Startups Stack Exchange Archive

Can Google or Facebook ever have a true competitor?

I’m not talking about competition like DuckDuckGo or Bing. They might be good search engines, they might even write better search algorithms. Lets also assume that they achieved massive amounts of computational capability and data storage as that of Google, but they will never get the prime mover advantage that Google has. Because you and me have already decided that whenever we want to search something, we will just visit Google.com! It has been this way since last two decades, but is it going to be the same always? If not, then what will cause us to move to a different search engine?

The same could be said about Facebook in the field of social-networking. It is the major giant network commanding around 70% of all online visitors. Most people will never leave FB because their friends are already on FB. Lets assume that a company XYZ creates a site which has a lot more features than FB, but people will still say, “Hey, my friends are already on FB, so I have to be on FB”. Isn’t this sort of unfair for that new startup XYZ? What can XYZ make to cause people to leave FB and come to its network?

Answer 9547

In business, the trend tends to be that the larger companies innovate less while the younger companies innovate more. The larger companies tend to have a very established customer base and want to do their best to serve the most typical user. The smaller customers tend to aim for getting a niche market before going upstream. When a company stops innovating, competition will appear and try to disrupt the larger companies. Technology is moving at insane paces. The argument about Facebook could have been made a few years ago, but Zuckerberg is very visionary and realized that he would have to do much more to stay relevant. As a result, they bought Instagram and WhatsApp and tried to buy Snapchat. These acquisitions have paid back multiple fold.

Additionally, Zuckerberg noticed that the way people interact with the Internet will change. That led to the decision to buy Oculus which is about to ship soon. While the first few versions of Oculus will be expensive (similar to 2007 iPhones), but the prices will fall or the need for VR will grow to a point where everyone will be buying them.

In Google’s case, they started off with search, but has since branched out to many different industries where they could apply their knowledge of search. This led to things like Google Maps, Gmail, etc. They continue to innovate and aim to do the impossible.

They will need to keep innovating and they have to be right on their bets. Microsoft was in a very dominant position in the PC market but missed mobile phones completely. That miss is hurting them right now and allowed Apple to thrive. When companies stop innovating in the right areas, competitors are able to take a foothold and start taking over marketshare. Snapchat, while still young, is looking extremely dangerous to Facebook. They’ve reinvented the way people interact on the Internet in a way that appeals much more to the younger generation. Google is facing similarly intense competition across all the industries they are in.

Tech companies in general are scared of disruption because of the speed in which it could happen. They may not be able to react in time as the new technology/app/invention catches on like wild fire. In the words of Andy Grove (founder and CEO of Intel), “only the paranoid survive”.

Answer 11581

Yes, because both are the result of simple customer acquisition cost math.

Below is the Fiksu index of cost per loyal user, which goes back to 2011.

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As you can see it cost about 1 dollar to acquire a user. This doesn’t translate well to search engines, but each search user will provide at the very least 3-4 dollars of annual revenue. From 2012:

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With Google, this is what we see. Google received 25m in 1999 and was making around 90m in 2001- exactly what we’d expect given 4 dollars per user and the the 1 dollar customer acquisition costs back then. Google reinvested its earnings and grew rapidly from there.

Facebook started out in 2004 with five founders working for free. Assuming each founder was worth about 100k of labor, we’d expect 500,000 users- which is what happened. Source

All these numbers may be off slightly since I don’t remember exact figures, but I believe it was something like 100-150k users at 3 months (May 2004), when it was available at about 30-35 schools, and something like 400-500k users at 6 months (August 2004), when it was available at something like 200-300 schools. Facebook went through a big growth spurt in fall 2004 because it added a lot of colleges to the site at the start of the ‘04-‘05 school year. It reached 1m users in early December 2004, when it was available at something like 400-500 schools.

In late 2004, Facebook received 500k from Peter Thiel and a 600k loan from WTI, boosting both its total funding and users to over a million. The subsequent funding rounds gave it even more users, at a cost of well over 1 dollar/user.

It isn’t so easy anymore, however. User acquisition costs have grown dramatically and are now over 3 dollars:

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Note that through all this, we are treating loyal users as the same as MAU. Fred Wilson found in 2011 that over half of registered users don’t become MAUs. This is similar to the percentage who only use the app once and don’t become loyal users.

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So loyal users and MAUs are roughly the same, at least in the pre 2011 period we are talking about.

So yes, someone could replicate Google or Facebook if they had enough money. But it may not be worthwhile as user acquisition costs continue to increase.

Answer 9550

Google’s growth is slowing down signifcantly and even crappy alternatives like Bing or Yahoo could easily overtake it over several years if they choose to invest seriously. Facebook’s growth is heavily based on app install ads, which have pretty much reached their limit given that Facebook makes as much on these ads as the underlying app stores. Facebook could also be overtaken by the many, many other social sites out there.

Google has a more viable business because it provides true value added and a capital intensive product. Facebook is extremely generic and easy to replicate, which is why it will continue to lose market share.

Answer 9556

Shortest answer:

Facebook -> YES

Google -> NO

Facebook is trying to be the platform, and in doing so, they are making their service more closed. See the video by kurzegazt on YouTube.

Also, Facebook is too old-fashioned and boring to be the platform. They are no where close to the innovation level of Google. Also, Google has its tentacles in so many arenas, where it has become the norm, which is due to their having a lot of high quality developers.

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