Winners and Losers: Facebook's Graph Search

Adam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Facebook (NASDAQ: FB), in a move akin to Apple, announced that they would reveal some cool new product Tuesday morning. Rumors circled about what it could be, but ultimately most expected some form of search engine. Tuesday morning, Zuck and crew delivered what they’re calling “Graph Search.”

It’s not the Google (NASDAQ: GOOG) killer many expected, but it could have dramatic effects on other social networking sites like LinkedIn (NYSE: LNKD) and Yelp (NYSE: YELP).

What the Heck Is Graph Search?

… is not the type of query you would type into Graph Search. Instead you would type things like “photos of friends taken this year” or “friends in Los Angeles” to narrow down your set of friends and look at new pictures.

Of course, some queries might be more commercial, such as “video games my friends like,” which means Facebook could take some of Google’s biggest moneymaking searches if it becomes a popular search engine to discover new products. However, even if Graph Search catches on like that, I imagine most consumers will head right back to Google to find more information about their friends’ favorite video games.

Where Google gives you all of the information of the Internet at your fingertips, Graph Search simply mines the data within Facebook to find social trends and people. The information is limited, and the details are even more so. Knowing that your friend likes a certain product doesn’t give you much information as to what’s so great about it. Google can feed you that information. That’s why I don’t see Graph Search as a huge threat to Google.

The Real Threat

Yelp likely gets hurt the most by a social search feature. Imagine going to Facebook on your phone, typing “restaurants my friends like near me” and finding a list of restaurant recommendations from your friends. Your friends, who you know personally and know what their tastes in food are like. Better yet, you could search for what the professionals like with “restaurants in Chicago liked by chefs.” Yelp doesn’t give you the personal touch of a potential Facebook search, and it’s hard for it to compete with the shear amount of data Facebook has. As a result, Yelp shares plunged 8.5% after Facebook’s big unveiling.

I also believe Graph Search poses a threat to LinkedIn. Recruiters can find Friends of Friends who graduated from college with a degree in finance who are currently unemployed. They can narrow down their search even further to find the right candidates for the job. Currently, most Facebook users have limited employment history and information, but Graph Search certainly encourages them to include more. While LinkedIn has a lot more information on its users, and more powerful tools for recruiters, I can see Facebook building out its features to compete more with LinkedIn. While it doesn’t pose an imminent threat to LinkedIn, it’s important to keep an eye on Facebook’s developments in the recruiting area as it could eventually lead to dwindling revenues for LinkedIn’s recruiting services.

How Does This Affect Facebook?

It’s important not to lose sight of the most important thing here. This was a Facebook event after all, so the biggest question is, does this new product improve Facebook’s business outlook? I believe it will only marginally improve Facebook’s financials. A search engine will likely increase the number of page views for Facebook, and many searches will correlate highly with commercial products creating a good opportunity for ad revenue.

It might also cause businesses to update their “pages” on Facebook, and they may spend more money trying to get users to “like” them through Facebook advertising campaigns. With the power of Graph Search coming from user generated “likes,” it’s easy to see how some companies could spend their way to the top of the rankings. This would undoubtedly make the search results inaccurate, and may cause Facebook to implement certain regulations when it comes to those sorts of techniques foregoing the added revenue in the short run.

The real question is how people will use Graph Search, which is something nobody can truly answer. While Facebook sees it as a way to find new friends and popular products, there’s no telling what people will actually do with it, or if they’ll just ignore it altogether. It’ll be interesting to see what the trends are as the new product rolls out, and we’ll see if this really is the Yelp killer the market expects, if it becomes something even bigger, or if it fizzles into the background. 

adamlevy has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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