Google vs. Facebook – Almost the final frontier

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In India, Google and Facebook’s rivalry is clear.

• India is one of the last remaining Internet wildernesses and in this market, Google is comfortably ahead of its arch rival, Facebook.
• India has 1.3bn people where only 35% of the population (462m) have access to the Internet.
• It is further complicated by being a huge country with 22 official languages and 150 dialects that are widely spoken.
• For global companies like Alphabet, Facebook, the BATmen (see here) and so on, whose revenues are based on user numbers, this is an important market to conquer.
• In this regard, Google is way ahead of all of its competitors and in particular, has been able to keep Facebook from getting real traction.
• Google’s strategy has been to begin with Android and it has cleverly managed to move user awareness from the Android software to its app store Google Play.
• 4 years ago, Indian shoppers would clamour for an Android device but now they have become more sophisticated and are demanding Google Play.
• Much to the dismay of Indian handset makers, this has meant that they have been effectively forced to produce Google Ecosystem devices, leaving their own Indian ecosystems (see here) to wither and die on the vine.
• The next stage for Google is to increase the number of users that have access to the Internet as these users will almost certainly use Android and Google’s services.
• In this regard Google is offering free WiFi at 24 railway stations with the intention to expand to 100 by year end and 400 in the medium term.
• Following on from this, Google intends to launch its Internet balloons (Project Loon) to offer free access to Indian users but it must get past the regulator first.
• This is where Facebook came a cropper as its Free Basics service was blocked by the Indian regulator on the grounds of net neutrality giving Google a free pass.
• RFM research indicates that it was lobbying by Alphabet-funded advocates that was largely responsible for Free Basics being blocked by the Indian regulator.
• In reality none of these services are really free, as whichever company provides the “free” service will see the traffic flowing through its servers and be in a position to monetize it. (RFM Law of Robotics No. 3).
• The revenue generated per user will be a tiny fraction of what it is in developed markets, but there are so many potential users (4bn), that the total revenue opportunity is worth chasing.
• It is through this strategy as well as expanding its coverage of the Digital Life pie to 80% instead of the 35% it has today that Facebook can become a $40bn revenue company compared to its current $20bn.
• If it is successful, a lot of this is likely to come from taking traffic from Google, which is why Google must press its advantage before Facebook can regroup in India.
• I see this as just the opening salvo in a battle that is going to play out over the next 5 years to determine which ecosystem will be the biggest of them all.
• Google has the initiative in India at the moment, but Facebook has none of the problems that Google has with its ecosystem (see here) and is not yet under threat of EU intervention.
• Consequently, there is everything still to play for.
• When it comes to investing, Google looks fully priced for world domination whereas I continue to think there could be a lot of upside in Facebook once short term expectations have been reset (see here).