Once upon a time, there was a hoodie-wearing college dropout who moved to Silicon Valley to grow a social network.
At first, Mark Zuckerberg and his staff didn't know what their business model would be, but they had a strong suspicion that gathering hundreds of millions of eyeballs on a single site might be worth something someday.
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Eventually and inevitably, Facebook introduced advertising to its site. The strategy was clear: Get everybody to gather at a single location ( Facebook.com), harvest social signals at that location, and sell ads that would be displayed at that location. Everyone and everything in one place.
Facebook made a lot of money, went public, then made a lot more money. (The company this week reported Q1 revenue of $2.5 billion.)
Everything was fine in Facebookland, except for one small problem: Most users were clearly migrating from desktop to mobile, and nobody was making significant ad revenue in mobile.
How did Google make money in mobile? Instead of harvesting personal data in one place and displaying personalized advertising in that same place, it did both in multiple places.
That simple policy enabled Google to harvest user signals and personal data from one service -- say, search -- and use that information to personalize advertising on another service -- say, YouTube.
That change ushered in the future of online advertising, as both Twitter and Facebook would later discover.
Facebook outgrows Facebook
For Facebook, that discovery started with an unwelcome shift in user behavior. It turns out that many Facebook users, especially younger users, got tired of interacting on a single site with their friends, extended families and co-workers -- and everyone else. So in combination with the flight from desktop to mobile, they increasingly embraced little apps for social interaction: Snapchat, Instagram, WhatsApp -- you name it. On these little apps, people could have unfettered interaction with small tribes of friends without the public-pronouncement feeling of Facebook.
So Facebook decided to start buying the apps and services that young users were fleeing to. First, it tried and failed to buy Snapchat. After that move proved unsuccessful, Zuckerberg built his own service, called Poke, but it didn't work out so well.