Facebook Takes On Yelp, Google & Others

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

After a lot of market chatterFacebook (NASDAQ: FB) just unveiled a Social Search Tool called 'Graph Search.' This tool will allow the users to look up the Internet with Facebook's huge database. As a result, users can look up places, movies, interests their own friends and family like. However, it differs from traditional search engine queries as the Graph Search tool can only look up information that has been shared on Facebook by friends. The Graph Search tool will appear as a big search bar at the top of each page on the social media site. This new social search tool is great for users, but disturbing news for competitors, including the likes of Yelp (NYSE: YELP) and Google (NASDAQ: GOOG).

Takes on new competitors

The socially driven search function of Facebook incorporates four key themes: people, photos, interests and place. All these searches can be conducted on Facebook by relating to friends on the platform, and by looking up based on their friends' timelines. If the search results are not material, the holes will be filled by  Microsoft's (NASDAQ: MSFT) Bing. 

The Graph search tool can be used by people, to find, sort, and filter individuals in their network based on gender, relationship status, location, etc., all of which can be used to build out a dating portal. As a result, Facebook can easily take a stab at IAC/InterActiveCorp's long list of matchmaking sites. IAC operates a number of popular sites, all of which are operated by subscriptions and/or an advertising based model. Facebook can take a material stab at IAC's revenue pie, in particular the Advertising-supported piece. Also, the Graph search function can look up users based on their workplace, position, etc., and thus a recruitment platform like LinkedIn can also be developed.

Yelp surely needs help now

Facebook's search will allow users to filter according to the interests and the places their friends have visited. So, when users look up a restaurant or a movie theater, they would effectively start using the Facebook version as it gives recommendations from friends, as opposed to Yelp's version of providing reviews from complete strangers. Also, Yelp's active user base of ~84 million is a mere fraction of Facebook's 1 billion plus users, and Facebook is already monetizing a large number of small business ads. Yelp's major source of revenue is the local advertising business (~77%), and this will be hit hard due to the entry of Facebook. In addition, Yelp has been suffering from recurring losses in the face of increased competition from Google+ Local and other review sites.   

A search engine down the road

While Facebook's new product is not a full-fledged search engine, it differentiates itself with two key aspects, the use of filters and social context. The part of the graph search that doesn't contain results from friends will be directed to Microsoft's Bing. The Technological Duo of Facebook and Microsoft can likely gain a decent portion of the search market. Even though, Google is substantially ahead of all its rivals. And Google is trying to gain more ground in the local search and advertising market with its offerings in Google+ Local, and now Facebook gets a strong shot at the local ad dollars. And more importantly, Facebook now enters the search market, which is a very big one, and can take the company's revenues to a whole new level. With so much data, users, and a strong partnership with Microsoft, a Facebook based search engine is already being built up.

The impact on top line revenues

Facebook's new social search tool, adds new twists to the traditional search marketplace. The Company will now take on Yelp for consumer reviews on a social context, and add more local advertising dollars to its revenue base, and even more lucrative is the search engine marketplace, so heavily dominated by Google. Facebook intends to add Graph search on mobile, and Zuckerberg even mentioned that he would want to work with Google!! Facebook's revenue dependency on display ads will go down substantially as Facebook brings in a lot of search advertising revenue. Search ads are highly favored amongst all advertisers due to their high accuracy, and have the potential to multiply Facebook's top line revenues

 



ishfaque has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook, Google, and Microsoft. 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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