By Kevin Kelleher, contributor
FORTUNE -- 2011 was a good year for Facebook. The social network was adding 100 million users every few months. It was on track for an IPO valued as high as $100 billion -- despite a dispirited stock market. And, perhaps most impressively, it had its archrival Google on the run.
Facebook (FB) was hiring Google's (GOOG) top engineers and threatening to siphon off its ad revenue. Significantly, Facebook was forcing Google to redesign its sites to be more social -- that is, more Facebook-like. There is no clearer sign you're eating your rival's lunch than the sight of them emulating you.
Of course, 2012 has been far crueller to Facebook. User growth stalled in its home market, and revenue growth disappointed as well. Its IPO was, by one measure, the biggest flop in Wall Street history. And last week, Facebook CEO Mark Zuckerberg indicated that the company might introduce a search engine to drive new revenue.
It's Silicon Valley's version of Freaky Friday: the aging web giant with touches of grey and the cocky upstart have reversed roles. The company adding 100 million users to its social network is Google. The company with the sagging market cap is Facebook. (Its $48 billion valuation is a fifth of Google's.) Both companies have even started to talk like each other. Larry Page describes Google as "a social destination" and Zuckerberg says things like, "Search engines are really evolving towards giving you a set of answers… like, I have a specific question, answer this question for me."
What gives? One answer is that corporate rivals inevitably bloat their ways into each other's turf, even to the point of copying each other. For a clear illustration of this, look no further than the patent lawsuits that have become a staple of the smartphone industry. (Plus, as Fortune chronicled in its 2011 cover story, the battle has been a long time coming.)
More importantly, neither search nor social networking is an inherently superior business model. People flocked to social sites like Facebook and Twitter because they were a great way to discover new diversions through their friends and contacts. But it didn't make search less popular. It just added to the flow of content people get from the web. So it was inevitable that Google and Facebook would move into each other's core businesses.
In fact, the notion that search was dying and that the future of the web lay in social networks is itself starting to look outdated. Yes, people may spend many more hours on a social network than in a search box, but they also spend much less time bothering to click ads. We go to social networks to find people. We go to search boxes to find answers. So search ads -- despite warnings of the demise of search -- have continued to do very well.
In light of the rivalry that has emerged between the two companies, Facebook's plans to push harder into search may appear like an embarrassing capitulation. But just as Page was intent on moving into social to strengthen its overall offerings, Zuckerberg sees search as one more revenue stream to feed into its future growth. And given Facebook's lackluster stock performance so far, it seems not a bad.
Nor would adding a search engine be the only move that Facebook has copied from traditional web advertising. Several months ago, Facebook Exchange launched, letting ad networks use the browsing histories of users to target display ads next to their Facebook news feeds. Facebook Exchange, which works a lot like Google's Ad Exchange, showed early signs of improving ad-click rates in its beta program.
Facebook and Google also compete in several other areas, with Facebook Photos taking on Google's Picasa and Facebook Messaging aping GTalk. And both have made heavy moves into an even more archaic form of web advertising -- the hoary old display ad, introduced nearly two decades ago.
According to a recent report from eMarketer, both Facebook and Google will see display-ad revenue grow this year, although Google will grow faster to 15.4% of the display-ad market from 13.5% last year. Facebook will grow to 14.4% of the market from 14.1% last year. By 2014, eMarketer estimates, Google will control 21.2% of the market and Facebook 15.5%.
But efforts like Facebook Exchange and the mobile ad network the company began testing last week could give Facebook a bigger piece of the pie. And now it's getting serious about search ads as well. Taken together, these initiatives help support the Facebook bulls who say the stock is attractively priced right now. But turning its stock price around will mean moving deeper into Google's home turf.
So the Google-Facebook rivalry isn't going away. As Facebook puts its not-so-stellar year behind it -- its bruising IPO with it -- the most interesting story in the Valley may be this renewed rivalry.
Larry Page's first as Google (GOOG) CEO. We're on hand live.
Revenues of $8.58 billion a 27% increase over first quarter 2010 revenues of $6.77 billion. Paid Clicks Up 18%; Cost Per Click Up 8%:
4:35PM: Larry Page dropped in to say everything is going as planned, specifically the Executive switchover. Also thanks Jonathan Rosenberg who is usually on these calls but announced his resignation last week..
4:40: CFO Patrick Pichette seems very excited about MORESeth Weintraub - Apr 14, 2011 3:09 PM ET
The introduction of the Google game also adds a search tool to the Googler's arsenal.
Yesterday, Google (GOOG) introduced "A Google A Day" –a game that produces a question a day and encourages users to solve the puzzle using Google's search engine. I'm not a crossword puzzle type but I imagine some people find this interesting. Obviously, it encourages people to use Google's search engine -which is clearly beneficial to Google both in MORESeth Weintraub - Apr 12, 2011 10:38 AM ET
With a new CEO and a departing Products VP, there is some room for interest.
Google (GOOG) announced today that their First Quater 2011 Financial Results conference call will take place on Thursday, April 14, 2011 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time).
This will be the first earnings call under Larry Page who has a reputation for the unorthodox. Also, Google earnings calls are usually hosted by Product VP Jonathan MORESeth Weintraub - Apr 5, 2011 10:30 AM ET
Today's the day that co-founder and inventor of the PageRank algorithm takes back the reigns of Google, replacing Eric Schmidt who reigned over a successful decade of expansion.
In a surprise announcement at January's earnings call, Google (GOOG) announced that CEO Eric Schmidt would be stepping down and Larry Page would be replacing him.
Today's the day.
Although, Eric Schmidt's role as "Adult Supervisor" has been joked about, the stability he brought to the MORESeth Weintraub - Apr 4, 2011 11:53 AM ET
The collaborative abilities of Google's office products keep getting more robust.
In a Blog post today, Google (GOOG) announced that Docs will now have fullly integrated discussions ability.
Today, we're updating comments in Google Docs to facilitate rapid and seamless discussions and integrate with email in an intuitive way. Since there are a number of significant improvements, this update is only available for newly created documents for now.
Think of it as annotations on steroids. MORESeth Weintraub - Mar 16, 2011 12:27 PM ET
Keeping it all in the Google ad family...
Today, Google (GOOG) is sending some of its Admob mobile app developers some good news. The search giant will start placing Adsense ads inside of apps that use Google's Admob advertising. That means fill rate will skyrocket toward 100% and developers will get paid much more, across the board.
The move may also pull some of Apple's (AAPL) iAds user-developers away, especially those who MORESeth Weintraub - Mar 11, 2011 3:57 PM ET
Hoping to keep up the the Bings and Facebooks of the world and ideally pass them, Google now integrates connections into search results.
If Facebook won't let Google (GOOG) have access to its social graph, it is pretty clear that Google will go everywhere else, including its own Blogger platform, Twitter, LinkedIn and Yahoo (YHOO) Flickr.
The idea is pretty simple. When you log into Google, your friends on Twitter/Blogger/Flickr/LinkedIn, etc who have promoted MORESeth Weintraub - Feb 17, 2011 10:38 AM ET
Developer interest in Android is skyrocketing, as evidenced by the selling out of the I/O 2011 event in 59 minutes.
In a series of Tweets, Google (GOOG) VP Vic Gundotra details the quick-selling Google developer event which seems to indicate that developer interest in Android has increased markedly over the past few years.
Google I/O is a developer focused event that takes place in May at San Francisco's Moscone convention center. Last year, Google MORESeth Weintraub - Feb 7, 2011 2:08 PM ET
Here's the video with Google's Matt Cutts and Microsoft's Harry Shum 'discussing' the recent Bing copying Google allegations.
This is about as interesting as it gets in search engines folks.
The talk is from this week's Big Think Farsight 2011 - Beyond the Search Box event. In one corner, you have Google's (GOOG) web spam fighter Matt Cutts. In the other corner, you have Microsoft (MSFT) researcher Harry Shum. Computer Science professor and researcher MORESeth Weintraub - Feb 4, 2011 2:11 AM ET
|McDonald's gives Charles Ramsey free food for a year|
|Where your donation dollars go|
|Doomsday investors betting on market crash|
|Investors consider life after Fed stimulus|
|The 'chicken poop' credit and other bad tax breaks|