Facebook number one?

Facebook Could Surpass Google
March 18, 2009

By Jonathan Ratner

Facebook could surpass Google in terms of total worldwide unique visitors to their Web sites by late-2011 or early 2012, a new report suggests.

Increasing government scrutiny, a Microsoft-Yahoo combination, the shift to mobile platforms and the surging popularity of social media sites – they have all been cited as potential threats to Google’s dominance. And Facebook has taken on the role of biggest possible menace.

They are two of the fastest growing and largest companies on the Internet, while Facebook is considered by many to be a starting point for more and more users on the Web. In fact, 45% of monthly unique users go directly to Facebook as a starting page, up from 39% a year ago, according to the report’s author, RBC Capital Markets analyst Ross Sandler.

At the same time, Google is now driving 64% of Facebook’s uniques, up from 51% a year ago, comScore data shows. Google.com still maintains a consistent 66% of its uniques as a starting page, while its uniques via Facebook are growing an 188% annually – now representing 19% of the search giant’s traffic.

Analytics firm Hitwise found that Facebook emerged as a bigger source of traffic for a selection of larger Web sites late last year, according to a recent article in Advertising Age.

“Facebook’s growth is actually helping boost Google’s search share versus the other engines,” Mr. Sandler told clients, reiterating that his view that the growing phenomenon of Facebook has actually been positive and complementary for Google thus far. The social media site is now the fourth biggest driver of traffic to Google of all sites on the Web, up from ninth place just 12 months ago.

He also noted that Facebook’s incremental uniques going to Google.com are 50% greater than those heading to Microsoft and 250% more than those going to Yahoo. As a result, these numbers will surely be the focus of future negotiations Facebook has in terms of monetization deals with any of these three companies.

However, the analyst warned that the picture could change if Facebook continues to grow at a rapid pace, or if social media ever finds the right business model and attracts serious ad dollars from other online media. “As user growth and time-spent on Facebook expand, other web sites and brands will recognize the need to increase their presence on Facebook.”

His projection for Facebook taking over the top spot in terms of uniques is based on an assumption of modest deceleration in growth for both sites (a compound annual growth rate of 85% for Facebook and 20% for Google). At the very least, Mr. Sandler feels Facebook could produce some multiple compression for Google – the stock doesn’t move up, despite strong earnings.

Nonetheless, the RBC analyst remains a long-term bull on Google shares, with an “outperform” rating and US$475 price target. But it is important to look at whether these trends represent a threat or an opportunity for the company.

Jonathan Ratner