With Graph Search, Can Facebook Kill LinkedIn, Yelp–Even Google?

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Facebook CEO Mark Zuckerberg introduces Graph Search (Photo: Robert Hof)

From my Forbes.com blog The New Persuaders:

Facebook took pains today to tell the world that its new social search serviceGraph Search, is only a very limited tool that it will roll out very slowly over a period of months and years.

But CEO Mark Zuckerberg and his search staff couldn’t help but reveal their enthusiasm for the vast possibilities. For all their professed modesty, what struck me at the company’s press event introducing the service was how specific and broad-ranging Zuckerberg and his Graph Search leaders were about what it could provide: just about everything, potentially, that every company from LinkedIn to Yelp to Foursquare to Match.com to … yes, even Google provides today.

That’s an exaggeration, of course, that even Facebook folks surely didn’t intend. All of those companies have distinct, well-developed services with extensive user bases that are unlikely to shrivel up no matter how good Graph Search turns out to be. In most cases, they will probably retain a durable advantage for years to come. And as Zuckerberg said, it’s very, very early for Facebook search, and search is a devilishly complex discipline to do well.

Still, to hear it from Facebook itself, Graph Search will offers ways to provide similar services, sometimes in potentially easier and more effective ways:

* Recruiting: One of the first examples Facebook provided today was that Graph Search could help in finding qualified candidates for jobs. For instance, Lars Rasmussen, the Facebook director of engineering who heads the Graph Search team, mentioned that he could find people from NASA Ames Research Center who are friends of Facebook employees.

As investors, who bid up LinkedIn’s share a fraction today, no doubt recognize, that company has a pretty good if not exclusive hold on recruiters. And given that finding friends who worked somewhere is a rather specific subset of qualified candidates for a position, there’s not much chance recruiters will abandon LinkedIn for Facebook anytime soon. But Facebook, already used in various ways by recruiters, could siphon off activities that might otherwise have gone to LinkedIn. … Read more at The New Persuaders. But to conclude …

So, to answer the question in the headline: No, Facebook won’t kill any of these companies, certainly not anytime soon. They’re too strong, Facebook has too much still to build and then to prove, and rarely does a company kill another healthy company no matter how good its products are.

Investors may be thinking as much, as they sold Facebook shares to the tune of a 2.7% drop in price today. But if anyone doubted Facebook’s ability to keep disrupting the status quo, they surely shouldn’t doubt it anymore. Even with its baby steps into the search business, Facebook has again set new terms of engagement in the battle for the soul, or at least the cash register, of the Internet.

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LIVE: Facebook Unveils Graph Search–Its Long-Awaited Internal Search Engine

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Facebook CEO Mark Zuckerberg at the introduction of Graph Search (Photo: Robert Hof)

Ever since Facebook invited piles of press people to an event this morning to “come see what we are building,” speculation about what it will reveal has reached a fever pitch.

Update: It’s all about search! See below for details. But for what it’s worth, investors are not impressed. Facebook shares are down 2% in midday trading. No doubt that’s a short-sighted view–this socially infused search service is a big deal, if only to show how Facebook will keep engaging people more and more deeply, not to mention provide a foundation for the kind of search ads that made Google king of the Web–but that’s the market for you.

There must be a couple hundred press here, plus a crowd of Facebook employees standing in the back of the room–a sure indication that Facebook considers this a big deal.

And now we are underway, with CEO Mark Zuckerberg introducing us once again to Facebook’s mission and the social graph. First he goes into Facebook’s early history, before the news feed that now dominates the service.

Now he’s introducing the third pillar of Facebook’s service beyond the news feed and Timeline. What’s most interesting is graph search.

So what is graph search? It’s not Web search. We’re not indexing the Web. We’re indexing our map of the graph. There are more than a trillion connections in this graph, with billions more added every day–likes, comments, photos, etc. Indexing this is a really hard problem and we’ve been working on it a long time.

Graph Search is privacy-aware, he says. Every piece of content has its own audience, and most is not public. You can only search for content that has been shared with you–a very tough problem to solve.

Let’s say you do a Web search for hip hop. You get links. Graph Search is different–it’s intended to provide answers: Which of my friends are in San Francisco?

One of the big design problems we had to solve was how to make this natural. We’ve come up with an interface we think works. The answer is filters–not! That’s a joke–he shows a screen full of filters that look ridiculous, of course, because they can’t scale up.

He shows a video of queries that show how they come up with answers as you type in words.

For this first beta version, he says, Facebook focused on four use cases: people, photos, interests, and places. There’s a lot more, but these are especially useful. …

Read about the rest of the event at The New Persuaders.

Google CEO Larry Page Speaks! Big Reveal: $8 Billion In Mobile Revenues

From my Forbes.com blog The New Persuaders:

Investors have had a chance to digest Google’s third-quarter earnings longer than they expected, but they still have indigestion over the disappointing results. Can CEO Larry Page (yes, he will speak!) and his executives provide a Maalox moment on their earnings analyst call?

We’ll find out shortly, starting at 1:30 p.m. Pacific. You can watch it here as well. Keep refreshing for updates through about 2:30 p.m.

Update: It looks like Motorola was the chief culprit. Yes, less lucrative mobile ads seem to be a factor, but not one Google seems overly concerned about–it’s at least the third time I’ve heard executives say that mobile eventually could be better than desktop ads. Indeed, I was struck by the mention that one reason for the rise in costs that led to lower profits was sales of the probably near-zero-margin Nexus 7 tablet–which was striking for a single, non-advertising product. For better or worse, Google’s betting big on mobile, from ads to devices, and expects whatever shakes out to be positive. Investors clearly aren’t so sure.

And we’re underway. Page still has a strange froggy voice–seriously, really strange like he inhaled too much helium, so I can understand why he hasn’t spoken much in public. Anyway, he’s keeping his remarks short. You can read the prepared remarks on Google+. We had a strong quarter, he says, and I’m really happy with our business. Revenue was up 45% from a year ago.

Today, we leave in a world of abundance–abundant information and abundant computing. Many of us feel naked without our smartphone. Google is super-well-placed to take advantage of these opportunities. We’re seeing tremendous innovation in mobile advertising. Eventually, he adds, it will work even better than desktop ads.

We took a big bet on Android back in 2005. Most people thought we were nuts. Today, there are over half a billion Android devices, with 1.3 million more being activated every day. He suggests everyone go out and buy a Nexus 7 tablet.

Our run rate a year ago for mobile advertising was $2.5 billion. Along with apps and Google Play, it’s now over $8 billion. That’s quite a business, he says mildly–though based on the new way it’s calculated (see below), it may not be as amazing as it seems.

We had spread ourselves too thin. We sunsetted 17 more products last month. It’s more important than ever we converge our services.

We want to make advertising super-simple for our customers. Today, separate campaigns for desktop and mobile makes it more difficult and mobile opportunities often get missed. Advertisers should be free to think about their audience while we do the hard work optimizing across channels.

That’s the gist of his first widely public remarks (he spoke the other day at Google’s Zeitgeist event to the media elite).

Now CFO Patrick Pichette goes into some detail….

Read the complete post at The New Persuaders.

Advertising Experts: Ignore Google’s Earnings, It’s Doing Just Fine

From my Forbes.com blog The New Persuaders:

After reporting disappointing third-quarter earnings, and giving investors a few extra hours to sell their shares to boot, Google saw its shares hammered before trading was halted. But while Motorola Mobility, which Google acquired for $12.5 billion in May, clearly is a big drag on the company, ad folks say its core business is just fine.

Bryan Wiener, CEO of the digital marketing agency 360i, a specialist in search advertising in particular, says Google’s core business still appears healthy. The only hitch, he says, is that mobile ad prices per click are still 30% to 50% lower than desktop clicks, but he says that gap is narrowing as mobile cost-per-click continues to rise.

The main issue is not so much that advertisers view mobile ads as less effective. There are actually two other issues.

First, there’s still less competition for mobile ad space. And since Google ads are sold by auction, less competition means lower prices.

Why is competition less? That brings up the second issue: It’s not yet clear precisely what impact mobile ads have. They don’t work exactly the same as desktop ads, where people customarily conduct a search, click on an ad, and then a certain percentage buy the product. That’s easy to track.

On their mobile phones, however, people are more often searching for a store, rather than looking to complete a transaction online. They may well end up buying in that store–some companies are starting to provide ways to track that connection, and marketers anecdotally know it’s happening–but separate databases for online and store activity still means it’s tough to close the measurement loop.

Wiener thinks that will get solved eventually. Even in the short term, mobile search ads that are still Google’s bread and butter are better positioned to show their value than mobile display ads, which may appear in hard-to-track apps and still aren’t standardized enough for marketers to spend big bucks to reach broad scale. That means Google for now is likely to fare better in consumers’ rush to mobile than, say, Facebook and Yahoo. “Everybody is still bullish on mobile search,” says Wiener. “But it’s still very early in the game.”

Looking ahead to the fourth quarter and beyond, says Wiener, “our clients are cautiously optimistic” about search ads in particular despite the uncertainty of the economy and the election. …

Read the complete post at The New Persuaders.

3 Reasons Google Missed Q3 Earnings Estimates

From my Forbes.com blog The New Persuaders:

Google’s shares plunged this morning by 9% after the search giant’s third-quarter earnings came in considerably lower than expected. The results were accidentally released hours earlier than expected, leading to a halt in the shares’ trading for a time.

Google earned a $9.03 per share profit before certain expenses, far below the $10.63 Wall Street consensus estimate, and down 20% from a year ago. GAAP profit was $6.53. Net revenues after paying partners for traffic were $11.53 billion, up 19% from a year ago. That also missed the Street’s estimate of $11.9 billion. Paid clicks, a key indicator, rose 33% from a year ago, and cost per click, another key measure but one whose meaning is murky, fell 15%.

So what happened? Here’s a quick assessment, which will be supplemented in a new post following the 1:30 p.m. Pacific earnings call:

* Costs jumped. They were up 71%, to $11.4 billion. It appears much of that increase came from Motorola Mobility, which Google acquired for $12.5 billion in May. After all, the acquisition added more than 20,000 employees. As Citi analyst Mark Mahaney said in a note to investors: “Bottom line divergence partly due to Amortization expenses, which came in at $317MM vs. our $197MM estimate. That contributed perhaps $0.40 of the EPS shortfall.” Update after the earnings call: But not just that. CFO Patrick Pichette specifically mentioned costs of selling the likely near-zero-margin Nexus 7 tablet Google released during the quarter–a single product line, so the company’s is clearly pushing it hard.

* Motorola losses were huge. The unit posted a $527 million loss on a GAAP operating basis. Mahaney again:  “Another major delta was Motorola, which generated $151MM Op Loss vs. our $28MM estimate.”

* Ad revenue didn’t set records. It was up 16% from a year ago. Although lower cost per click isn’t always an indicator of a problem, in this case, the fourth consecutive decline has investors wondering anew if it’s due to the lower prices mobile ads get or even competition from the likes of Facebook. …

Read the complete post at The New Persuaders.

Mobile Ad Spending Doubles in 2012′s First Half

From my Forbes.com blog The New Persuaders:

Mobile ads drove a 14% rise in online advertising revenues, to $17 billion, in the first half of 2012, according to a report out this morning from the Interactive Advertising Bureau and PricewaterhouseCoopers.

According to the IAB’s latest half-year report (full pdf here), mobile ad revenue jumped 95%, to $1.2 billion, or or 7% of total online ad revenues. That’s up from 4% a year ago. The reason is fairly obvious, and something every company from Facebook to Google is struggling with: People are increasingly accessing online service through smartphones and tablets, thanks to the popularity of the iPhone, the iPad, and Android devices, and advertisers are following them there.

The 14% rise pales next to a 23% rise a year ago, though the IAB attributes last year’s jump to a recovery from the recession. Online ad spending continues to far outpace overall advertising spending, which rose less than 1%, according to both Nielsen and Kantar Media. Television remains the one relatively bright spot in traditional media, though its growth also remains far behind digital. Cable saw a 4% increase, to $10.9 billion, and broadcast rose 3.3%, to $11.1 billion.

Performance-based ads, those seeking to elicit an immediate purchase or other action, remain dominant, and even gained ground over more brand-oriented ads. Chief among these ads are search ads, which despite their 48% share of overall online ad revenues continued to gain as a category in the first half, rising 19% to reach $8.1 billion. That means search giant Google, which reports its third-quarter earnings a week from today, still reigns supreme in online ads.

Display ads rose only 4%, to $5.6 billion, reducing its share of overall online ads from 36% to 33%. Although the IAB didn’t mention it, no doubt part of the relatively slow growth is due to the rise of more efficient (that is, lower-priced) banner ads placed via real-time bidding through ad exchanges.

“Brand dollars are moving online, but at a slightly slower pace than the last two half-year reports,” Sherrill Mane, the IAB’s senior VP research analytics and measurement, said in a conference call this morning. That’s a problem, indeed perhaps evidence of a problem, for companies such as Facebook that are depending on brand marketers moving television and magazine ads online. …

Read the complete post at The New Persuaders.

Yahoo Pitches New Ad Network To Battle Google’s AdSense

From my Forbes.com blog The New Persuaders:

Search ad giant Google grossed about $10 billion last year from AdSense, the program that syndicates text and display ads to thousands of websites from the New York Times to the tiniest niche publishers. So it’s no wonder that more than two years after shutting down its own AdSense competitor, a struggling Yahoo is taking another crack at it.

Today, it’s announcing a partnership with Media.net, an under-the-radar provider of contextual advertising like AdSense’s that runs ads on websites matched to the site audience’s interests. The program, called Yahoo! Bing Network Contextual Ads, will allow websites to run text ads (like those pictured on the top right) from the Yahoo! Bing Network, the recently renamed search alliance between Yahoo and Microsoft.

The awkwardly named program has the potential to be a badly needed boost in revenues for Yahoo, which have been stagnant for a long time. Despite Yahoo’s weakened state, it still has a valuable brand, worldwide audience of a half a billion, and search ad deal with Microsoft. Those factors will lend the venture instant credibility in an online ad industry that’s an increasingly crowded, competitive morass of ad networks (perhaps including a likely new one from Facebook), ad exchanges, an alphabet soup of ad tech providers, and, of course, Google’s AdSense.

Talks have been underway between Yahoo and Media.net since 2010, even before the Yahoo Publishing Network was shut down, according to Divyank Turakhia, founder and CEO of Media.net. And Turakhia’s other related ad companies had worked with Yahoo for a couple of years before that. So don’t get the idea that this is a big new idea from Marissa Mayer, Yahoo’s relatively new CEO. …

Read the rest of the post at The New Persuaders.

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