Facebook’s ‘Graph Search’ No Google Killer
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The Fiscal Times
January 16, 2013

Google threw down the gauntlet by launching Google Plus in an effort to shake up Facebook’s dominance of the social networking arena. Now Facebook is responding in kind – and, incidentally, making its boldest effort yet to ramp up its growth rate and reinvigorate interest – by launching its own kind of search business.

Facebook’s timing couldn’t have been better. The company badly needed some good news to take the sting out of a report from SocialBakers, a company that keeps track of what’s afoot in the world of social media, that 1.4 million fewer Americans used their Facebook accounts in December. Facebook still boasts about 167 million users in the United States – and a billion people globally have Facebook accounts – but the news is a reminder that the kind of explosive growth early in the life cycle of a new idea is probably over.

There just aren’t that many Americans interested in having a Facebook account that haven’t created one yet; the number of people turning 13 each year (the minimum age for someone – legally – to have their own Facebook account) probably isn’t large enough to move the dial, and most of us probably don’t really want to spend more time interacting in cyberspace than we already do (unless someone figures out a way to increase the number of hours in the day.)

There are lots of possible reasons for that decline, and none of them are terribly threatening. December is the holiday season, a busy time of year. Facebook tried out a number of new ideas, like levying new fees to connect with friends of friends of friends. (Pay $100 to send a personal message to Mark Zuckerberg, Facebook’s founder and CEO? Well, I suppose that’s one way for a CEO to limit the amount of incoming mail.…) And there is the perennial question surrounding privacy settings on Facebook.  Regardless, analysts aren’t backing away from their forecast that the company’s revenues will grow about 30 percent this year.

But even if this downturn proves to be a blip, or isn’t indicative of a growing aversion to Facebook or social networking, it’s a reminder that for Facebook to sustain its current valuation and continue to grow, it needs to keep moving and keep innovating. Simply perfecting the mobile version of Facebook isn’t enough: That is just a case of needing to respond to changes in the market brought about by new mobile computing technologies. Instagram may be cool, but it’s just a neat app, and it has had its own off-putting stumbles. What Facebook needs is something that will convince people to spend vast amounts of additional time on the site, to make it buzzworthy again, to transform it once more into a destination that you feel eager to get back to rather than one that you have a duty to check in on so you’re up to speed with what your friends are doing.

Oh yes, Facebook would also very much like it if whatever new product or strategy it embarks on proves able to pull in more revenue and generate faster revenue growth. The big conundrum for Internet advertisers in general, and those who have established a presence on Facebook in particular, remains how find a way of targeting their ads in a way that doesn’t feel intrusive and is truly relevant. Just because a few weeks ago I browsed a particular shoe designer’s website or because I purchased tickets to a New York Philharmonic concert doesn’t mean that every time I log back into Facebook I want to see the same ads for classical music or shoes.

Will “Graph Search” fit the bill? Will it restore some of the cachet that Facebook has inevitably lost recently as edgier online communication tools like Snapchat arrived on the scene?

The idea behind Facebook’s search is to combine the collective knowledge, wisdom, recommendations, insight and connections of the billion Facebook users into a searchable database. Say that you’re heading to London and know that the city is renowned for its Indian food. Graph Search will – when it emerges from beta testing – enable you to crowdsource recommendations by asking for your friends with roots in the subcontinent living not only in London but also in Paris, London and Milan to suggest their favorite eateries, from Brick Lane to Piccadilly. You’ll be able to see what jazz clubs your friends who live in Chicago favor, and compare that with the list of jazz clubs that your friends who visit the Windy City favor. Looking for someone who graduated from an Ivy League college and then went on to do graduate studies in China? Graph Search can help you connect to just the right person. And much more.

It’s certainly a grab for market share that may work by keeping more users on Facebook longer, rather than allow them to drift off to Google, Yelp or other sites. And, as Brian Wieser, an analyst at Pivotal Research Group, commented in a note to investors late yesterday, it’s a positive simply because it shows that Facebook is committed to innovation, not just refining its current platform. But will it achieve what is the most important objective to investors: a fresh source of revenues?

That is far from certain, Wieser and others caution. “We are not assuming the initiative will lead to meaningful revenue growth in the near future,” Wieser wrote. Will Facebook be able to capture a significant number of search queries, breaking the long-established habits that turned the noun “Google” into a verb, as in “let me just Google that.” Moreover, Wieser notes, there’s a risk that the advertising revenues may not be incremental but “cannibalistic,” as advertisers simply shift from other Facebook ads to Graph Search.

In other words, it may be prudent to wait for evidence that the business model is working – and that Facebook is dealing with privacy issues in a way that users, and not just the company itself, consider to be adequate. Over the last year, Facebook investors have been reminded that, while it’s never a good idea to assume that the company has completely fallen from grace, it’s also smart to be skeptical about how quickly it can transform a cool new idea into a business proposition.

Clearly, Zuckerberg has come a long way from the guy who shrugged off advertising or even the need to make a big profit on his brainchild. Graph Search could be a solid, if incremental step, toward growing revenue in the future. It could certainly do better in search than Google Plus has done in social networking. But Google isn’t going anywhere, and the battle between the two companies still has many chapters to be written.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.