• by Mark Simon , October 1, 2007

In what's become something of a quarterly ritual, Google and Microsoft are now dueling to the tune of hundreds of millions of dollars. The fight this time is over Facebook, for which Microsoft is reportedly looking to pay up to $500 million for a 5% stake -- and over which pundits are on the lookout for a Google countermove. Let the games commence.

But whether Facebook ultimately migrates towards Google, Microsoft, or neither, it's still worth evaluating which of the two competitors could go furthest with the social network. Both companies have tremendous strengths they could bring to the social sphere; understanding which would be a better Facebook fit is helpful for evaluating a much larger question: Which company will go further in social networking overall?

To make my evaluation, I'll look at three key strengths that Microsoft or Google has: monopolization; attracting a rich audience; and targeted advertising. But that list is hardly exhaustive, and I invite readers to add their thoughts to the Search Insider blog (link below).

Monopoly-Building   

While Google may be catching up with its older rival, Microsoft still has the better track record at cornering markets. In the social sphere, that's a key skill, because of the nature of the link between communication and scale.

Many people join social networks not because they want to, but because they have to: they need to belong to the channel that their friends use to communicate. And so if a social network can build critical mass, its usership naturally grows as users' friends need to join the network just to stay in touch.

Which is why, in the social space, market share gains can lead to exponential growth. It's also why, over the long term, a social network may need to have a monopoly to survive.

That kind of cutthroat environment is perfect for Microsoft -- as it's the very environment that gave the company a software monopoly. Many Microsoft users choose its products not because they want to, but because they need to be sure they're able to collaborate with colleagues and partners who are using Word, PowerPoint, or Excel. Compatibility concerns over Microsoft competitors are generally unwarranted, but the perceived incompatibility is a cornerstone of the Microsoft empire. And if Microsoft could use collaboration needs to corner the market in office products, they should do well in taking similar approaches to corner the market in the social space.

Owning a social giant like Facebook would let them put that monopoly-making skill to good use.

Wooing the Rich  

Which of the two online giants -- Google or Microsoft -- is stronger at attracting a wealthy, advertiser-attractive user base? According to Hitwise, the answer is Google. Analyzing household incomes of e-mail service users, Hitwise finds that "18% of Gmail's visits were from those with... household incomes between $100,000 and $149,999, compared to 15% from Hotmail."

Facebook is similarly strong on the wealthy-user front. According to a study out of UC Berkeley, Facebook-using high school students are more likely to proceed to college, and are more likely to come from wealthy homes, than are their MySpace-using counterparts.

A pairing of Google and Facebook would be a perfect one-two punch for capturing the eyeballs of wealthy users. Which is why Google might be a better match for working with Facebook to build up that wealthy user base further.

Ad Targeting

When it comes to profile-targeted advertising, Facebook and Microsoft seem to have overlapping philosophies.

A few weeks ago, reports surfaced that Facebook is looking to apply users' profile information as the basis of targeted advertising. That, of course, is a move right out of MSN's playbook. AdCenter offers targeting based on demographic data like gender and age; that information is drawn from the profiles that searchers create when they set up Hotmail accounts.

Google doesn't offer that kind of demographic targeting (at least not within its search network). Which is why Microsoft, and not Google, might be able to do the most with this profile-rich network that is Facebook.

And the winner is...?

Even if one company wins the battle over Facebook, that won't mean the other can't take the lead on the social scene. If the quick turnovers from Friendster to MySpace to Facebook is indicative, it's unlikely that Facebook will stay at the top of the social world forever.

And with the battle over the leading social space hardly a done deal, and Microsoft and Google both standing on major social networking strengths, the only thing we know for certain is that the Google/Microsoft social networking war will be a long, hard struggle.

It's not clear who will win in the end. But it  will be a fun fight to watch -- and to tell your whole social network about.