Will Google's Ascendance Describe Its Decline Too?

In every era of personal computing there has been a dominant company that sets the tempo and direction that the industry will go. Today that company is Google, and before Google it was Microsoft. And at one time even Microsoft was a newcomer looking to mold the fledgling industry in its image.

There is a consistent theme that helps cause these drastic changes in the status quo. Complacency has been the downfall of several industry leaders throughout history. When a company is on top it often becomes risk averse, and even arrogant about its position - see Microsoft with search or mobile.

Google is by no means risk averse when it comes to its zany projects that help define its brand image as a fun, benevolent corporation. But when it comes to its core revenue stream, advertising, the search giant is being shown up by a nimbler competitor.

Facebook is making a vigorous effort to take on Google as the leader in digital advertising. By pushing its own video platform, Facebook is attempting to compete with YouTube. The company is also increasingly leveraging its data to help Atlas take on Google's own ad server, DoubleClick.

Both of these moves will certainly grab the attention of Google, but a more worrisome trend for it are the recent reports of ad monetization by the two companies. Google's revenue per ad was down last quarter despite more clicks. This news comes in sharp contrast to Facebook's revenue per ad. Facebook showed 65% fewer ads last quarter while charging more for each of them.

While most sites barrage their users, Facebook has created a sense of scarcity that allows them to charge a higher price. Each ad on the social network will be more valuable and more intelligently curated to individual users. This limited supply shows that Facebook is looking to make quality a priority over quantity. This is important because advertisers, increasingly worried about fraud, have called for more accountability that highly curated content can help deliver on.

This matters because it looks like Facebook is beginning to beat Google at its own game. It is clear that this is just the beginning of an increasingly competitive environment for the top spot in the digital ad world. Google is a highly successful company, and it would be far too audacious to say that this is a paradigm shift in the digital world. But it does show that the industry has moved into a new phase in which Google must now prevent a competitor from bumping it off the top spot. This may cause some apprehension for Google given how quickly the company overtook Microsoft and Apple in mind/market share. In today's digital landscape no one is safe for long.

Importantly, this competitive environment is great for consumers. If a company stays in the top spot for too long it will stagnate not only itself, but the entire industry it is in. This is one of the reasons an open internet is so important. There needs to be an environment where the next disruptor has the ability to take on Facebook if it does eventually become the dominant player.

Facebook took a big risk by drastically reducing its quantity of ads. Even within the company itself the idea was contentious. But Facebook took the plunge, and is now reaping a just reward. This kind of risk is only taken when there is something big on the line, and it is usually taken by the disruptor rather than the incumbent. If Google needn't fear that it has someone creeping up behind it, then it has less of an incentive to innovate.

Luckily this is not the case, and the ensuing competition will help spur innovation in the services consumers receive as well as the platforms on which advertisements are purchased and served. Google will without a doubt answer each one of these challenges to its core business, giving consumers a wider range of choices in the process. But only time will tell who comes out on top. That is how it should be in an innovation economy.