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Posts Tagged ‘social commerce’

How Facebook can attack Google’s Ad Words castle

March 25th, 2011

Bill Gurley has posted a great piece about Google’s business strategy that has turned into today’s “must read” post. In it, he accurately describes Google’s ad words as its “castle” and its open source strategy as its “moat.” Simply put, Google creates, supports and gives away platforms like Firefox and Android that enable Internet access in order to ensure its lead position as the default search engine everywhere.

As Bill rightly points out, direct assaults on Google by land look pretty hopeless. It looks pretty dark for direct competitors like Bing. It also creates collateral damage by destroying any business that wants to make money building a phone operating system or browser. But does that mean the castle is perfectly defended?

I believe that Google has a massive vulnerability, but it isn’t from a direct search competitor. Essentially, Facebook is substitute for search, not a direct competitor. As people discover products and services socially, they will go directly from intent to purchase–bypassing search entirely. This threat is not theoretical; indeed, one of customers at SocialFeet has truly zeroed its SEM budget in 2011. While dramatic, I think this move is a leading indicator of where smart merchants are moving. If so, this is very bad news for Google’s adwords castle.

This dynamic is an air attack, and Google’s castle, despite its incredible land moat, looks entirely defenseless against it.

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Will Facebook dominate Social Commerce?

February 13th, 2011

Facebook is a monster of a company, no doubt. It seems that world domination is its ambition, and it is well on its way towards that goal. But will it dominate social commerce, as it has so many other areas?

It turns out that social networks like Facebook “are not structurally well-suited to be networks of sellers,” according to a fascinating study done at Columbia (download pdf). The problem? Social networks like Facebook and Twitter end up being too clustered. When I click on a high school classmate from Hunter, I inevitably find that we have 60+ friends in common.

Why is this a problem? If you start traversing the social graph from my profile, you’ll likely to get stuck in a Hunter cul-de-sac. I love my classmates, but after a while, it’s a deadend that eventually gets boring. And empirically data from a social shopping site in France support this explanation.

The solution is to foster a network that looks more like a web than a cluster. More links are better, but you want to make sure that they take to different places. In my opinion, this structure can be induced through proper incentives, but it does not occur naturally. Herein lies the opportunity.

But it is likely to be tricky, because such “strategic attempts to alter a social network’s structure can lead to unintended consequences.” Unfortunately, the researchers don’t provide much detail into what alternative incentives are worth trying or what consequences they are concerned about.

Since the opportunity involves creating a new network, it seems to me that it is not only large but defensible. A difficult problem, perhaps, but what a nut if you can crack it! Given how different it is than building a global social network, I think it is one that Facebook is unlikely to crack by itself.

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