business model based on , which leverages on two networks (AdSense and AdWords).and are the two tech giants that in the space of a decade have disrupted the old media industry and created an empire. in the late nineties up to these days has built a
At the time of this writing, Google’s value is almost eight hundred billion dollars., on the other hand, was created by Mark Zuckerberg in his Harvard dorm room back in 2004. At the time of this writing, has more than a billion users and a market capitalization of over five hundred billion dollars.
Both companies have a secret weapon. For SERP, while for is the News Feed. Both target one thing: users’ attention. The more attention they get, the more they monetize.that is the
But who’s the winner?
I’m using for this article the data coming from Similar Web to assess the engagement of the SERP vs. the News Feed. Instead, I’m going to dig into and ‘s financials to understand what’s more powerful from the financial standpoint.
At the end, we’ll determine who’s the winner based on two things: attention and profits!
Facebook’s secret weapon: The News Feed
Back in 2006 a significant transformation silently revolutionized: the feed. Before that, 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 introduced the feed, a new homepage allowed any user to be continuously updated on what her/his network was up to.
Thefeed is a critical part of ‘s success. In fact, without the feed, there is no way could have managed to make its users stick. Also, the feed is where monetizes its users’ base.
To know more about business model read this:‘s
Google’s most valuable asset: The Search Engine Results Page
Today we give for granted that PageRank.is an advertising company (as of 2016, 88% of its came from ). However, on the 2000s that wasn’t a trivial choice. One of the reasons why had been so successful was its ability to create a search engine that offered relevant results through a powerful algorithm called
That is also why Page and Brin (didn’t want their search to be associated with a company that mixed paid with organic results. ‘s UX got simpler and simpler over the years:‘s co-founders)
UX in 2018
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.
in the Oxford Dictionary
The ability of the company to keep users going back to its results pages is also the secret for its past, present, and future success.
To know more about business model read this:‘s
News Feed vs. SERP: The fight for attention
Before we get into financials, it is crucial to stress why the primary sources of business value for SERP and feed respectively.and are the
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 or , 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 SERP) and the feed. data center in Prineville? Undoublty they have enormous value. However, I believe the two most important assets respectively for and are the search results page (
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. SERP and without its feed would be worthless. without its
So how the two things compare? I used the data from Similar Web:
The engagement of users is crucial for both SERP‘s logic is slightly different from ‘s feed. needs to be able to provide relevant results quickly and allow its users to leave the results page.and . It is true that the
Indeed, by clicking on a sponsored AdWords network – or by surfing a website – part of the ‘s AdSense program – that is how the tech giant from Mountain View monetizes.– part of ‘s
Instead,‘s feed logic is to keep the users for as long as possible trapped into the feed. What a behavioral psychologist would call a “slot-machine mechanism.”
The content available for you to consume.feed has an infinite scroll. There’s no limit. You could spend days scrolling that, and you’d be always finding
In a sense, I’m not surprised that SERP.wins against It is true though that 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
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.
In conclusion, if we compare who’s the winner based on the battle for attention, SERP of 7:20 minutes.‘s feed shows an average visit duration of 13:44 minutes compared to
That is quite a long time considering those are averages. In short, there might be people that spend a little time on thefeed; while others might be spending an entire day!
Does the battle for attention makealso more profitable? Let’s see!
News Feed vs. SERP: The fight for profits
To determine who wins the battle over profits. I’m going to look at one central metric: the operating margin. This metric assesses the effectiveness of a company’s operations.
If we had to look at the net income, other factors (like taxation) would be influencing the results. Instead, I want to see how the two companies compare at the operational level.
|Google (data in $ mln)||2016||2017|
|Facebook (data in $ mln)||2016||2017|
From an operational standpoint,wins! Even though as of 2017 still has almost three times as much revenues as . If we look at Operating income that becomes only 1.3 times higher.
Also,as of 2017 has an operating margin of 49.7% compared to ‘s 23.6% (more than twice). Therefore, by looking at the financial operations, seems to be the winner as well.
A little caveat: To be 100% accurate I should have adjusted the profitability of the two companies based on the overall business.revenues and operating expenses to reflect only those related to . However, provides a breakdown of the sales based on the different segments. While it’s not possible to make the same adjustments for the operating expenses as they get lumped all together. However, the exercise above is still critical to understand the
sales break-down 2015-2017
sales break-down 2015-201
Comparing Google and Facebook business models
The foundation and cash cow of both Facebook and Google business models is the advertising business. While Facebook as of 2018 is primarily driven by advertising (more than 99% of its revenues). Google as of 2018 makes most of its revenues from advertising (86%).
On the one hand, Google has been able to diversify its business model. However, that model is still primarily driven by data collection. Google and Facebook both collect a massive amount of data of their users to monetize them via advertising.
While Google monetizes via its search pages or with in-app advertising via the Play Store. In 2018, Facebook primarily monetized 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 mind, 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
By looking at the data from Similar Web, it is clear that SERP. The financial data confirmed the operational ability of to be financially more effective.feed can keep the user engaged more than ‘s
Even though as of 2017‘s are almost three times higher than . If we look at the difference between operating income, the gap gets narrower.
In conclusion, it seems that profitability of a company.feed could unlock profits for that – if things stay equal in the next future – will allow to take over . Of course, in tech things change swiftly, and a simple algorithm tweak can also change the future
Handpicked related articles:
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- Business Strategy: Definition, Examples, And Case Studies
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- What Is Market Segmentation? the Ultimate Guide to Market Segmentation
- Marketing Strategy: Definition, Types, And Examples
- How Does Facebook Make Money? Facebook Hidden Revenue Business Model Explained
- How Amazon Makes Money: Amazon Business Model in a Nutshell
- The Trillion Dollar Company: Apple Business Model In A Nutshell
- How Does Netflix Make Money? Netflix Business Model Explained
- How Does Google Make Money? It’s Not Just Advertising!