that Google should be concerned by Facebook’s Live feature.
GOOGL Cannot Let FB Become a Walled Garden
To be clear, Facebook Live is in early beta mode, and has only rolled out to select Apple (AAPL) iPhone users. That should be the first glaring warning sign: This, GOOGL, is a mobile power-grab.
Gaining mobile eyeballs is important simply because consumers are spending more and more time — and more and more money — on mobile devices. And where there are consumers spending money, there are advertisers.
It’s not that FB is doing anything unique, or anything that GOOG can’t do, with Facebook live. YouTube has long had live streams, and Twitter (TWTR) launched its own live-streaming video app Periscope back in March. For what it’s worth, Periscope has had little impact, and TWTR continues to struggle with sluggish user growth numbers and weak engagement.
But frankly, I insult Facebook and Google by even bringing up the dumpster fire colloquially known as Twitter. They’re in a league of their own.
The reason GOOGL should fear FB and its video initiatives is that it could lure away some of YouTube’s best content creators, especially if Facebook decides to start paying them competitively. Considering the fact that YouTube just launched its first ad-free premium service, YouTube Red, for $9.99/month, this would be an especially bad time to start losing viewers.
The longer-term, threat, of course, is that Facebook uses video and live streaming as another tool to build a so-called “walled garden,” where Facebook essentially becomes a one-stop shop for all things internet.
Publishers are already helping to fulfill that vision with Facebook Instant articles, and if FB can effectively render YouTube pointless as an additional destination, Google’s core business of search, and Amazon‘s (AMZN) dominance in e-commerce could also be at risk.
From the perspective of a GOOGL shareholder, there’s no reason to become sensationalist just yet. There are still a lot of things that could go wrong with Facebook Live, and the Google search engine is still very much a dominant cash cow.
Still, it would be a mistake not to acknowledge the threat. And if we ever start seeing content creators flock to Facebook, YouTube will be in serious trouble.
As of this writing, John Divine was long AAPL stock and AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
