Facebook: With friends like these

Facebook is poised to launch its own email system - another step in its bid to control our internet experience. There's also the little matter of beating Google, too. It's war on the web, says Stephen Foley

The tech industry loves a feud. How Steve Jobs of Apple enjoyed tweaking the tail of Bill Gates at Microsoft, as those two companies fought for control first of the personal computer (round one: Microsoft) and then the consumer electronics market (rounds two and three: Apple). More recently, tech blogs have thrilled to the ding-dong rivalry between Google and Microsoft, as they do battle in every area, from search engines and online advertising through email, to mobile phone software and even word-processing.

Now, in the great battle for supremacy, we have Google vs Facebook.

They are fighting over billions of dollars of potential profits. They are fighting over who will dominate the internet, whose services will be judged superior, who will be called "top dog". And they are fighting over us.

Google has long been at the centre of our online experience. Seven out of 10 times, it is our start point for searching the web, and more than 190 million of us use its Gmail email service, too. But Facebook, with 500 million users around the world, has become the centre of our online social lives, the way we make connections and share our thoughts, photos and whereabouts with friends. Now Facebook is making its move into email, and Google is planning to add "layers" of social networking to Gmail. The two companies' days of peaceful coexistence are coming to an end, but the victor in the coming territorial war is hard to predict. Our personal information will be the spoils of this war; this is lucrative booty, since it can be used to match advertisers to the people most likely to buy their products. But we get a say in the outcome. The victory will go not only to the company that offers us the most valuable experience on the web, but the one that reassures us that it is acting responsibly with our personal data. These companies, after all, cradle our online identities in their hands.

There was trembling at the Googleplex when executives heard Facebook was planning a press event just ahead of yesterday's opening of the Web 2.0 summit, Silicon Valley's annual thinkfest about social media, and barely two hours before Google's chief executive, Eric Schmidt, was due to speak. Facebook's invitation was designed to look like an airmail envelope, a not-so-subtle suggestion that the company was finally ready to launch its email service, a service that had the official code name Project Titan. If that name was instructive of the titanic ambition, then its unofficial nickname was even more revealing – staff had been calling it "the Gmail killer".

Facebook product launches these days involve the same cloak of secrecy and frenzy of blogosphere speculation as do Steve Jobs's unveiling of the latest iPhone. As of writing, there had been no official confirmation from the company that all the swirling rumours really were true. What is undeniable, though, is the logic.

Facebook has long since moved beyond being a passive members' club of friends privately sharing their thoughts. It has been encouraging us to spend more and more time within its walls and to share more and more of ourselves there. Does anyone remember when all there was to do was poke each other? The site is now a rich ecosystem of games and other time-wasting activities, in which it is possible to submerge and not resurface for hours. At the same time Facebook has been burrowing beyond those walls, connecting itself – and us – to the rest of the web, where most of the lucrative advertising sits and where the most lucrative commerce can be done. Email serves both those functions.

There is no rubicon being crossed here. Whenever it was exactly that the rubicon was crossed, it is long behind us now. But a Facebook email service will undoubtedly, and rightly, intensify the debate over how much of ourselves we want to put online and within the commercial use of a single company.

The Wall Street Journal has been running a series of articles here since the beginning of summer, which has irked Silicon Valley no end. They have been setting out in painstaking detail how advertisers are able to follow us around the internet, using cookies that our computers leave with the sites we visit, and how they are able to build large (albeit anonymous) databases about our interests, with which they can better targets ads at us. The articles seem to have irritated technologists because they cast the targeting of ads as a kind of Big Brother nightmare, without pointing out that it is only because advertisers are willing to pay to display their wares that we get to enjoy most of the web for free.

We need to know how the internet works, though, if we are to keep proper tabs on the dangers, and it is silly to dismiss the dangers as an inevitable side-effect of Web 2.0 interactivity. The anger and incomprehension in the industry at the Journal's series (it is called "What They Know", and comes complete with an Orwellian logo) would be more forgivable if the newspaper hadn't also uncovered specific privacy breaches. Facebook admitted that some of its applications have been transmitting user information to advertising companies, sometimes inadvertently, sometimes not – in breach of its rules for app developers.

And there is no denying that some of this is getting creepy. Sometimes it is algorithmic coincidence, the result of Google's search for keywords that might serve as hints for its ad server. A friend of mine, reading an email from his boss in his Gmail account, was shown an ad alongside that began, "Is your boss bullying you?" Sometimes, something a little more personal is happening. I am still alarmed that www.guardian.co.uk served up an ad to me one day that actually addressed me by name, suggesting a place I might want to go on holiday. I have no idea how that happened, and until I know, I can't make an informed choice about whether I want it to.

This is getting more important as the size of the online advertising market mushrooms. Ads based on search results account for more than half of online ads this year, according to the market research firm Idate, but display ads – the bigger ones that adorn web pages, and which contain video, and which are often targeted more directly based on your personal data – are now generating annual revenues of €13.8bn (£11.7bn), and that is expected to swell to €26.9bn in 2014.

The wisest heads in the industry, spotting the public unease and, more importantly, sniffing the political winds, are close to agreeing a standard "opt out" mechanism which would easily allow web surfers to disable ad targeting, probably using a single button on the corner of each ad. The idea is to head off regulation or lawsuits. The consequences for the business of the internet could be profound, and they are certainly unpredictable.

So this is the context into which Facebook pitches its email service, with which it will learn still more about our contacts across the web, to add to its vast database of information on what we like, what groups we are part of, and what we say to our friends. From a commercial point of view, it has vastly more potential than the information that Google collects by knowing what we type into its search engine.

Little wonder, then, that Google wants in. It has built a $200bn (£124bn) business, making profits at a rate of $1m per hour, from analysing text, but now it wants to move to the next level of ad targeting. It has been trying to add social networking-style features to as many of its services as possible, but without all that much success, Gmail aside. Personalising your Google homepage, using iGoogle, has not so far become common practice, although the company has been adding new features. It sees online games as another entry point. Earlier this year, it made an investment in Zynga, which makes FarmVille, whose 60 million users run their own virtual farms, and sought partnership deals with other developers, and the outcome of its collaborations is expected to go public before the end of the year, apparently under the name Google Me.

But it has also been burned – badly – in its efforts to persuade people to share more of themselves with the company. Google Buzz, the social network launched by the company at the start of this year, amounted to little more than a public relations disaster. It had hoped to create a vast social network at a stroke by automatically converting Gmail users' contacts lists into Facebook-style "friends" who could share status updates, pictures and links. Users revolted when they realised that their contacts could now see who they had been emailing – something that could reveal everything from private business relationships to romantic affairs.

Last week we learned that Google was giving its 23,000-plus employees around the world a 10 per cent across-the-board pay rise, in what it has been calling the "war for talent". Software developers have been drifting off for smaller, more innovative rivals – chief among them, Facebook, where more than one in 10 employees is an ex-Googler. Facebook is hiring as fast as it can, as it pursues its web-wide ambitions. The two companies are clashing ever more ferociously.

At the end of the day, there is a much bigger war than the war for talent. It is the war for our data. We are the civilians in this war, and we must try to keep ourselves safe.

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