With Hangout, Google shows it can one-up Facebook

Why Facebook's new Skype-powered video chat feature shows Google has what it takes to build competitive social apps. And that Facebook may have a social rival in Google.

FORTUNE -- At Facebook's launch event Wednesday, the social network unveiled three products, including group messaging, a new full-sized buddy list design and video chat. While all are welcome additions, it was that last feature that fueled rumors for weeks. Now that it's here, Facebook's video chat is everything it ought to be: easy-to-download and easy-to-use, with some pretty stellar video quality.

Well, almost.

The omission of group video chat in and of itself probably doesn't sound like a big deal, but if you've signed up for Google+ and palled around via "Hangout" video chat, you know the Mountain View-based company has actually created something incredibly useful.

Having just moved from New York City to San Francisco last week, I wanted a service my friends and I could all use simultaneously to stay in touch. That product turned out to be Hangout. With five people in tow, we held a 45-minute group video catch-up session. The experience wasn't perfect: I had to restart my browser once, and one of my friends got kicked off. (I blame her low bandwidth connection.) But the picture quality and sound was good, certainly good enough to hold a free-flowing conversation.

Hangout is already impressive and has proven to be among Google+'s best features during its extremely short existence. It looks even more impressive after Facebook's own video chat announcement today.

For years, Google (GOOG) has tried its hand at social with services like Google Wave or more recently, Google Buzz, neither of which took off. Eventually, people began to doubt whether "social" was in even in Google's DNA.

"I've heard that advertising is not in our DNA," Susan Wojcicki, Google's Senior VP of advertising said earlier this year. "That was not true. Or that display advertising is not in our DNA. That is not true either. This is such a fast moving market that every company has to be able to learn quickly and adapt, and we will."

A more definitive answer came less than two weeks ago with Google+, a network many potential users still can't get on -- the company has stopped extending Beta invites at the moment -- but already offers promise with better friend management tools than Facebook itself. Google found the hard way it can't just create social apps comparable to Facebook's. But Hangout actually one-ups Facebook. For once, Google, with its two-week-old social network, actually has something that Facebook doesn't.

Of course, it's too early to tell whether Google+ will really take off, though tech sites like TechCrunch point out that the social network is already proving to be a big traffic-referral source. The question now is whether Google+ will appeal to more than tech geeks. Once Google opens up the floodgates and lets in everyone who wants to join, we'll have a better idea of whether the social platform has legs.

Google's latest accomplishments will likely have little effect on Facebook in the short term. The social network goliath finally confirmed it has 750 million users, a good chunk of whom will probably try that new native video chat feature in the weeks and months to come. And you can also bet new features like group video chat are already in the works, whether it's in-house or with partners like Skype.

But after today, the question that has long dogged Google -- whether it can innovate in the social space and not just develop creative duds -- should be put to rest. For the first time in a while, social media is a two-horse race.