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Facebook vs. Google – Second Round

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

The recent announcement of Facebook (NASDAQ: FB) to launch next year its graph search didn't seem impress investors as the company's stock tumbled down on the day of the announcement. Perhaps many were hoping the company will try and tackle its lack of growth in revenues from mobile. In any case, this step is putting Facebook one step closer to Google (NASDAQ: GOOG) as a search engine. This rivalry between these two giants, in which each company is trying to encroach to the other's wheelhouse, doesn’t seem to bring much growth in sales. In the meantime, users benefit from these wars; Investors, not as much.

Google+ vs Facebook

Google is still trying to find its way in the social media business with little success up to now. The number of Google+ users continue to grow but the "community feeling" that there is in Facebook still lacks in Google+. This is plausibly why Google+ users spend only 3 minutes per month while Facebook users spend nearly 400 minutes. Even though many (including myself) compare FB and Google+ head to head, these platforms are used for different purposes. One report suggests Google+ is more used as a complementary device to Google's search engine and not to socialize as in FB.

Google isn't only encroaching into FB's business but is also trying to expand to other already monopolized regions: Google isn't close to knocking off Baidu.com that dominates the Chinese search engine market with nearly 80% market share compared to less than 15% of Google's market share.

Facebook Graph vs. Google

The new Facebook graph search is likely to be used differently than the Google search is currently used. In such a case, the graph search might not compete head on with Google's search engine, but will take one step closer to Google's core business. Even so, I'm not certain this new service will augment FB's revenues. For one thing, I think it's very rare for a company to successfully encourage to an already strongly dominated business. Just ask iPhone 5 users when Apple (NASDAQ: AAPL) included its own map system instead of Google maps in the iOS 6 software. Over 200 million people downloaded this app since September 2012, but it was widely criticized. This lead Apple to resume the service of Google maps on the new iPhone. The examples I have listed above show that even companies with funds and experience won't necessarily succeed in coming up with a service that isn't its core business and is already dominated by another giant.     

The new graph search is likely to keep Facebook users for even more time on its website but will it lead to growth in sales?

Mobile is King

Many investors continue to seek solutions from Facebook for monetizing its website on Mobile. The time spent on Facebook might lead to higher revenues, but this new service doesn't help advance the company's mobile revenues. At an average of nearly 7 hours (a month per user) spent on Facebook, the additional time the average user will spend on site is likely to have diminishing return; so for every extra minute a user will spend on Facebook the return will further decline. If the company will come up with a way to advance revenues for these hours spent on FB via mobile, the potential growth in revenues are likely to rise, which could reflect in the company's stock.

Bottom Line

I think the new graph search puts Facebook closer to Google in the search engine business; this could result in better user experience and perhaps even lead users to spend more time on its website, but this isn't likely to help augment the company's revenues or monetize the time already spent on FB.

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Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.

liorc has no position in any stocks mentioned. The Motley Fool recommends Apple, Baidu, Facebook, and Google. The Motley Fool owns shares of Apple, Baidu, Facebook, and Google. 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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