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Facebook Graph: The Inevitable Marriage of Social Media and Search Engines

  +Follow July 10, 2013 8:42AM
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FacebookFor years Facebook (FB) dominated social media, and Google (GOOG) dominated search engines, and neiter internet giant got on one another's turf. In 2011 that changed. Google unveiled their social media platform Google Plus. Initially a bit of a flop, Google Plus has recovered, but is still dwarfed by Facebook. In January 2013 Google Plus reported 343 active users behind Facebook’s 1.1 billion. Google Plus simply doesn't offer much not already offered by Facebook. Aside from the video group chat function Hangout, it's basically an ape of Facebook.

As Google once moved into social media, now Facebook is moving into search. But unllike Google, it's not a slightly differentiated copy. It uses the loads of personal data Facebook already has, and makes it navigable. And it could signal an entirely new era for Facebook.  

How Graph Search Works

Graph Search is like a Google for interests. Type “friends who like Nickelback” into Graph Search, and you’ll find which of your friends are into the maligned Canadian rockers. Search “people in Los Angeles who like dogs” and you’ll get a list of people who live in LA and have publicly “liked” Pages associated with pooches. No more going onto indivdual people’s Facebooks to see their interests. It’s always been catalogued, but now it can be easily searched.

It’s an exciting and terrifying prospect, and could change the entire nature of social media. And by combining their massive stores of user’s personal information with a search engine, Facebook is moving towards becoming all types of social media in one.

Facebook Adapting to Changes in Social Media

Facebook has always been social media for people who already know one another. But Graph Search could change that. Graph Search’s ability to not just facilitate existing connections, but create new ones, moves Facebook into several arenas currently dominated by other social media platforms.

Grouping people based on shared interests makes them more akin to Meetup.com or dating websites like Match and OkCupid. Combining the Location Services feature (which pinpoints a user’s physical location) with local businesses with many “likes” could help Facebook edge in on the territory of Yelp. And every move away from private status updates and towards searchable public information gets Facebook’s functionality closer still to that most public of social media, Twitter.

Graph Search, it seems, is Facebook’s bet that they can untangle and “roadmap” their vast stores of content. It’s content that is closed off to Google, and it’s content that until Graph Search wasn’t categorized for public consumption. Now it is.

Turning "Likes" Into Revenue

In June 2013 Facebook CEO Mark Zuckerberg tried to assuage investor fears by pointing out that while new users weren’t joining as fast as they’d like, and that they wre “disappointed” in Facebook’s Wall Street performance, there were promising trends. Likes and comments on the site, indicating user interaction, were up 50 percent.

At the time, investors scoffed. What do likes and comments have to do with revenue? Now it seems there might have been a solid reasoning behind that cryptic explanation.

Likes and comments generate content. Now, with a search engine, those “likes” acquire function. They categorize people. They expand the functionality of Facebook. With 1.1 billion users, Facebook is nearing saturation. They can’t get new users, so give them more reasons to use Facebook more.

Monetization via Advertising

Like any other content-driven website, the monetization is going to come from ad revenue. Wedbush analyst Michael Pachter opined that by 2015 the added value of Graph Search could be between $3 billion and $4 billion by 2015. Zuckerberg is being much more cautious, saying back in January 2013 during the feature’s demo that “Graph Search is really neat stuff, but will take years” to perfect.
Graph Search, at its present state, certainly isn’t accomplished enough to demolish Google and all other social media. It still lacks the intuitiveness of Google. As a social connector, it suffers from a lack of compartmentalization, wherein people aren’t always comfortable sharing what they really like with absolutely everyone. And in perhaps its biggest barrier to monetization, Graph Search isn’t yet available on mobile devices, which is how Facebook is accessed by over half its users.

But assuming issues with intuitiveness and integration, the possibilities of Graph Search are enticing. It could expand the utility of Facebook, and if Facebook becomes more useful, it can increase the amount of time people are on it, and thus the amount of ad revenue they can generate. Ads are currently not integrated into the feature, but if (and when) Graph Search becomes an indispensible part of the Facebook experience they certainly will be.

If Facebook can work out the bugs, and monetize correctly, Graph Search could be a real improvement to improving the utility of Facebook. And simultaneously a major blow to its biggest rivals.

Facebook’s stock was up 3.12 percent on the news to hit $25.78 a share. It’s still down 4.28 percent on the year, and way down from its May 2012 IPO at $38 dollars a share.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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  +Follow July 10, 2013 8:42AM



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