In 1993, The New Yorker ran a famous cartoon with two dogs near a computer, with one mutt telling the other “On the Internet, nobody knows you are a dog.”

      Oh, how times have changed.

      In the Facebook internet, everyone knows exactly what breed of dog you are.

      That was Facebook’s real trick — convincing the world to identify themselves online. They pulled that off by giving net users a place to share photos and pithy updates, when the real purpose of Facebook, it turns out, is to layer identity over the fabric of the web.

      For years, Google’s natural enemies seemed to be Microsoft and Yahoo. But as the search giant trounced those giants in the search space battle, it’s been slowly losing momentum in what may turn out to be the real war — the one for the display ad revenues — to an unlikely foe: the dorm-room-born Facebook.

      We’ve seen a public pissing fight this week over who owns social network contact information, but that’s just the start.

      This Monday, Facebook is reportedly getting into Google’s e-mail face, mounting a challenge to Gmail, Google’s most successful social product. Users will reportedly get @facebook.com or fb.com e-mail addresses. But more importantly, Facebook already has ranking scores for every one of your relationships with contacts on Facebook and will use that to prioritize your inbox, according to the tech rumors.

      That’s an important side battle, but it’s not where this war will be lost or won. That’s not where the money is.

      Facebook, which began its life as a small private club for Ivy Leaguers, now has its sights set on what might be the net’s biggest pot of gold yet: a way of placing ads anywhere on the net with a granularity Google can only dream of — in no small part because Google promised its users never to go down that path.

      And that’s why Google, the web’s most successful advertising company, sees Facebook, not Microsoft’s Bing, as its biggest rival.

      Some tech pundits foresee a Facebook future where friend recommendations replace search, or Facebook gets enough data from what users like to make a more relevant search engine. That’s unlikely, for a number of reasons, including that Facebook profiles aren’t that detailed and that Google is already building social into search (look here if you are logged into a Google account to see a glimpse of what’s going on).

      Instead, follow the money Facebook is making now. Depending on how much you have filled out your Facebook profile, you might have noticed that Facebook ads are sometimes eerily too good, as if Eminem’s music label actually knows what kind of music you like.

      If you’ve had that sneaking feeling, then you know exactly why Google is trying to play social catch-up with Facebook, and how Facebook could single-handedly save the online publishing industry.

      What gnaws at Google is not so much that Facebook users spend a lot of time on its competitor’s site. And it’s not even that Facebook gets so many page views that it now serves up an astounding 23% of the U.S.’s online display ads, according to a recent survey by comScore. That’s more than twice as many as Yahoo server and ten times as many as Google, though Facebook’s rates remain low.

      Instead, the search giant is scared by two things it sees as possibly undermining its stature as the web’s top tech company.

      It matters because now you are your Facebook identity all over the net, telling every site that plays in the Facebook ecosystem exactly which dog you are, that you like playing fetch and what other dogs you run in a pack with.

      Which means, it’s a virtual certainty that Facebook-targeted ads are going to start showing up in your hometown’s newspaper, your favorite online music site and hundreds of other sites you visit. And unlike the targeted third-party ad systems run by Microsoft, Google and others, there’s no need to track you around the net to try to infer from your reading and video viewing habits how old you are, where you went to college or what you are into.

      Facebook knows all of that already because you told them. Facebook touts the story of a wedding photographer in Michigan who’s expanded his business tremendously simply by targeting ads at locals who mark themselves as “engaged.” Gabriel Weinberg, the one-man show behind the search engine DuckDuckGo, went so far as to create an ad targeted just at his wife.

      Now, Facebook advertisers don't actually know anything about you — at least not until you click on an ad, visit their site and handover your e-mail address. Instead, they use a simple panel in Facebook that lets them choose what categories to target, including age, location, education and gender. They can further target ads based on the things you have liked or added to your profile. Facebook runs the ads on a company’s behalf but never turns over a list of who fits the targeting criteria to the advertisers.

Souce from ANALYSIS

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