Facebook and Google in tech Cold War

By: Matt McGovern Email
By: Matt McGovern Email
Both of the companies are spending like crazy on emerging technologies.

It's as if Facebook and Google are now combatants in Silicon Valley's version of a Cold War arms race.

NEW YORK, NY (CNNMoney) - Facebook and Google are locked in a high-stakes, multi-billion dollar battle to shape the future.

Both companies are spending like crazy on emerging technologies. Their aims: when their current businesses are disrupted, and they will be, they'll have a fallback plan.

That's why Facebook has poured billions of dollars into a photo sharing network, facial recognition software, a chat app and now virtual reality company Oculus.

Google, in turn, has invested billions in driverless cars, wearable gadgets, military robots and, most recently through its purchase of Nest, connected home devices like smoke detectors and thermostats.

It's as if Facebook and Google are now combatants in Silicon Valley's version of a Cold War arms race.

These are long-term bets. For all their attempts to diversify, neither company's purchases have helped them expand beyond their core business models just yet. Both Google and Facebook generated about 90 percent of their revenue from advertising last year.

By buying Oculus, Facebook is betting that the next tech wave could be ruled by wearable devices. Google is making a similar bet with Glass and its Android Wear smartwatch platform.

The big question is whether Facebook bought the right wearable company.

Mark Zuckerberg said on a conference call with analysts Tuesday that he believes virtual reality has a chance to become the communications platform of the future.

But Oculus is unlike most wearable devices, it is closed off from the rest of the world, taking over most of your senses, including your entire field of vision. That's great for gaming but it's not like we're going to be able to walk down the street with these things as we do today with smartphones and could even do one day with smartwatches and Google Glass.

Even if it doesn't succeed, the bet seems to be worth it for Facebook. The company spent $2 billion on Oculus but only $400 million in cash, loose change for a company with $11.5 billion in its corporate coffers.

But in the emerging Cold War between Facebook and Google, Facebook can't take quite as many risks. Google has $59 billion in cash and can lose a bet every once in a while, as it did with Motorola Mobility. (Google bought Motorola for $12.5 billion in 2011 but subsequently shed most of the assets, including the recent sale of Motorola's smartphone business to Lenovo for about $3 billion.)

Google's mission of cataloging information is also broader than Facebook's "connecting people" goal. So while Facebook can make wild bets like it is with Oculus, it has less wiggle room than Google in ensuring they pay off. Investors showed their disapproval on Wednesday as well. Shares of Facebook were down more than 3 percent.

But give both companies credit for knowing they can't rest on their laurels. Google CEO Larry Page and Facebook's Zuckerberg seem to recognize that it's not easy to stay on top of the tech world forever.

Numerous firms that were once industry titans fell to Earth after they failed to adapt to a new wave of technology. In fact, both companies literally have their headquarters in the graveyard of former tech darlings.

Facebook's Menlo Park offices are in the former home of Sun Microsystems, which Oracle snapped up in 2010. And Google lives in the former headquarters of Silicon Graphics Inc. -- the once-mighty computing company that filed for bankruptcy in 2009.


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