Google Could 'MySpace' Facebook

NEW YORK (TheStreet) - Angry emails continue to pour in from readers who wish to voice their "dislike" in reference to my recent bearish articles on Facebook ( FB) which is due to commence trading for the first time on Friday with an estimated price range of $34 to $38 as part of its highly anticipated IPO.

Facebook estimates that it will generate approximately $6.4 billion from its offering -- essentially reaching a market cap as high $110 billion. As remarkable as this accomplishment may be, it looks grossly perverse when one considers that upon its IPO it will immediately surpass the value of technology bellwethers in Cisco ( CSCO) and Amazon ( AMZN) -- two companies with proven effective businesses that generate plenty of money.

What has Facebook proven other than the fact that it is "liked" by a lot of people? Though this might sound a bit negative, please understand, I'm extremely long on prosperity; I'm just short on too much hype. And I think at this point "hype" is a gross understatement.

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As popular as Facebook is, it is still looking up to Google ( GOOG) in the rankings among the most widely visited website in the world -- this according to While Facebook comes in a close second to Google, I am beginning to wonder what else does this second imply when one considers that it also lags Google in several other categories -- specifically in terms of business fundamentals. From that standpoint, investors need to ask, does Facebook really have a business? How much is social networking worth since it cannot be counted upon as a quantifiable metric?

It seems that I am among a small minority who interprets this as a limitation. Albeit this somewhat restraint still places Facebook the best in its class among peers such as Twitter and LinkedIn ( LNKD) and even Google+, but at one point, MySpace enjoyed the same status until Facebook came along. The question is, can Facebook avoid a similar fate? Google's search intelligence is one advantage (among many) that it has over Facebook. Furthermore, its Google+ features are (at least) comparable (if not) superior to what Facebook offers.

That said, where Google falls behind is the fact that Facebook has a significant lead and users have shown an unwillingness to switch unless the product or service is appreciably better. Also working against Google's favor is the fact that there aren't many Facebook users claiming they are unsatisfied with the service or the platform. Although several businesses have recently adopted Google+ in their branding and marketing, the relationships that already existed on Facebook also presents some challenges as the reach and popularity of Facebook consistently generates more activity and interest -- something that appeals to all thriving and growing businesses.

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This is where Google can become smart and leverage its search intelligence to subsidize whatever costs it takes to take businesses and users to switch. I don't think Facebook (as a young company) would be able to compete in this area -- particularly as it appears to be suffering from some "growing pains" as it said in its recent filing that it earned over $1 billion during the first quarter while also reporting a 12% decline in net income from the year earlier. All of which was attributed to an increase in spending, while not entirely a huge concern, but it did raise some red flags, not the least of which is the question, what does Facebook sell?

Facebook's brilliance is that is sells the psychological condition known as "approval." This is the very essence of "social networking." Fundamentally, people want to be "liked" and they want to be received. How many times have we logged on to our Facebook pages just to see if our last comment or picture was "liked" -- and if so, by how many people? Essentially Facebook has become the electronic version of "word of mouth." The question is, can Google figure out a way to (if not) take away that advantage, but raise its Google+ service to match this social need?

I think It can do this by partnering up with Twitter or buying the company outright. It has more than enough capital to make an offer that I think Twitter would seriously consider. Also the Twitter camp has to start evaluating where they want to go next. I think Facebook's IPO and growing popularity will certainly start these discussions but reality has to kick in eventually. The question will be raised, as great as Twitter is -- will it ever be anything more than a niche service?

It will never surpass Facebook, I think that is understood. But it needs to eventually decide what its next growth opportunity is going to be. Because unlike Facebook which allows for a multitude of functions such as games, music, movies, live-stream meetings, etc., Twitter is limited to 140 character tweets and direct messaging. Will this continue to be enough?

Bottom line

How much Google would be willing to pay for Twitter remains to be seen -- for that matter, would Twitter even consider selling out? But I think Google has some options at its disposal to bring humility back to the market and curb all of the Facebook hysteria. There is no denying that Facebook has become an incredible phenomenon, one that is proud to report almost 1 billion in active monthly users -- that is almost 15% of the world's population, all interconnected. But does that make it worth over $100 billion? I believe investors are quick to confuse a great idea with a great business, two entirely separate terms.

Google, however, is different. When considering its position and the fact that it grew over the past three years under significant market and corporate pressures, it continues to prove that not only does it have an excellent business but it reminds investors every day how committed it is toward growth. And it would not surprise me the least bit if it were to make a play soon for Twitter to launch an all-out attack on Facebook and remind investors that anyone can be "MySpaced."