Why Google+ Will Take Half of the Social Networking Market from Facebook (or “There Calacanis Goes Again”)

By Jason Calacanis

A year and a half ago, while hosting an unsanctioned -- but very lucrative -- poker game at the TED conference in Long Beach, I wrote the worst prediction of my career.

In a blog post titled “Google Buzz is brilliant, Facebook just lost half its value,” I gushed over BUZZ, Google’s very impressive second stab at social networking. Their first, Orkut, was a Friendster-like service that was serviceable, but not something folks would consider wildly innovative.

BUZZ was wildly innovative because, like the recently funded Color social network, it created what I’ve dubbed the “implied social network” (ISN) from your most emailed users. This was a brilliant, but dangerous, gamble. Your contact list is a great place to start building a social network -- except in the event that you’ve been in a flame war with your abusive ex-husband.

Color is building an ISN based on proximity, e.g., you took a photo at Madison Square Garden and Gramercy Tavern just like I did, so we must have something in common (in this case we both like to drown our Orange and Blue sorrows in morels, foie gras and sweetbreads). My interview with Color's founder here.

After gaining an impressive collection of vanguard users, including Leo Laporte and Robert Scoble, the buzz around BUZZ died down.

It was really odd: Google simply stopped innovating on the platform. We learned last week that Buzz development continued in the form of Google’s third major stab at social networking, Google+.

New entries into the consumer Internet market typically need some combination of the following in order to succeed:

a) a brilliant technical innovation
b) a brilliant business innovation
c) a bunch of little innovations around things like design, speed, community and quality

In the case of Facebook vs. Myspace, Facebook won based on amazing technological innovations in the form of the app platform. In fact, one entrepreneur on the app platform is responsible for half of Facebook’s success: Mark Pincus.

Without Mark’s innovations driving 20% to 35% of the traffic on Facebook (in my estimation), Facebook would be half the company it is today. In fact, don’t be surprised if Zynga is responsible -- even at this late date -- for 25% of the time spent on Facebook and a third of its earnings.  We will find out when Facebook files its IPO.

Zynga’s IPO filing shows $597.5M in revenue and $90.6M in earnings in 2010. If Facebook had around $2B in revenue and $250 million in earnings in 2010, and 99% of Zynga’s revenue comes from Facebook, the math says Zynga could be nearly a third of of FB’s top and bottom line.

This is strictly an educated guess, and we don’t know how much money Zynga paid to Facebook to get traffic. However, Zynga has long been rumored to be the largest advertiser on Facebook. We also know that Zynga is paying a whopping 30% of Facebook credits purchased to The Zuck.

Is it possible that Zynga is contributing $300M in Facebook credits and $200M in advertising back to Facebook? Do tell us what you know: tips@launch.is. :-)
Anyway, back to Google+.

While my BUZZ prediction was way off (thanks to Google freezing development!), I think my Google+ prediction will be spot on: Google+ will compete with Facebook as effectively as Android is competing with the iPhone.

Which is to say, Google+ and Facebook will, essentially, split the social market in half (+/- 15%).

Here are my top reasons why Google+ will be a crushing success.

1. Larry Page and Sergey Brin are using the product
When Larry Page took over as CEO, I sent him an email and told him that if Google was going to be taken seriously as a player in social, he needed to get a Twitter account and start using it.

Leadership starts at the top, and Google’s leadership is, finally, taking social seriously. Notoriously press-shy Larry (how many interviews has he done since taking over as CEO? oh yeah, zero) sharing kiteboarding photos speaks volumes. Sergey is also posting, interestingly, action shots (a sky-diving photo).   

2. Forced categorization of contacts
Google+ forces you, through an elegant user interface, to put your contacts into circles. When you update your profile (a.k.a. your Facebook newsfeed or Twitter stream), you are forced to select who you want to give this information to.

This throttles how quickly you can build your social network and how quickly you can share with it -- and that’s a good thing! Zuckerberg elected to build Facebook as fast as possible, and he believed people would never take the step to select which groups they wanted people to belong to, let alone which groups they would send to.

That decision, combined with the horrible treatment of a user’s privacy, has meant that many people simply do not trust Facebook. Google realizes this, and in a brilliant move the company has, as Dave Winer says, “zigged where they zagged.”

3. Google Hangouts is as good as Skype, and a lot more fun
Google Hangouts is a 10-person, video chat product that’s fun and free. You can hangout with your address book in seconds, it’s rock solid and -- did I mention -- completely free. I could certainly see myself using this product instead of firing up Skype.

4. Chrome Browser and Chrome Store integration
If you didn’t know, Chrome now has 20.7% of the browser market. That’s from a cold start with the beta launch in September 2008. Google also has an app store that competes with the iTunes store and charges 30% to developers for apps just like Apple. However, Google only charges 5% for in-app purchases, while Apple holds the line at a very unfair 30% for in App purchases.  

That’s how Google like to do it: take your competitors revenue stream -- be it Microsoft Office, Windows, Apple’s iOS or Apple’s in App purchases -- and make them free (or close to free).

Google gave Angry Birds away for free on Chrome starting on May 12. More than 1M folks downloaded it in the first 10 days. Boom.

Browser market share = power.

Facebook does not have a browser or an app store -- yet. You can be sure there are 50 developers somewhere on the Facebook campus working on one right now -- 100% sure.

5. Android integration
Let’s do some deep, deep analysis shall we?

a) Apple has a mobile operating system but no social network.
b) Facebook has a social network, but no mobile OS.
c) Microsoft has a mobile OS but no social network (arguably, Skype is a dormant one).
d) Google has a social network and an operating system.

Who’s going to have the best mobile social user experience?

If you answered D, you are correct.

6. The avant garde have left Facebook already
Last week I gave the opening keynote for the fabulous Future of Web Apps conference in Las Vegas. If you’ve never been to a Carsonified event, I highly recommend it, as it’s filled with people who actually build stuff (as opposed to CEOs like me who simply take credit for other people’s work).

During that keynote I asked how many folks used Facebook for photo-sharing. About 15% to 20% of the audience raised their hands. I asked how many folks used a new service like Instagram, Path or Twitter to share their photos, and 70% of the audience raised their hands.

I asked how many people were using Facebook more now than last year. Almost no one raised their hands.

The tech-savvy crowd has grown tired of Facebook and Facebook’s privacy games -- including the huge misstep of making facial recognition opt-out and not opt-in -- are starting to drive folks from the platform.  

Bottom line: if you own Facebook shares, I’d sell them at the $70B to $80B market cap you can get now and put that money into Google shares. I’m absolutely certain that $1 invested in Google (at a $167B market cap) will make it to $2 before $1 invested in Facebook (at $80B market cap) makes it to $2.

Google+ is another sign that Facebook has peaked.

#39: Debate is what scared people do instead of trying.