FORTUNE — A little less than two months after Google launched its fledgling social network, Google+, Silicon Valley’s latest rivalry is heating up.
Google+ (GOOG) launched in June with an innovative group video chat dubbed Hangout. One week later, Facebook announced a video chat feature of its own in cooperation with Microsoft’s (MSFT) Skype. Last week, Google announced that games like Zynga Poker and Angry Birds would find a home on Google+. A day later, Facebook unveiled a slew of improvements to its games platform, including a newsfeed-like live ticker with game updates and higher-resolution gaming.
If it wasn’t clear before, it is now: Facebook chief Mark Zuckerberg is paying very close attention.
At an event last week, Facebook director of game partnerships Sean Ryan had some choice words for his new competitor. “Google has emulated aspects of our system, which is what they have the right to do,” he said. “We just need to be better.” He’s referring to the way the companies make money from casual online games like Farmville and Words With Friends. Players pay for play time or virtual goods within the games, and the social networks take a cut of the sales. Currently, Facebook reportedly takes 30% from game developers, whereas Google takes just 5%.
The similarities between the two models have obviously ruffled some feathers. At the event, Facebook’s Ryan argued that Google’s gaming foray was like McDonald’s (MCD) recent efforts to offer premium coffee, competing in the same space as Starbucks (SBUX). (That business went on to become huge for McDonald’s…) “Google is at 5% because they don’t have any users,” he said dryly. Google declined to comment on the statements, but confirmed the percentage it planned to take from game makers.
There’s good reason for the two technology giants to see games as a new front in their tussle for social users. The global virtual goods market — arguably the largest revenue stream for casual games makers — is expected to more than double to $20.3 billion by 2014 according to research and investment bank ThinkEquity. Jeremiah Owyang, a principal analyst for Altimeter Group, notes that it is also a way to reach a coveted demographic. “When we saw casual gaming growth, it was amazing to see that the most common gamer was a middle-aged woman in the Midwest, and there’s a lot of advertising dollars associated with that,” he says.
But according to Owyang, both services have their work cut out for them. Google+ is off to a good start, but he doesn’t think a compelling reason exists yet for mainstream users to switch over from Facebook. That’s why the company announced it was going after casual games, to attract new users. Meanwhile, Facebook needs to be less reactive to Google+’s announcements and become more aggressive, he says.
With an estimated 25 million registered users, Google+ has a long way to go before it catches up to Facebook’s 750 million users. What’s clear is that both companies are likely to continue watching each other’s moves closely.
