Facebook & Google – Fair weather friends.

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I think the new found friendship will be short lived.

• Facebook has been allowing Google to index some of its data for some time but a new agreement struck last week will improve the experience for mobile users.
• Google has been able to search some of Facebook’s user data since 2007 which was expanded to Facebook comments in 2011.
• The latest evolution will allow searches effected on mobile devices to launch the link directly in the Facebook native app rather than its inferior website within a mobile browser.
• This should improve the user experience and drive engagement for Facebook as well as searches on Google.
• This data sharing is a two way street where Facebook gets better content discovery and more traffic driven to its site while Google gets to learn about some of things that Facebook user’s get up to on the site.
• Right now this is a win-win as Facebook and Google’s Digital Life pies do not really have any areas of overlap.
• Google has offerings for both social networking and instant messaging but usage of them is so low that it is almost as if they do not exist.
• However, RFM research sees Facebook expanding way beyond its current niche and moving into gaming, search, digital assistants and media consumption.
• This will bring it into direct competition with many of Google’s core assets and this is where I see the relationship beginning to break down.
• I see Facebook’s long-term ambitions being to increase its revenue 3 or 4 fold from where it is today and this will not be achievable without building a fully-fledged ecosystem and taking market share away from Google.
• It is as this ambition becomes clear that I suspect that the sharing of data between the two companies will cease and full completion will begin.
• Facebook’s valuation is already very high and I think there will be a correction before the long-term strategy delivers results.
• Hence, I think that then is the right time to take a large position for a 3-5 year investment.
• However, I am becoming increasingly concerned about Google.
• It is under assault on all fronts from Apple, the EU, Microsoft in the enterprise and now Facebook in the long-term.
• Furthermore, the valuation of the shares assumes that nothing goes wrong with the current outlook which is increasingly looking like the best case scenario.
• Consequently, I see no real upside but plenty of scope for downside and think the time has come to take the money off the table.
• It is too early to buy Facebook as I think it will have a correction when the current leg of growth slows down and instead would prefer Microsoft or Samsung for the immediate term.