Technology pundits speculated wildly on what big innovation would be unveiled at Facebook Inc.’s special media event Tuesday, with rumours running the gamut from a smartphone to an operating system.
The reality turned out to be far less exciting.
Facebook has invented a new kind of search. Unlike web search, a market dominated by Google Inc., Facebook has implemented something called Graph Search.
Don’t get fooled by the word “graph.” It has nothing to do with what you learned in math class.
Graph Search allows you to sort a huge pile of social data in ways never before possible. By tapping into friends’ Facebook pages, you can get answers to questions such as, “Which of my friends live in San Francisco?”, “What restaurants do my friends like?” or “What movies do computer programmers like?”
All of this is indubitably cool. But it doesn’t convince me I should own Facebook stock.
For one thing, it’s not clear yet how Facebook can turn this technology into money. The company is in no rush to do so. Facebook founder Mark Zuckerberg told attendees that Graph Search is still in its testing stage and that the company needs to learn more about what people want from it before the social media giant will attempt to cash in on the new technology.
When I think about my own search habits, it’s tough to see Graph Search as a Google killer. I go to Google many times each and every day to find answers to all sorts of questions. In contrast, if Facebook’s Graph Search had been available to me over the last week, I can’t think of a single situation where it would have helped me.
The most obvious use for this technology is on Facebook’s back end, where the company sells advertising. It already has ways to present ads to certain demographics, but Graph Search technology takes things to a whole new level, allowing the company to serve up specific ads to the people most likely to be interested in them. The better you can target prospects with ads, the more you can charge for them. More revenue means more profit. That much I understand.
But can Facebook eventually monetize this technology in such a way that casual users searching through available Facebook data will generate more money for the social media giant? I don’t know.
The stock market doesn’t know either, judging from the small post-announcement moves in the stocks of Facebook and competitors Google and LinkedIn Corp.
No doubt, Graph Search is potentially disruptive. But you’ll have plenty of time to evaluate its value to Facebook over the next year or so. It won’t make one bit of difference to the company’s near term earnings, so it probably won’t matter to the stock price either.
In the long run? It could matter a lot. We’ll just have to wait and see. I certainly wouldn’t recommend ignoring the technology just because Wall Street thought Tuesday’s event was a snooze fest.
For now, though, it’s easier to predict the negative short-term effects of Graph Search than any positive long-term impact.
Most of the Facebook data that will be available to you on Graph Search will come from your friends’ pages and other pages of which you are a fan. This data tends to be more local than global. So Graph Search poses an obvious threat to Yelp Inc., the company which has its motto, “The best way to find great local businesses.” Yelp’s stock tumbled more than 6 per cent in the wake of the Facebook announcement.
The upside for Facebook is a lot less clear. It continues to be an interesting company run by amazingly smart people. But I still believe Google (and Apple) are better investments for now. As I learn more about Facebook’s strategies and products, I may change my mind. But not today, and not because of Graph Search.
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