Writing for Advertising Age, Abbey Klaasen thinks Google is right to be scared by Facebook:
What's the only company that scares Google? Facebook.
Just as Google has become what some people call the operating system for search, Facebook is turning itself into the operating system for social networking. While Google knows what millions of people are searching for, Facebook has something the search giant hasn't been able to grow: a network of connections between people that creates a viral distribution platform unrivaled by any portal or search engine.
Read more here.
Given that, it is interesting that both Google and Yahoo are working on the next generation of social networks. For more information see TechCrunch's posts here for Google's Socialstream and here for Yahoo Mosh.
However social networking is only one of many markets that Google wants to win. From Mashable:
Google is the 600-pound gorilla: the company that no one wants to see build a competing product. Google dominates many of the markets it enters, whether by building a superior product or acquiring one. But Google isn’t perfect: in some areas, they come out behind. Today, Mashable takes an in-depth look at 10 markets where Google wants to win.
Read more here.
