Facebook’s developing social search framework will be a catalyst for redefining advertising and monetizing mobile, unleashing a torrent of new revenue and value that eventually will make its $100 billion IPO valuation look like child’s play.
Its monetary success will come partly at the expense of Google and Amazon. Google’s search dominance is vulnerable because it is built on link prevalence instead of Facebook’s personal relevance. Amazon’s empire was forged on user preferences and recommendations, but is less effective with the personalised sharing that is Facebook’s sweet spot.
That relevance revolution is where Facebook has its competitors beat, according to seasoned Wall Street analysts, money-managers and tech-savvy executives. The most demonstrative argument has been made by an astute observer calling himself Anonymous, who says he/she runs a digital advertising agency/Internet marketing company that does business with, but does not work for Facebook, its investment bankers or public relations firms.
Anonymous has self-published his assessment as a $4.99 eBook on Amazon titled “The Pitch.” It includes a single-page rationale for why Facebook represents a sea change in online search and mobile advertising that will minimize Google within five years.
For Facebook to triumph, it needs to attract more than 1 million paying advertisers to its evolving premiere advertising platform, which will become mobile-centric. Nearly half of Facebook’s more than 850 million users actively use the social networking site on mobile devices. By mid- 2013, there will be more people on the Internet via their mobile devices than desktops, according to Internet guru Mary Meeker, of Kleiner Perkins Caufield & Byers.
If mobile is the platform of choice, Facebook–like Google–knows it has to be embedded in effective ways.
The essence of Facebook’s competitive edge is personalised information about its users and their friends. Facebook’s emerging form of social search hinged on shared “likes” is more potent than Google’s dominant, but stagnating search based on links.
The likes become the basis of Facebook’s concierge service to connect users to the goods and services they want rather than being barraged by messages from mass marketers of goods and services they don’t. “It’s a concierge service that encourages click and buy.. improves advertiser ROI and willingness to pay premiums for FB ads based on the unprecedented data FB has on people’s interests that no one…not even Google comes close to,” the anonymous author declares.
Just as intriguing is how Facebook will get there. After Facebook’s IPO, Microsoft is expected to swap its costly Bing search engine for shares of the new public social media giant. Although prominent analyst Rick Sherlund of Nomura Equity has embraced the scenario, plenty of sceptics remain.
Being more closely aligning with Facebook would bolster Microsoft’s lower margin search and game/entertainment businesses, energized by Facebook partner Zynga. The $240 million Microsoft invested for a 1.6% stake in Facebook when it was valued at $15 billion valuation in 2007 is now worth as much as $2 billion.
The combination would integrate Bing’s “Google-class algorithm based search engine” with Facebook’s social search engine to produce a search product that will cross the 50% threshold for search market share and eventually claim more than half of the overall search market, the anonymous author predicts.
That alliance could represent a formidable threat even to Google, which has been struggling for years to gain social networking traction with Google + Stream, Google Wave, Buzz and Search Plus Your World. There may be no way for Google to catch up because it does not have the individual data on interactive consumers that Facebook commands.
Just a week ago, Facebook stunned the market with its $1 billion acquisition of Instagram, a mobile photo-sharing service that has grown to 30 million users. It was a bold move to transform a potent competitive threat into an asset. It will use Instagram’s photo-share among users, their friends and family to fortify a powerful mobile platform to rival Apple’s iOS and Google’s Android.
Although Apple, like Amazon, has mined personal relevance data to become powerhouses, they will be dramatically impacted by Facebook’s social search as it reinvents mobile advertising. Here are three reasons why:
*Measurement and Ad Metrics: Facebook’s individual relevance standard is a faster route to measuring the effectiveness of online connections than any of the metrics Google and others are struggling to create.
Google’s new Brand Activate “reimagines” online measurement for brand marketers, who should be more comfortable with online advertising if there are better metrics. The Media Rating Council will review Google’s proposal to count a “viewed” impression as one that is at least 50% viewable on the screen for at least one second. Google’s also proposed Active GRP as a digital calculation of the reach and frequency of a campaign that allows advertisers react in real time. Facebook went down the same path with Nielsen last year.
*Intimate consumer connections: “Likes” are the basis for Facebook’s concierge connection between consumers and the goods and services they want. These likes lead to more targeted advertising, which renders more assure ROI to advertisers and marketers, who are otherwise used to blanketing the masses with messages. Facebook users are engaged in ways they aren’t other places on the Internet –another reason advertisers will pay a premium to mine the connections.
*More willing transactions: Facebook users appear as willing to share their financial data as they do their personal information, which will only facilitate transactions. Vehicles such as Facebook’s new Timeline, Profile interests, Friends interests, offers claims and “likes” are fertile ground for marketers. That gives it a solid foothold in the $15 billion search advertising market.
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