Growing interest for Facebook’s coming IPO has put the focus back on Google, cited by many as the last IPO to generate this kind of buzz.
The company founded by Larry Page and Sergey Brin has struggled to find its footing in the new world of social media, recently launching their fourth attempt: Google+. While Google+ has grown exponentially, reaching 100 million users less than six months after going public, it has bred a base of inactive users, obstructing any possible snowball effect and thus making it a weak competitor for the network built byMark Zuckerberg.
While the massive percentage of inactive users is troubling, there is hope for Google+, as the internet giant leverages its amazing marketing machine and its dominance in search to try and chip away at Facebook’s lead. Given that lead, a successfully integrated socially-enhanced search engine is one of Google’s few options.
Facebook raised its target price range for its IPO on Tuesday because of high investor demand, now looking to raise $12.1 billion by pricing shares between $34 and $38 apiece, resulting in a market capitalization of $93 to $104 billion. The company has reached about 70% of the adult internet audience, excluding China, and has about 850 million users, and, despite slowing growth, is definitely a tech force to be reckoned with.
The emergence of such an impressive contender puts the focus back on Google, and specifically their latest social enterprise, Google+. The nascent social network must face an uphill battle if it is to emerge onto the scene as a heavy hitter. Its major problem: low usage and too many inactive members, according to a report by Enders Analysis.
Google+ has bred “hollow circles,” essentially populating its social network with a huge number of inactive users. Despite its skyrocketing audience-growth, active users average 6 seconds a day on the social network, compared with 13 minutes on Facebook (when Zuckerberg’s social network had 100 million users, average usage was 6.5 minutes a day, back in January 2008). According to the report, those 13 minutes translate to “approximately 140x more than the average on Google+ despite only having 9x as many users, giving an indication of the services’ relative appeal.”
Audience growth appears to have plateaued for Google+, despite an intelligent move by management which artificially expanded its base: every new Gmail and YouTube subscriber was automatically signed up to the social network. Google+ has managed to reach 10% or more of Facebook’s audience, while penetration among PC-based users in major markets like the U.S., U.K., and France has been solid (about 10%).
A small but committed base of users, about 5 million of them, have found a home at Google+. Average daily visitors are now about 6% of monthly unique visitors, compared with about 40% for Facebook and about 30% for Russian social network VKontakte, meaning there’s a lot of room for improvement.
Google+’s challenge is to create a snowball or network effect. From the report:
On Facebook and other successful social networks, individuals join of their own volition, usually pulled in by a friend, then pulling in friends and so forth. At scale, most new users have enough people they know already using the site to give them a reason to visit and revisit the site. As more people they know join, so utility rises, creating a virtuous cycle of rising users and usage.
Google’s powerful marketing machine has been mobilized to grow its social audience by channeling users. In February, 70% of Google+’s U.S. users had also visited Gmail, giving them “every reason to believe that its mail service will lead users” to its social network. Inorganic growth, though, resulted in a population of inactive users.
Another obstacle has been differentiation. Facebook has become the social network, while LinkedIn is the professional network and Twitter built its own audience. The introduction of games will help, but Zynga has become a powerhouse in itself, in great part due to its synergies with Facebook.
To succeed, Google has to leverage its core competency: search. “At present, Facebook’s own search functionality is restricted to enabling users to search for Facebook friends and pages, with very limited integration of results fromMicrosoft’s Bing,” noted the analysts. If Google manages to employ, and improve, its algorithms to integrate social data and search, it will be able to bring in more users and develop a platform that could be used as a medium for display advertising. If it integrates it across channels, it will make its search engine that much more profitable, and avoid ending up like Yahoo today, after being outsmarted by Google.
It will also be a way to block Facebook’s “eventual launch […] of its own socially enhanced search engine.” Given how many users, and how much data, Facebook has, a successful search product could mean the end of [entity display=”Google” type=”organization” subtype=”company” key=”google” ticker=”GOOG” exchange=”NASDAQ” active=”false”]Google[/entity]‘s internet hegemony. Sergey and Larry surely want to stop that, but they need to pick up for that. In the words of the analysts: “right now this seems a long way off, if not unlikely.”