Why Facebook Is The Biggest Threat To Google's Ad-Revenue Throne

Google (GOOG) came into existence in 1998. What followed was a rapid ascent to the top spot of search engines, which the company has yet to relinquish. During the intervening years, many search engines hoped to supplant Google at the top of the podium or, at the very least, offer the behemoth some legitimate competition. When Google first launched, most Web users, of which there were a tiny fraction compared to 2015, used alternatives such as Lycos and AltaVista to conduct searches. Those companies, however, were quickly rendered obsolete as users gravitated to Google's simple design and user-friendly interface. Other competitors, such as Yahoo (YHOO) and MSN, managed to cling to small market shares as Google continued to grow unabated,

while later challengers, such as Bing, have unsuccessfully tried to nudge Google aside and present themselves as the go-to search engine for the majority of Web users.

While dozens of search engines have come along, tried and failed spectacularly to compete with Google, one company has positioned itself, as of 2015, as a formidable challenger to the search engine giant. Ironically, that company, while firmly entrenched in the dot-com industry, is not a search engine at all. However, it is a company everyone has heard of and most Internet users visit on a regular basis: Facebook (FB).

How Facebook And Google Compete

At first glance, classifying Facebook as a direct competitor to Google may sound odd. After all, the two websites serve entirely different purposes for their end users. One is a search engine, while the other is a social network. Web surfers use one to seek specific information and the other to network with friends, family and professional acquaintances, or for many Facebook users, to self-promote, chronicle the minutiae of their daily lives and post thousands of pictures.

To understand why Facebook stands as Google's only real competitor, one must be familiar with the model used by both companies to make money. As most people are aware, Google makes nothing when a person uses it to look up the capital of New Hampshire or to find directions to the nearest Waffle House. Likewise, Facebook does not make a dime when a user logs on and announces to the world what he ate for breakfast or even when a new member signs up for an account. For the vast majority of users, Google and Facebook offer their services for free.

The way Google and Facebook rake in billions of dollars in revenue every year is by charging advertisers hefty fees to put their products or services in front of both companies' hordes of users. Every day, Google searchers and Facebook posters only generate revenue indirectly; the more visitors the sites receive, the more in demand they are to advertisers, which translates to leverage and the ability to charge more for ads.

For most of the 21st century, Google has dominated the online advertising market with its AdWords program. Advertisers harness Google's tremendous reach among web searchers by paying the company to drive traffic to their websites. The traditional AdWords model is pay-per-click; Google displays an advertiser's message among a list of sponsored results for a given search string, and the advertiser pays for every user who clicks on the ad. The more competitive and lucrative the keywords, the more Google charges per ad.

Facebook's Targeted Advertising

Beginning in the late 2000s, Facebook realized it could leverage its millions of daily visitors into the same kind of ad revenue. The social network launched its Facebook Ads program, which enables advertisers to pay for their messages to appear in users' news feed. While Google advertisers target users based on specific search strings, companies that advertise on Facebook target people based on specific information in their profiles. For example, a Facebook user who posts a lot about sports likely sees many sports-related ads in his news feed.

As of 2015, Google remains the leader in online marketing, but Facebook is making strides. Many advertisers have made the switch, citing Google's high costs and confusing model as their top reasons. While search engine after search engine has failed in its attempts to become a real competitor to Google, another Internet giant from outside the search world is closing in at an impressive pace.