January 15, 2013 11:59 pm

Facebook move into search hits Yelp

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Advertisers paid close attention to Facebook’s launch of its new search capabilities, even though the social network revealed no new commercial products to accompany the capability to look for people, places, photos, and interests.

Local consumer and lifestyle businesses that rely heavily on customer recommendations and reviews for traffic are likely to be the most impacted by this new function, and see the most potential for advertising.

“This is not web search. This is not find me a recipe for banana cream pie or I need to buy a 24 inch TV screen, where should I go?” said Rebecca Lieb, an analyst with the Altimeter Group. “This is what movie should I see, what restaurant should I eat in?”

While Facebook’s move into search puts it squarely in Google territory, the web businesses that face the more immediate threat from this development are those focused on local business, such as Yelp, the review site, Foursquare, and Google Places.

Yelp’s stock price plummeted 7 per cent on Tuesday immediately after the news, closing at $20.61.

Mark Zuckerberg, chief executive of Facebook, said the company recently began asking users to rate or recommend local businesses when they checked in to them on Facebook, so that users could get ratings and social signals, like which friends had been to or “liked” a restaurant, all in one place.

“By doing this, we’re just enabling a massive number of people to rate restaurants,” he said. “We realised we need five-star ratings besides likes.”

In the long-term, it is unclear exactly how much Facebook could threaten Google’s position in terms of advertising dollars. Google dominates the search advertising world, with nearly 75 per cent of US search ad revenues going to Google last year, according to eMarketer.

Chris Copeland, chief executive of WPP’s GroupM Next, said he saw “very little threat” to Google’s search ad business, as marketers are not likely to shift dollars from budgets for Google search ads to Facebook.

However, Facebook search has the potential to improve the reach of advertising within Facebook and gives advertisers more reason to spend time and money there, he added.

Marketers spent several years buying ads to build up their fan base on Facebook, thinking that the audience would be a valuable channel to pitch products and communicate with consumers.

But in the last six months, marketers started questioning the value of those fan bases as Facebook changed its algorithms and required that marketers pay up so that their messages would reach large audiences. Now, those “like” counts will become important once again, as they influence search results.

“This changes the dynamic,” Mr Copeland said. “Facebook is clearly trying to keep users inside the Facebook environment, so marketers need fans because you never know now when [the fan count] may influence someone’s decision.”

The full money-making potential of Facebook search depends entirely on how much users use it and for what purposes. Mr Zuckerberg said he sees the kind of social search Facebook is developing to be distinct from web searches on Google, mainly because of the privacy considerations.

“We don’t think people are going to come to Facebook to do web search,” he said.

While the new Facebook search will only yield results that have already been shared with the people designated in the users’ privacy settings, Barclays analysts suggested the search format could cause users to cool their Facebook sharing.

“Success of the product is dependent on Facebook users increasingly sharing their interests and “liking” more items on Facebook’s platform, which we believe may be difficult given that users may be more hesitant to share given privacy concerns and the ability of others to more easily crawl their Facebook page,” they said.

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