facebooks-vs-google

Facebook vs. Google: Advertising Business Models In Comparison

Facebook and Google are the two tech giants that in the space of a decade have disrupted the old media industry and created an empire. Google in the late nineties up to these days has built a business model based on advertising, which leverages two networks (AdSense and AdWords).

Both companies have a secret weapon. For Google that is the SERP, while for Facebook that is the News Feed. Both target one thing: users’ attention. The more attention they get, the more they monetize.

Yet, the whole digital advertising industry is getting now reshaped, with the expansion of digital ad networks by Apple and Amazon, and new entrants like TikTok. 

ElementsFacebookGoogleSimilaritiesDifferencesCompetitive Advantage
Customer SegmentsIndividuals (users) and businesses (advertisers)Individuals (users) and businesses (advertisers)Both target individual users and businesses as customers.While both serve similar customer segments, Facebook primarily focuses on social interaction and content sharing, while Google primarily focuses on information access through search.Extensive user data for highly targeted advertising.
Value PropositionSocial connection, content sharing, targeted advertisingSearch engine, access to information, targeted advertisingBoth offer targeted advertising as a core value proposition.Facebook’s value is centered around social interaction, content sharing, and user-generated content. Google’s value is centered around providing easy access to information through its search engine and other services.Deep user engagement and content sharing on the platform (Facebook). Search dominance and extensive data indexing (Google).
ChannelsWebsite, mobile apps, Messenger, WhatsApp, Instagram, Oculus VRGoogle Search, YouTube, Android, Google Ads Network, PartnersBoth utilize web and mobile channels, along with partnerships.Facebook has a more diversified portfolio of products, including social media platforms and VR (Oculus). Google primarily relies on its search engine but has expanded into various sectors, including hardware (Android) and online video (YouTube).Comprehensive ecosystem of products and services.
Customer RelationshipsSocial interaction, content sharing, advertising interactionSearch, content access, advertising interactionBoth focus on building relationships through user interaction and advertising.Facebook emphasizes social interaction and user-generated content sharing. Google emphasizes efficient search and access to information.Strong user engagement and retention (Facebook). Dominance in search and information retrieval (Google).
Key ActivitiesContent hosting, user data collection, ad targeting, acquisitionsSearch engine algorithms, content indexing, ad platformsBoth collect user data for targeted advertising and engage in acquisitions.Facebook’s activities center around content hosting, user data collection, and social engagement. Google’s core activities involve search engine algorithms, content indexing, and ad platforms.Rich user data collection (both). Advanced search technology and AI (Google).
Key ResourcesUser base, data centers, AI algorithms, Oculus VR, acquisitionsSearch technology, data centers, AI, acquisitionsBoth rely on data centers, AI technologies, and acquisitions.Facebook has a more diversified set of resources, including a vast user base, content, and VR technology. Google’s core resources are focused on search technology, data centers, and AI.Large and engaged user base (both). Extensive AI capabilities (Google).
Key PartnershipsAdvertisers, Oculus VR content developers, app developersAdvertisers, web publishers, Android phone manufacturersBoth partner with advertisers.Facebook collaborates with Oculus VR content developers and app developers. Google partners with web publishers and Android phone manufacturers.Ecosystem of third-party developers (both). Hardware partnerships (Google).
Revenue StreamsAdvertising revenue (display, video, sponsored posts)Advertising revenue (search ads, display ads, YouTube ads, etc.)Both generate revenue primarily through advertising.Facebook generates advertising revenue through sponsored content and video ads. Google’s revenue streams include search ads, display ads, YouTube ads, and more.Diverse revenue streams within the advertising domain.
Cost StructureData centers, R&D, marketing, acquisitions, content moderationData centers, R&D, marketing, acquisitions, content licensingBoth incur costs related to data centers, R&D, marketing, and acquisitions.Facebook invests in content moderation and user-generated content management. Google invests in content licensing agreements.High adaptability to changing user behaviors and demands (both).

Facebook’s secret weapon: The News Feed

what-happened-to-facebook

Back in 2006 a significant transformation silently revolutionized Facebook: the news feed.

Before that, Facebook was primarily a directory of profiles. If you wanted to see what any other person in your network was doing, you had to look for that actively.

When Facebook introduced the news feed, a new homepage allowed any user to be continuously updated on what her/his network was up to.

The news feed is a critical part of Facebook‘s success.

In fact, without the news feed, there is no way Facebook could have managed to make its users stick.

Also, the news feed is where Facebook monetizes its user base.

Google’s most valuable asset: The Search Engine Results Page

google-business-model
Google is a platform, and a tech media company running an attention-based business model. As of 2021, Alphabet’s Google generated over $257 billion in revenue. Over $209 billion (over 81% of the total revenues) came from Google Advertising products (Google Search, YouTube Ads, and Network Members sites). They were followed by over $28 billion in other revenues (comprising Google Play, Pixel phones, and YouTube Premium), and by Google Cloud, which generated over $19 billion in 2021.

Today we give for granted that Google is an advertising company. 

However, in the 2000s that wasn’t a trivial choice.

One of the reasons why Google had been so successful was its ability to create a search engine that offered relevant results through a powerful algorithm called PageRank.

That is also why Page and Brin (Google’s co-founders) didn’t want their search to be associated with a company that mixed paid advertising with organic results. Google’s UX got simpler and simpler over the years: 

google-first-look

Google UX in 1996. Source: uxpin.com

Google’s search page is the most important asset the company owns.

That is the place where billions of people each day ask anything from “how to tie a tie” to “why am I alone.”

It is so popular that back in 2006 the verb “to google” was added to the Oxford Dictionary.

google-oxford-dictionary

Google in the Oxford Dictionary 

The ability of the company to keep users going back to its results pages is also the secret to its past, present, and future success.

News Feed vs. SERP: The fight for attention

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Before we get into financials, it is crucial to stress why the primary sources of business value for Google and Facebook are the SERP and news feed respectively.

When we think about traditional companies, it’s easy to understand what’s their most important asset.

Take a real estate company that owns a resort. You know that resort is a vital asset for the company.  Instead, when it comes to tech companies, it gets a bit trickier.

For instance, if you think about Google or Facebook, what’s their most valued asset? In short, what’s the property that generates most of its long-term business value

Probably the 2,000,000 square feet Googleplex in Mountain View or the 307,000 square feet Facebook data center in Prineville?

Undoublty they have enormous value.

However, I believe the two most important assets respectively for Google and Facebook are the search results page (SERP) and the news feed.

That is the place where each day the battle for the attention of billions of people is fought.

Those are also – I argue – the leading company’s assets. Google without its SERP and Facebook without its news feed would be worthless. 

The engagement of users is crucial for both Google and Facebook.

It is true that the SERP‘s logic is slightly different from Facebook‘s news feed. Google needs to be able to provide relevant results quickly and allow its users to leave the results page.

Indeed, by clicking on a sponsored advertising – part of Google’s AdWords network – or by surfing a website –  part of Google’s AdSense program – that is how the tech giant from Mountain View monetizes.

Instead, Facebook‘s news feed logic is to keep the users for as long as possible trapped in the feed. What a behavioral psychologist would call a “slot-machine mechanism.”

The news feed has an infinite scroll.

There’s no limit!

You could spend days scrolling that, and you’d be always finding content available for you to consume.

In a sense, I’m not surprised that Facebook wins against Google.

It is true though that Google in the last years has developed a set of features that also serve the purpose of keeping users for as long as possible on the SERP.

Think about the featured snippet (a little box that gives users answers to specific questions) or the more recent people’s also ask feature. Those allow you to find most of the content you need in the SERP.

Read Successful Types of Business Models You Need to Know

Comparing Google and Facebook business models

google-revenue-breakdown
Alphabet generated over $282B from Google search and others, $32.78 billion from the Network members (Adsense and AdMob), $29.2 billion from YouTube Ads, $26.28B from the Cloud, and $29 billion from other sources (Google Play, Hardware devices, and other services).

facebook-statistics

The foundation and cash cow of both Facebook and Google business models is the advertising business.

While Facebook, as of 2022, is primarily driven by advertising (more than 97% of its revenues).

Google, as of 2022, makes most of its revenues from advertising as well. 

On the one hand, Google has been able to diversify its business model.

However, that model is still primarily driven by data gathering, curation, and re-packaging through its algorithms.

Google and Facebook both collect a massive amount of data about their users to monetize them via advertising.

While Google monetizes via its search pages or with in-app advertising via the Play Store. Facebook primarily monetizes via its newsfeed within its products (Facebook, Messenger, and Instagram).

Facebook has higher margins than Google, thanks to its cost structure, and the strong brands of its products.

Indeed, Facebook and Instagram are very sticky on people’s minds, which makes them connect to those apps without relying on Google. That might seem trivial, yet it is critical.

Many brands derive their visibility via Google search pages.

While also Facebook does, it is only for a small chunk of it. The remaining is direct traffic going through it, thanks to its stickiness (so far).

Even though the number of users in the US and Canada has stalled, other products like Instagram are still growing.

As for Google, the tech giant is also investing in other areas, hoping a small bet might become the next big hit!

Summary and Conclusion

advertising-industry

Google and Facebook most important assets are the SERP and News Feed respectively.

While both companies are attention merchants. They are fundamentally different. Google is vertically integrated, owning most of the supply chain of data. 

Facebook mostly relies on strong brands, which it had acquired over the years (Instagram, WhatsApp, Oculus, Messenger). Yet, those brands are distributed across other companies’ pipelines (App Store and Android Store). 

This makes Facebook, now Meta, more susceptible to attacks from other tech giants like Apple and Googe.

That is why Facebook is investing billions into VR and the Metaverse. 

facebook-metaverse

Key Highlights

  • Google and Facebook’s Impact: Google and Facebook have disrupted the media industry and built empires within a decade by leveraging attention-based business models and dominating their respective domains.
  • Attention as Currency: Both Google and Facebook compete for users’ attention, realizing that the more they capture it, the more they can monetize it through advertising.
  • Google’s Secret Weapon – SERP: Google’s most valuable asset is its Search Engine Results Page (SERP), which provides relevant search results to billions of users daily. The simplicity and effectiveness of its search engine contributed to Google’s success.
  • Google’s Advertising Model: Google’s business model revolves around advertising, primarily through its AdWords and AdSense networks. Advertisers pay for visibility in search results and websites across the internet.
  • Facebook’s Secret Weapon – News Feed: Facebook’s transformation in 2006 introduced the News Feed, revolutionizing the platform from a directory of profiles to a continuous stream of updates from users’ networks. The News Feed is central to Facebook’s success and monetization.
  • Monetization Strategies: Google monetizes by quickly delivering relevant search results, leading users to sponsored ads and websites. Facebook’s News Feed aims to keep users engaged and scrolling, employing a “slot-machine mechanism” to maximize user retention.
  • Assets and Business Value: For Google and Facebook, their most critical assets are the SERP and News Feed, respectively. These platforms are where the battle for users’ attention is fought and where long-term business value is generated.
  • User Engagement: Both companies prioritize user engagement, with Google aiming for relevant results and quick interactions, while Facebook seeks to keep users immersed in its infinite-scrolling News Feed.
  • Comparison of Business Models: Both Google and Facebook heavily rely on advertising as their main revenue source, but Google has diversified its model more with services like Google Play and Cloud. Facebook’s brands, such as Instagram and WhatsApp, contribute to its strong margins.
  • Competition and Future Directions: Facebook, now Meta, faces challenges from tech giants like Apple and Google, especially due to its reliance on external pipelines like app stores. Meta is investing in VR and the Metaverse to strengthen its position.
  • Ongoing Evolution: Both Google and Facebook continue to invest in innovation and new areas to maintain their dominance and expand their offerings.

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Case studies: 

Related Business Models

Mark Zuckerberg Empire

who-owns-facebook
Mark Zuckerberg is the principal shareholder of the company. Not only he retains ownership and control of the company. Facebook, like Google, has issued two kinds of common stocks, Class A and Class B. Where the holders of Class B common stocks are entitled to ten votes per share, and holders of our Class A common stocks are entitled to one vote per share. Mark Zuckerberg has a total voting power of 57.9%. 

Attention-Merchants Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

facebook-business-model
Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organizational structure is organized around the leadership of Mark Zuckerberg and the key executives around him. On the other hand, the function-based teams are based on the main corporate functions (like HR, product management, investor relations, and so on).

Metaverse Supply Chain

facebook-metaverse

Google Business Model

hidden-revenue-model-google
A hidden revenue business model is a pattern for revenue generation that keeps users out of the equation, so they don’t pay for the service or product offered. For instance, Google’s users don’t pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.

TikTok Business Model

tiktok-business-model
TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

instagram-business-model
Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

how-does-youtube-make-money
YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it generated more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

how-does-twitter-make-money
Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

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