Web 2.0: Sean Parker on why Facebook will win, and Google will lose

October 22, 2009 | Kim-Mai Cutler | Comments | |

sean-parker-headshotSean Parker, a managing partner at Founders Fund and an early president of Facebook, argued that a new breed of “network” companies will overshadow tech giants like Google over the next decade.

At just 10 years of age, Google will decline in importance relative to companies that effectively harness the power of networks like Apple and Facebook, he said during a talk at the Web 2.0 Summit in San Francisco today.

What’s a “networked” company? It’s a business that produces value from the number of connections its facilitates, not the amount of data it can collect, he said. Strategies that fit into this category include creating social networks like LinkedIn, building marketplaces like eBay, gaming like Zynga and developing platforms like Apple.

Facebook, for example, becomes increasingly more valuable to all its users the more people it has, benefiting from network effects. Google, on the other hand, is engaged in “linear value creation” — it studies what people search for and fine-tunes its results in return. Parker said it does own a few networked services like AdSense, but that pales in comparison to what some of its competitors can build.

“I’m not trying to say that Google will have a reversal in fortunes,” he said. “But they will decline in relative importance.”

In a network model, he stressed a few key points — network effects can create winner-take-all scenarios. They also mean the best product doesn’t always win, he said pointing to Craigslist and eBay. Because of this, the dominant player in any networked space can become less vigilant.

“Having no competitors doesn’t generally breed a culture of excellence,” he said.

He also chronicled how Facebook rose to become the world’s dominant social networking company. First, there was Friendster, which wasn’t a “fad,” he said. It just had problems scaling its infrastructure.

Then came MySpace. By 2005, it had between 60 and 100 million users to Facebook’s 8 million. But they had “systematic product failure” and “technical limitations.”

Plus, Facebook had secured a “beachhead” among universities. They took a targeted approach — with Ivy League universities under their wing, soon they were able to capture other elite schools. Then they took a geographic strategy, where they would sign up a number of universities in close proximity to each other in key cities like Dallas and Houston. That established the groundwork for the social network to expand past its college roots. It’s engaging in the same tactics to take down social network StudiVZ in Germany.

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About the Author, Kim-Mai Cutler

Kim-Mai was born and raised a stone's throw from Apple headquarters in Cupertino by a devout Hewlett-Packard family. After attending UC Berkeley, Kim-Mai worked for Bloomberg, The Wall Street Journal and Dow Jones Newswires in New York, Los Angeles, London and Buenos Aires. Follow her on Twitter at @kimmaicutler, and follow VentureBeat on Twitter at @venturebeat.

  • I don't agree with this prediction. If face book continues to grow and begins to establish a presence that threatens google, what makes you think google won't create it's own social newtworking widget or app. Like Google Friends or something.
  • Name
    Or google wave...
  • Um, Google already has a foothold with Google Friend Connect... but it's true that they don't have the network. Google Wave is crap so far, bugs galore and its usefulness hasn't been determined yet. Why'd they push it out with all the bugs??? Why'd they hype it so much???

    Sean's assuming that Google doesn't have a network, and that's where he's wrong. It's not a "network" like Facebook, but the relationship is there under the covers. It's still where everybody goes to search, still where everybody advertises and still where website operators benefit from being part of the ecosystem. Facebook has a valuable ecosystem too, but if anything Facebook is much more at risk than Google to having people disperse... to smaller and more meaningful networks.
  • I think what he's trying to say is that Google doesn't have stickiness like Facebook has beacause it's easy to move to another search engine that produces better results, while if you want to go from Facebook to another platform you leave all your friends & contacts behind.

    But google has stickiness in another way - their apps, I myself use Google Reader, Docs, Notebook, Analytics, Gmail and Chrome. This is where google gets its stickiness from, people becoming so integrated with all their data in Googles apps that it becomes a real pain to go anywhere else.

    I think this is one of the main reasons Google is branching out from Search so much, even though search brings in the majority of their revenue they realize that if bing suddenly starts getting much better results that people will change in a heartbeat. These apps give them stickiness and a reason for people to stick with them.
  • Omar Ead
    yea this prediction is out of sequence. I use Google groups a lot. And we have no clue which way Wave is headed yet, so I dont know why they would consider this sort of prediction yet...
  • Name
    I think facebook would be better with fewer users.
  • Quote: “I’m not trying to say that Google will have a reversal in fortunes,” he said. “But they will decline in relative importance.”

    Can't agree here:-)

    I think the information itself will become even more important in a future, therefore information provides such Google will play even bigger role.Facebook, mySpace is a great places to build your network, but information is the real money. If I have access to Google, I know everything!
    I am sure Google will find the way to use enormous potential they have now.
  • wesR
    Google is in a fine position to entry the social media fray. They have a wealth of human capital, technology and creativity. And most importantly (to enforce what Alex has pointed out) they have built up a Ft. Knox of indexing. That information is incredibly valuable, and it is the greatest asset they could bring to a social media platform if and when they launch one. Wave is cool but still buggy, and it lacks the networking capabilities of FB and other platforms. Google isn't blindly watching the social media train roll out of the station, they're working on all kinds of projects.

    Imagine a social networking tool that brought people together based on search preferences, common interests, and offered networking capabilities for those sourcing similar information. That would be useful and social- combining the networking power of facebook with the search engine power, and management tools or analytical tools of Google. Don't count them out yet. They have a lot of tools to work with and incredible value in their vault.
  • Unfortunately (or fortunately :-) ) Google has way greater capacity to innovate and the history / track record of innovation. Yes, on Facebook users innovate quite a bit, but it's micro-innovation. No capital intense, transformation innovative projects usually come from Facebook apps. It might change with time thou, but for that Facebook needs to improve their distribution algorithm that is weaker and weaker when competition between apps grows. It has potentials, but doesn't have the ultimate solution yet to even dream overshadowing Google.