On Monday, Facebook (NASDAQ:FB) began the official rollout of its Graph Search feature, which many Facebook users have been using in beta version since late winter. The new feature allows a person to put together queries such as "friends who like Radiohead" or "friends who have been to Alaska," and brings up results from information that's been shared by Facebook users.
Mark Zuckerberg has said that Graph Search is different from Web search because it fulfills a different need for Internet users. He has called it the site's third pillar, after Timeline and Newsfeed. In a news release, two Facebook executives who introduced Graph Search on the site wrote: "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."
The new search employs Facebook's vast scale of user data and further illustrates how varied and specific the social network's information database is. Here's the question, though: Is Graph Search actually useful? To be more specific, will it enrich user experience? Will it help advertisers gain more exposure for their products? Will it help Facebook continue its quest to fully capitalize on its wealth of data? The responses to these questions are wide and varied, but essentially all draw attention to the fact that Facebook is still growing into its role as a relationship network, and many of those relationships have the potential to become more and more lucrative for the company and the advertisers who use its social matrix.
Janel Bailey, CEO of Xenos Hospitality in Georgia, thinks the social network's new search feature is less about sales than about building relationships, which can, in turn, influence sales. Xenos has been developing a statewide portal for Georgia to promote small business through local search, and as part of its research, it's looked into how consumers use Facebook.
"Facebook was not born to be a search engine. It is a relationship network. Facebook values its company based on the hypothetical value of its users and uses this 'value' to hook advertisers in an attempt to monetize its business model," Bailey told Minyanville via email. "However, our research proves that consumers who are ready to buy do not use Facebook (or any social network for that matter) to search for products."
Phil Rooke, CEO of the e-commerce platform Spreadshirt, agrees. As he wrote in an article for Econsultancy, "Quite frankly, Facebook has been underwhelming for sales generation."
However, according to both Bailey and Rooke, what Facebook is useful for is allowing companies to build and reinforce brand messages in relation to their customers. As Rooke says, "The relationship in Facebook is not about boosting sales figures, but building a fan base."
Whereas users can play with Graph Search out of curiosity or to find friends with similar interests, advertisers can use it and similar apps, like Facebooks' Mobile App Install Ads tool, to target specific demographics for their products.
Andrew Schrage of Money Crashers explains to Minyanville, "Better targeting does mean better sales, and with the vast amount of data available on Facebook, there is definitely the opportunity to capitalize -- and Facebook seems to be doing so."
Schrage also cites recent research demonstrating that "Sponsored Story" mobile ads are clicked on 13 times more than even traditional advertisements designed for desktop viewing, earning 11 times more money.
There's also new scientific research that suggests a psychological link between Facebook use and spending more money online. Andrew Stephen of the University of Pittsburgh and Keith Wilcox of Columbia University have been observing through experiments and surveys how Facebook affects the consumption behavior of users. They've found that social media can have measurable affects on judgment and decision-making.
As Wilcox told NBC News last November, "Simply browsing Facebook makes people feel better about themselves and momentarily enhances their self-esteem. It's that enhanced self-esteem that ultimately lowers your self-control." It goes like this: "I am in a good mood, people like me, I like people, I deserve a treat." Or maybe treats.
In the same interview, Stephen said, "People who use Facebook more tend to have a higher body-mass index, increased binge eating, carry more credit card debt, and have lower credit scores." Of course this should be taken with a grain of salt, as it came from a survey of 541 American Facebook users.
One of the experiments Wilcox and Stephen employed had people either browse the Internet or use Facebook for five minutes. Then all subjects took part in an online auction for an Apple (NASDAQ:AAPL) iPad. People who had spent more time on Facebook, and notably, had a higher percentage of close friends on the social network, entered higher bids than the people who only browsed the Internet. Makes you wonder how someone would bid if he or she hadn't been using a computer at all.
Though Stephen and Wilcox only included Facebook in their research, the same consumption-heightening effects are presumably at work on other similar social networks like LinkedIn (NYSE:LNKD), Google+ (NASDAQ:GOOG), and Twitter as well.
As Stephen explained, "It's the strong connection that really triggers this boost in self-esteem which has this commensurate reduction in self-control." Facebook's entire business relies upon strong connections between friends who share information, between friends and musicians, movies, places, organizations, and products. Hence, the relationship network.
Graph Search is simply the newest tool that's both enhancing and harnessing the millions upon millions of relationships that make up Facebook. Its social impact is not yet clear, but as far as making money goes, Graph Search appears to be worth its salt -- and then some.
This article by Josh Wolonick was published on Minyanville.
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Disclaimer: The views represented on this blog are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.