Not long ago, it seemed that four companies would forever dominate the Web in traffic and ad dollars. Each of the Big Four—Google (GOOG), Yahoo! (YHOO), Microsoft's (MSFT) MSN, and Time Warner's (TWX) AOL—attracts more than 100 million unique visitors a month. Collectively the group accounts for roughly 90% of gross ad dollars online. So far, so good.
But now those companies are facing a threat to their dominance. I'm not talking about the recessionary headwinds that have slowed growth even for mighty Google. Nor is this about the self-inflicted wounds that have weakened the positions of the other three players. Yahoo spent the last year in turmoil following Microsoft's takeover offer, inducing Carl Icahn to elbow his way onto the board and then force out CEO Jerry Yang as business conditions grew increasingly dire. AOL is hardly better off. Its former CEO, Jonathan Miller, freely admits that AOL essentially missed the boat on social media and the decline of AOL's legacy connectivity business. Microsoft failed to acquire Yahoo and continues in vain to seek a credible competitive response to Google's search advertising juggernaut.
These travails aside, there are bigger threats on the landscape. Today's massive social networking systems are rapidly becoming Webs within the Web—one-stop shops for a wide range of services (from content to communications to commerce) that were once the unique province of the Big Four.
One-Stop Shopping at Facebook
For example, through a combination of its own creation and that of third-party developers, Facebook has become a world unto itself. Now the Web's largest social network as measured by active users (140 million at yearend 2008), Facebook offers bread-and-butter portal services like e-mail and instant messaging as well as photo posting and video sharing. But Facebook's reality extends much further. A partnership with Amazon.com (AMZN) has produced a shopping application that lets users buy items at Amazon without leaving Facebook's site, while tapping opt-in "news feeds" that broadcast activities on Amazon, such as product reviews and wish list updates, to Facebook friends. At the same time, a chat feature introduced last spring, which automatically populates itself with a user's Facebook "friends," may render older services like AOL's AIM (where new users must build their own "buddy lists") socially impoverished.
Facebook's mobile alerts, long familiar to the site's users, are just the tip of the iceberg in wireless apps, as the company delivers mobile services for plain-vanilla cell phones and more sophisticated smartphones. Applications for popular devices, such as Apple's (AAPL) iPhone or Research In Motion's (RIMM) BlackBerry, deliver even richer social experiences. Video has taken off, too, with 45 million clips uploaded on Facebook to date; last month, the site also introduced higher-resolution video formats. Facebook users can send video messages from the site and from mobiles.
Though Facebook now offers 52,000 applications created by 660,000 developers (this has done much to enrich the site's features), other social networking giants have entered the fray, too. News Corp.'s (NWS) MySpace, for example, claims 120 million active users; it recently introduced a service called MySpace Music that lets user create and host playlists on their pages.
Lots of Users Spending Lots of Time
Social networking sites are also growing at exponential rates and attracting users of all ages. Facebook's fastest-growing segment is users over 25 years of age. LinkedIn, the business-oriented social networking site, claims more than 30 million active members with an average age of 41.
Of course, scale is only one metric of success. Another is what tech types call "engagement," or "time spent." Researcher ComScore (SCOR) ranked Yahoo the No. 1 site for engagement, with users worldwide collectively spending some 120 billion minutes on the site in October. For the same period, Google users logged 42 billion minutes. Yet, Facebook and MySpace were not far behind, with 34 billion and 18 billion minutes, respectively.
The traditional portals still win on unique visitors per month, but from the standpoint of where Web users "live" their lives online, social networking sites are gaining share.
Building Constellations, Not Destinations
What all this augurs is a new stage in an ongoing battle for influence, even dominance, of the Web. Back in the "old days" of the late 1980s and early '90s, online service providers such as AOL, Prodigy, and CompuServ generated revenue through monthly subscriptions for bundled services, which combined connectivity, communications, and content. With the advent of the Web's friendly user interface combined with the rise of Internet service providers, which offered dial-up and then always-on connectivity, the old guard gave way to a new host of dominant online players—the Big Four portals. While Google focused largely on search, Yahoo, AOL, and MSN provided a rich array of content as well as services and relied on advertising rather than subscriptions to pay the bills.
Now, as usage shifts to social networks, there's a catch. This is no longer a race to build destinations, but constellations.
To be sure, the social networking sites, like the portals before them, aggregate services to provide one-stop shops for Internet users. But they're competing, too, in a race to provide a social context for Web usage generally. Facebook Connect and MySpaceID are new tools that offer users a way to make their social networks—previously wedded to a single platform—portable across other social networking sites and, in fact, Web sites of all kinds. Google's Friend Connect, based on that company's OpenSocial standard, represents similar functionality. Though late to the game, Yahoo is planning a pan-Web social offering, and Microsoft has built one into its new Windows Live. In practice, these services mean users can visit a site for the first time, register with a standard username and password, and find their experiences instantly enriched by friends' lists, profiles, reviews, ratings, and feeds. In essence, it's a way to bring social context to sites that have no social media components of their own.
It's all about defining a new World Wide Web—a meta-Web that has the functionality of a social Web.
While the portals are doing their best to catch up, challenges abound. Google's oft-stated mission is "to organize the world's information." Organizing information is how earlier generations of Web companies have traditionally created value for users, with or without search. But the new game is radically different. Facebook, in particular, has set out to organize not the world's content, but the world's people. As this social meta-Web emerges, the players that own and harness social applications will radically reorganize and reshape the Web in ways we can only imagine today, and that will profoundly alter our experience of the online world.
Jeffrey F. Rayport is founder and chairman of Marketspace, a digital strategy and customer experience practice affiliated with Monitor Group. Rayport was previously a faculty member at Harvard Business School.