Facebook presents unique challenges to Google. In my opinion the game has gone to Facebook. The only thing that can stop it is some combination of:
1) Government interference
2) Aggressive action by big players like Google, Apple, Microsoft, Amazon, etc.
3) Big missteps by Facebook management
4) Dramatic sabotage
5) An aggressive, disruptive competitor
Many appear to underestimate the threat presented by Facebook.
People are motivated to 'act' when they use a search engine looking to buy something. They will be more receptive to specific relevant advertising. However, Facebook is increasingly in a better position to know who will buy and when. Search engines have a query string and perhaps a little history. As they refine the system, Facebook will have much more. They will only put ads where they will be most effective. An advertisement on Facebook will ultimately anticipate the search before it even happens. You will eventually not be able to present your ad because no search will take place. Both the search query and the data it is looking for will be on Facebook and you will be out of the loop.
In the Facebook universe, I do not have to turn to a search engine to find out what folks around me are doing. It is scrolling by when I log in. As the Facebook relationship grows, they will anticipate more and more of what I might be interested in seeing and they will present it to me before I ask for it. Google is an excellent search engine, but it takes at least a dozen keystrokes or more to do any non-trivial search. It also requires me to shift attention away from what I am doing. On small-screen devices, it means I have to essentially switch applications to move off to do a search. As Facebook matures, it has the following advantages:
1) It has the user's attention already. If you are not Facebook, you have to get the user's attention first.
2) It has rich context beyond just a query string. It knows the user's habits and recent past, it knows this for friends, family, cohorts, demographic groups, etc. It gets real-time updates to this, so it 'knows what is going on'. [Network forces are cumulative. Here is one particular advantage this deep context confers on search: it can 'auto-up-vote and down-vote' pages. The user is more likely to see the results they want. If everyone in your social circle is looking for that dance video, Facebook can anticipate the search request and place the link on the page before it is even requested.] Given time, Facebook will know where you are, who you are with and how long you are staying. A search engine might use geocoding to guess where you are and use 'cheats' like persistent cookies to steal data otherwise.
3) It can access the full universe of data inside and outside of Facebook. Search engines can only access data visible outside. If I am looking for that picture of my friend's cat it is not even in the search engine index.
4) It already has relationships with buyers, sellers, intermediaries and other interested parties. Its relationships are persistent and interconnected providing much more intelligence.
5) It knows the user and has enough information to determine 'worthiness' (credit, health, credentials, social status, etc)
6) It can persist unlimited data specific to users, buyers, sellers and their relationships.
7) Killer Facebook feature: mediated promiscuous data. There are ways to provide everything a vendor needs to offer a good quote without compromising user privacy in any way. Users can store private information without worries that they lose control.
8) Function is embedded in a 'live' application. A search in Facebook is a request to a framework, not a search engine.
9) The user has a 'vested relationship' with Facebook. Gaining access to private personal and financial information, contact information, etc is easier for Facebook because they already have a relationship capable of trust and they have ongoing storage related to the user.
10) Facebook already has experience and expertise with infrastructure at scale. This can allow very rapid expansion of capabilities that can entirely take competitors by surprise. They can consolidate before competitors can respond.
There is no doubt in my mind that Facebook is investigating what they need to do to compete in all the major categories. If they are not, they soon will be.
Right now, Facebook has a nearly insuperable advantage. They have the user's attention. Right now, it is possible to directly monetize that attention through advertising and they are doing that. However, the really big score is the deepening commitment of Facebook users. As these users continue to accumulate data on Facebook, their relationship with Facebook deepens in ways competitors simply cannot match.
Network effects have taken hold at Facebook and since that is the current center of gravity the positive feedback loop is irresistible. In fact, I believe that the only thing preventing gravitational collapse right now is Facebook itself.
I think a search company has a good chance of unseating Facebook. However, it needs to focus on the correct goal. Once Facebook institutes a usable search on their site it will be extremely difficult to compete with them in the search space.
Here are a few 'quick hits' -- ideas that I would have in mind if I were doing a search engine competitor to Facebook:
1) Providing a high-quality search is key. Bean counters will move in and suggest how you might 'improve' the business. Resist them. For now, the business is Search and you know more than they do.
2) Users are your partners. Keep faith with them. Going forward, you should look for ways to share your success with your users. This may seem strange, but users create equity and ultimately they can snatch it away. Keep them from taking that equity away by sharing with them fairly. One idea that might have merit is to allow them to participate in some preferential way in the actual market equity of the company. Perhaps users could accumulate rights in something akin to warrants to buy shares in the company. When I say 'fairly', I mean that you should, for instance, protect their privacy.
3) Lean really hard on getting into user's browsers as the default search engine. This is an instant win and if you are at least as good as the other search engines, you almost win the battle (not the war) right there.
4) Realize that social networking is the ultimate killer app. Search is your entre, but providing users with a permanent home should be your goal. Users will go back to the location where they find their friends and family and their notes and pictures and messaging system, etc. The dominant social networking player will have all the time in the world to perfect search, applications like mail, online sales, news feeds, etc. If you compete in a 'niche' like search, you must be the best and stay that way. If you are the dominant social network, you just have to 'be'.
5) Your true competition, Facebook, is still vulnerable. You can beat them, but not for long. It could render itself invulnerable within less than two years. While that window is still open, a killer search company is the best bet for replacing them. It is not an option to just stick to your search niche, though. Eventually, the dominant social network will take that over. You need to gain traction with your niche, but make no mistake, they will definitely close the search niche.
It may be that the game is already over and Facebook has won. If that is the case, you should approach them as soon as you can to sell them the company or at least license the technology. Were you to join forces with Facebook today it would probably be a 'Google killer' and Facebook might well be willing to share significant equity to dispose of a potentially powerful rival like Google.
There are many nuances in all of this. For instance, keeping faith with users may be one way to steer clear of government interference.