Outfaced yet again
Microsoft CEO Steve Ballmer must be bristling. Barely a week after the software giant inked its deal with social networking website Facebook, archrival Google has changed the game with the launch of OpenSocial, a type of operating system for the Web.
You’d be forgiven for thinking that it’s 1999 all over again. Google, the world’s largest Internet media company, saw its share price sail through US$700 last week, valuing it at $222bn at the close of trade last Friday. Google is now the fifth-largest company in the US by market value, bigger than retail giant Wal-Mart. But Google looks cheap when compared with other Internet stocks. Its one-year forward p:e of 33 looks conservative next to Yahoo’s 48 p:e and Amazon.com’s 52. Amazon’s share price is not far off the peak it reached in December 1999.
Then there’s last month’s $240m acquisition by Microsoft of a 1,6% stake in Facebook, the fast-growing social networking website. The deal values Facebook, a three-year-old company led by a 23-year-old, at a startling $15bn. It values each Facebook user — there are 51m of them — at $300 each. That’s rich in anyone’s language.
But such are the stakes in the battle between Microsoft and Google to control online advertising spend that Ballmer was apparently prepared to pay just about anything to keep Google, which was also said to be interested in a stake, at bay. The deal buys Microsoft the exclusive right to sell banner advertising on Facebook in markets outside the US, with the revenue to be split between the companies. The two already have a similar arrangement in the US.
For Microsoft, the joy of finally beating Google to an acquisition was short-lived, though. Last week, its nemesis unveiled a new social networking platform, OpenSocial, which changes the rules of the game.
OpenSocial is a kind of Web operating system for online social networks. It is a set of application programming interfaces (APIs) that allow third-party developers to build applications and “widgets” that can be used on multiple social networking websites. OpenSocial also promises to make it easy to move between social networking websites while still keeping in contact with friends.
It’s a masterstroke by Google. The company wants to own the glue that connects disparate websites, much like Windows provides a platform for software applications on PCs. Google is quickly becoming the Microsoft of the Web as everyday computing tasks shift online.
Google has already signed up Facebook’s biggest rival, the News Corp-owned MySpace, for OpenSocial. Other sites that have come on board include Friendster, hi5, LinkedIn, Bebo, Plaxo, Six Apart and Google’s own Orkut. Google estimates that these social networking sites together have more than 200m users, or four times the number of people who use Facebook.
OpenSocial, if it works, has the potential to turn the Web itself into a more social medium. No longer will social networking take place on isolated websites such as Facebook and MySpace. Rather, social features will become a fundamental component of the Web. Randall Stross, professor of business at San Jose State University, writing in The New York Times last week, says: “If software based on OpenSocial specifications spreads throughout the Web, and if users are permitted to assume more control over how their personal information is used and sold, it is possible to imagine a day when all websites are equipped to use one’s social network, regardless of where it originated.”
It’s early days, of course. Privacy and security concerns will be difficult to overcome. And Microsoft may yet come up with something that trumps OpenSocial. Right now, though, my money’s on Google. Initiatives such as OpenSocial may even justify that colossal market cap.
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