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January 17, 2013

Facebook’s Graph Search Has Healthy Revenue Potential: Analysts

Analysts are weighing in on Facebook’s newly announced search tool: Graph Search.

While the reviews are mainly positive, the consensus seems to be that while it will be a good source of profit for the social media site, it is not a big threat to Google.

Sterne Agee analyst Arvind Bhatia said Graph Search would allow the company to target search advertising, resulting in more revenue and long-term growth potential.

“We believe users will engage strongly with the product, which should result in better monetization overall as users spend more time on the platform,” he wrote in a note.

Graph Search will allow the social network’s one billion-plus users to sort through information shared by their friends to answer simple and sophisticated queries alike.

The tool, which entered beta Jan. 15, will initially be tested on a small group of the network’s English-speaking members.

Graph Search combines user’s phrases to give personalized results.

For instance, using Graph Search, a user can type in queries like: NFL fans who live nearby? Photos of Melbourne, Australia? Friends who live in New York? Good Italian restaurants in Chicago? and get answers based on is or her social circle.

Facebook is presently partnered with Microsoft’s Bing — the search engine incorporates Facebook results into its search results. The partnership means those signed into Bing would see ‘Liked by your Facebook friends’ links in the search engine’s result pages.

Bhatia said the Bing partnership could represent a big an opportunity “from an incremental revenue standpoint, depending on whether Facebook users adopt the Facebook/Bing integration for general Web searches as a replacement for their current preferred search engine of choice.”

“In the long run, we would not be surprised if FB developed its own search engine to crawl the wider Web,” he wrote.

Bank of America Merrill Lynch analyst Justin Post agreed that Graph Search has the potential to be monetized.

“It should be easy to incorporate commercial search results via Facebook’s partnership with Bing,” Post wrote in a note, adding Facebook could garner $500 million a year in additional profits if it receives only one paid click per user per year.

“As of now, we do not see Graph Search as a threat to Google Web search. Looking forward, Facebook Graph searches could be competitive with certain categories of Google searches, such as Places and Maps,” Post said in his note.

J.P. Morgan Securities, however, indicated additional revenue will depend on the social network’s ability to launch mobile Graph Search.

Andy Ellwood of Waze.com, social-navigation app, said Social Graph is a “smart evolution of the data Facebook already has.”

“What this does for Facebook is it creates social relevance,” Ellwood said in a televised interview with CTV. “It’s about the relationship much more than it is about the keywords.”

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