With Facebook set to announce its latest quarterly earnings later this month, the company is trying to rebound from its disappointing May 2012 IPO. Although the company's stock price has climbed to $30, it remains down 21 percent from its public market debut. CEO Mark Zuckerberg is under pressure to prove to investors that it can grow at the rate that its advocates expected. That means finding new ways to add revenue when outside pressures are making that more challenging.
The rivalry between Facebook and Google has been clear for some time. Google has been worried that Facebook could leverage the personal connections and recommendations that its network enables as a substitute for traditional Web search. Yet to date that shift hasn't occurred.
In its announcement today, Facebook described graph search as a different approach to conventional online search:
Graph Search and Web search are very different. Web search is designed to take a set of keywords (for example: "hip hop") and provide the best possible results that match those keywords. With Graph Search you combine phrases (for example: "my friends in New York who like Jay-Z") to get that set of people, places, photos or other content that's been shared on Facebook. We believe they have very different uses.
Another big difference from web search is that every piece of content on Facebook has its own audience, and most content isn't public. We've built Graph Search from the start with privacy in mind, and it respects the privacy and audience of each piece of content on Facebook. It makes finding new things much easier, but you can only see what you could already view elsewhere on Facebook.
Facebook pointed to dating and employee recruiting as two possible areas that might benefit from graph search. But if not an overt challenge to Google's search hegemony, exactly what is graph search? A way for Facebook to capitalize on some trends in how people are using the Internet that in time could prove lucrative for the company.
Facebook's growth in North America has been slowing for some time. A recent third-party study suggests that Facebook has lost 1.4 million active users in the U.S. and may have hit a saturation point. With roughly half of its revenue coming from North American, and especially U.S., users, that represents a serious threat to the company just as it is trying to prove that it's business model is viable. And while the social networker may continue to grow in other parts of the world, particularly Asia, these regions tend to generate far less revenue per user than in the West.
The company needs to address user saturation and keep people on the site longer, which means more opportunities to serve up ads. Facebook is betting that graph search could become a powerful draw to lock in users and possibly provide some new paid services, like executive recruiting searches.