Facebook CEO's 'search' comments raise hopes, questions

Facebook Inc Chief Executive Mark Zuckerberg has fired a warning shot that threatens to ignite a battle to marry social networking with one of the most valuable areas of the technology industry: search. Long dominated by Google Inc, the Web search market represents a “big opportunity” that Facebook is uniquely positioned to address, Zuckerberg said on Tuesday at a tech industry conference in San Francisco.

Zuckerberg’s comments, the clearest signal that Facebook is eyeing one of the Internet’s most lucrative markets at a time when its own advertising revenue growth rates are slowing, helped shore up the company’s battered shares.

Facebook’s stock, which had lost roughly 50 percent of its value through Tuesday since the company’s May initial public offering, finished Wednesday’s regular trading session up 7.7 percent at $20.93 – the biggest one-day gain since Facebook began trading on Nasdaq.

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The 28-year old CEO’s first major public appearance since Facebook’s IPO provided much-needed reassurance to Wall Street, as Zuckerberg highlighted progress in the company’s mobile business and expressed confidence in Facebook’s future money-making prospects.

But it was Zuckerberg’s talk of search that had Wall Street analysts and technology insiders abuzz on Wednesday, even if they couldn’t agree on what exactly a Facebook search service would look like or how imminent such a service was.

Facebook “might be the only company on earth that I think could truly go up against Google and win on the search side,” said Gerry Campbell, who has been involved with Web search at various companies for more than ten years, including as an advisor to Summize, a search engine for Twitter messages that was acquired by Twitter in 2008.

Facebook doesn’t need to create an index of every site on the Web, as Google does, to be a useful search engine, he said.

The massive amount of data that Facebook has about all the activity on its 955-million-user social network as well on external websites that feature its Like button represent a partial index of the Web that would be satisfying enough for most users, said Campbell, who is now CEO of tech consulting firm Frequency Group.

Faecbook Search

Bill Gross, who developed the search advertising business model that now underpins search businesses such as Google and Microsoft Corp, said much would depend on the scope of Facebook’s ambitions.

“I don’t think people care about ‘social search’ itself, but they do care about getting better search results,” said Gross, the CEO of Idealab.

If Facebook can figure out how to use the information in its social network to provide consumers with better Web search results, the company could steal more market share “than just about anyone else,” he said.

Google had 66.4 percent of the U.S. search market in August according to research firm comScore. Microsoft’s Bing had 15.9 percent share and Yahoo Inc had 12.8 percent share.

Facebook currently offers a search feature that can help users find pages within its social network. And it has a partnership with Microsoft, whose Bing engine provides search results for external websites.

Google has been trying to combine social and search for the past year or so by integrating Google+ into its search engine. and Microsoft integrates certain Facebook results into its Bing search results.

Most of the one billion search queries a day that Facebook currently garners are for Facebook users looking to find other people on the world’s No.1 social network, Zuckerberg said on Tuesday. But he said that a meaningful portion of the queries are also for businesses, brands and apps on Facebook.

Those queries represent an attractive opportunity for Facebook to develop a more full-featured search service, Zuckerberg explained.

“Facebook is really uniquely positioned to answer a lot of the questions that people have,” Zuckerberg said, such as finding a good restaurant or learning more about a job opportunity.

“These are queries that you could potentially do with Facebook if we built out the system that you just couldn’t do anywhere else, and at some point we’ll do it,” Zuckerberg said.

Zuckerberg didn’t provide a specific timeframe for when Facebook would step up its search efforts. And he didn’t address how such an endeavor would fit in with its partnership with Microsoft.

Representatives from Microsoft and Google declined to comment, Facebook did not immediately return a request for comment.

One skeptic of a full-fledged Facebook search engine is Citi analyst Mark Mahaney, who deems it “improbable.”

“Search is an extremely complex, time-intensive, capital intensive endeavor with dramatic learning curve advantages,” Mahaney said.

He said that until now Facebook has consistently indicated that it was not interested in going head-to-head with Google in search, and described Zuckerberg’s comments on search as “odd” and “a little bit opportunistic.”

“From a Wall Street perspective you have to have to have a little bit of a critical read on this and say ‘When your stock’s been trashed you tend to maybe talk about things to get the stock moving,’” said Mahaney.

Still, there are signs that Facebook is putting more effort into search. Last month, the company said it was testing a new advertising format that allows marketers to have their ads appear in the drop-down menu of Facebook’s search box when users type in certain queries.

RBC Capital Markets analyst Andre Sequin believes Facebook’s near-term priorities will be improving its mobile advertising business and its mobile applications.

But he said that search is one of the most valuable ways to monetize activity on the Web," and that Facebook has all the ingredients to create a powerful “suggestion engine.”

“That could be very attractive to both the user and the products,” said Sequin.'

Reuters