Facebook's big announcement yesterday didn't quite live up to expectations, but it was enough to drive down shares of Yelp and other Internet firms as investors worried that the new "Graph Search" tool would help the Menlo Park, Calif.-based social networking giant steal away users.
Yelp shares fell by more than 8 percent at one point before closing at $20.61, down 6.2 percent, after Facebook CEO Mark Zuckerberg unveiled Graph Search, which is "designed to take a precise query and return you to the answer ... not give you links that lead to the answer." Facebook will use results from Microsoft's Bing search engine for anything the social network can't find.
"Google's not the only company that should be worried," said Todd Van Hoosear, owner of Fresh Ground, a Cambridge social-media consulting firm. "Yelp should be worried too because now you can look for restaurants your friends like on Facebook."
Although Yelp has about 84 million monthly unique visitors, who have written more than 33 million local reviews of businesses, some of those visitors could turn to Facebook instead.
Max Wolff, a senior analyst at Greencrest Capital, called Graph Search an "acquiescence to the power of the Google advertising model." And Google shares bore that out, closing at $724.93, up .23 percent, while Facebook shares closed at $30.10, down 2.74 percent, due to "expectations of something more exciting," Wolff said.
"Wall Street wanted a piece of good news from Facebook," he said. "There was a lot of anticipation but, in the end, no discussion of mobile or of how Facebook's going to monetize this. It's not like an earth-shattering shocker."
Graph Search does give the company the advantage of gathering even more data about its users, which lends itself to advertising, said Wedbush Securities analyst Michael Pachter. And Microsoft, an early investor in Facebook, was the obvious choice to team up with to do that, making the social network "stickier," Pachter said.
"Once you're on it," he said, "you're going to stay on."
And that potential threat extends beyond companies such as Yelp and Google.
David Gerzof Richard, an Emerson College professor of social-media marketing and president of BIGfish Communications, said Graph Search can also be used for dating, allowing users to search for single friends of friends in a given city, a capability that caused shares of IAC/InterActiveCorp, the company that owns Match.com and OkCupid, to drop by 1.73 percent.
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