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Google Inc (GOOG), Facebook Inc (FB): The Social Giant’s Emerging Market Foothold

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Facebook Inc (NASDAQ:FB) recently announced that over 100 million people are using its Facebook for Every Phone application. The application is aimed at emerging markets, giving Facebook an important head start on the smartphone push in those nations.

An Advantage

Facebook Inc (NASDAQ:FB)Facebook Inc (NASDAQ:FB) has a massive social network in developed markets that customers are increasingly connecting to with mobile devices. The switch to mobile has been a material issue for the company, which generates about 85% of its revenues from advertising. As customers have shifted to mobile, it has been working hard to go along for the ride and maintain its ability to sell advertising over the new medium.

Mobile ads account for around 30% of Facebook Inc (NASDAQ:FB)’s ad revenues, so it’s making important inroads. That said, it may be in a better position than some of the larger competitors in the mobile space because of the nature of its product. People use Facebook to keep tabs on their friends and family on a regular basis, which leads to frequent visits. Search giant Google Inc (NASDAQ:GOOG), on the other hand, needs people to search for things to make money.

That’s becoming increasingly problematic in the mobile space. Google itself warned of this in its annual report, highlighting the fact that mobile search often happens via applications and that competition in the mobile space has kept ad rates low. This was on clear display when Google announced second quarter earnings.

Google Inc (NASDAQ:GOOG)’s search volume was up, which kept revenues and profits heading higher. However, the amount it charges per ad slid 6% in the quarter, that’s on top of a 4% decline in the first quarter. Google shares, meanwhile, are trading near all-time highs with a price to earnings ratio of around 27. While not outlandish by any means, it does mean that investors are expecting continued growth. If declining ad rates take a toll on the bottom line, investors could jump ship fast. Google shareholders should be wary of this trend.

Reaching New Customers

Notably, Facebook Inc (NASDAQ:FB) has taken a forward-looking approach with regard to emerging markets, while still building its mobile position in the developed world. In developed markets customers are accessing Facebook with smartphones and the company is trying out new advertising methods. However, the smartphone push in emerging markets is in its infancy at best. Instead of waiting for the phones to enter the market, Facebook has simplified its product to work on older cell phones.

It now claims to have 100 million users of its stripped down Facebook Inc (NASDAQ:FB) app in countries like India, Indonesia, and the Philippines. That’s building brand equity in important markets before the competition can get there. As smartphones become more prevalent, these users are likely to download a Facebook app to keep their social connections. In this way, Facebook is something of a vital service.

Although the company’s shares only recently rebounded back up to their IPO price, and earnings aren’t notable, there is material upside if the company manages to figure out how to keep advertising revenues high. Gaining a foothold in emerging markets will be a key differentiating factor in this effort. And getting to customers first only helps the company’s prospects.

Services Increasingly Important

The shift toward services is a notable one taking place in the technology space today. For example, Apple Inc. (NASDAQ:AAPL) has come to a crossroads in its life. While it is best known for its high-tech devices, management and investors appear to have realized that selling an ever-increasing number of gadgets isn’t sustainable.

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