In order to understand the strange but spectacularly profitable world of Google and Facebook today, it's important to start in the fall of 2010.
Four years ago, Facebook was a rising star. The company had built the ultimate social walled garden -- almost a separate alternative to the Internet at large.
Sure, Facebook hadn't become profitable. And they weren't public. But the writing was on the wall, so to speak. Facebook was commanding eyeballs and generating traffic and would soon be a force to contend with. More importantly, it was becoming clear even then that social would be the future of online ad revenue.
Google, meanwhile, had tried and failed with multiple social network-like initiatives, including Orkut, Wave and Buzz. But by the fall of 2010, Google had struck on a clear position about social. Instead of relying on a Facebook-like walled garden, then Google CEO Eric Schmidt said, Google would pursue a strategy of a universal "social layer" in all their products.
The Google "social layer," would be an inside-out social network. Instead of social networking being a place you go, the social network would exist everyplace you go. You'd be able to do the Google equivalent of Facebook "Liking," "poking," "sharing," and "commenting" on all Google sites and from within all Google apps.
And, in fact, Google started building explicit sharing features into services like Google Reader and others. (Google later killed Reader off.)
After Google co-founder Larry Page took over as CEO in April of 2011, his first order of business was a clumsy offer to employees: He sent a company-wide memo tying 25% of every employee's bonus to Google's success in social.
At the time, I strongly criticized in this space Page's bonus program and the the "social layer" strategy.
Then came Google+
In the summer of 2011, Google announced the rollout of Google+ as an invitation-only "field test." Google+ was -- and is -- clearly a social network, among other things. But it was never a walled garden. From the beginning, public Google posts were viewable by anyone with an Internet connection. And any post could be addressed to any email address, and off it would go as an email. (Facebook later copied the former feature but not the latter.)
Industry watchers said that Google+ was the death of Google's "social layer" approach to social. But they were wrong.
Google is an "all of the above" company. They don't choose between good strategies. They pursue all of them. Even while creating a social network, they also pursued the social layer. They used Google+ for logins, and increasingly for other sites like YouTube and Google Play.
The most social layerish product of all is +Post Ads. A business can turn a post into a banner ad that appears on other web sites. When people click on it, they can interact with the post as if it were on Google+.
After Google+ opened to the public, both Google and Facebook went through a phase where they decided that the business model was identity. Both social networks started saying they would require people to use their "real names" in order to use the service. The idea was that in order to monetize people, the social networks needed to know exactly who you really were. Facebook even experimented with requiring users to send scans of their passports and driver's licences to prove identity.
It didn't win either company any fans. (Facebook retreated to making proving identity optional; Google canceled their real names policy just last month.)
Then came the new strategy
At some point in the past year or so, Facebook seems to have had an epiphany. They realized that to win in the mobile space, they didn't need a walled garden. They didn't need a social layer. And they didn't need people to prove their real identities.
What they needed was a pseudo-identity layer, plus an ad layer.
By psuedo-identity layer, I mean they don't actually have to know who you are. They just need to know that you're the same person associated with the various signals harvested on different apps. It doesn't matter that you're Bob Sacamano who lives on Elm street in Lodi, California. What matters is that you're the person who's into fitness, according to your fitness app, pizza, according to your restaurant finder app, and Italian cars, according to your web surfing habits, and that you interact mainly with these 14 specific people and spend your time mostly in those five locations.
This idea is a refinement of Google's social layer idea. Instead of trying to glue everything together with explicitly social behavior, Facebook simply tries to harvest whatever behavior they can, convert that behavior into signals, then serve up contextual ads wherever they see that user showing up. Social interaction is just one of many categories of user behavior that generates signals useful for serving relevant advertising.
So it's no longer about building social features into apps. It's about collecting personal information from many apps and serving ads on many apps.
How many apps? The more, the better. And that's why Facebook has been on a buying binge. They bought the Instagram photo sharing company for $1 billion, the WhatsApp messaging app company for $16 billion and the Moves fitness app (that tracks your every "move") for an undisclosed sum.
Google gets on board
At some point, Google got on board with the new strategy, too, gobbling up conspicuously non-social apps to be plugged into the contextual advertising Borg. They acquired the smart thermostat and smoke alarm company Nest for $3.24 billion (and since that acquisition, Nest bought the Dropcam cloud-based home security camera company), the mapping app Waze and, most recently, Emu, a messaging app with Google Now like smart assistant features.
(Note that the thermostats, smoke detectors and cameras aren't apps, they're controlled by apps that can harvest personal information of value to advertisers.)
The new strategy for monetizing social and mobile explains all the uncharacteristic behavior that both companies have been engaging in lately. For example, Facebook is not only buying apps, they're spinning apps out of its core product. For example, first Messenger was a chat feature in the Facebook app. Then it was also an optional separate app. And as of this week, the Messenger feature was removed from the main Facebook app. If you want to use Messenger, you have to use the app.
I don't think it has occurred to most analysts, columnists and other observers that Facebook can expand this strategy to ridiculous extremes. For example, within a year or two, Facebook could create, spin out or buy a hundred or two hundred apps, including game apps. All these apps could harvest personal data, and all could serve ads through Facebook's mobile ad network.
It also explains Google's sudden change of heart about Google+. The company is clearly less uptight about the social network. They've let go of the real names rule, for example. And there are solid rumors that they'll spin out their magic photo tools -- just like Facebook spun out Messenger. They realize that it's no longer necessary to cram everything into a single site. It's OK to let people roam free, as long as they roam via Google apps on mobile devices that can both harvest personal data and serve relevant advertising.
While neither company is going to give up its garden, walled or otherwise, and Google isn't going to give up it's "social layer," the fact is that social is taking a back seat to other behaviors that generate signals useful for the future of contextual advertising.
Mike Elgan writes about technology and tech culture. You can contact Mike and learn more about him at http://Google.me/+MikeElgan.