Technology: Facebook’s Untapped Potential Fast Reaching its Zenith

Facebook (FB) is scheduled to announce its 4th quarter and fiscal 2012 results on January 30, and analysts are optimistic that the social-networking behemoth will beat expectations. Based on these assumptions and certain other factors, FB’s stock rose past the $30 mark for the first time in six months on Wednesday, January 16 – the stock was priced at $38 per share at its initial public offering (IPO) and had gone as low as $17.55 on September 4, 2012.

This optimism is partly driven by FB’s latest tool called “Graph Search.” I say “partly” because this search application has met with decidedly mixed reviews. To begin with, “Graph Search” isn’t really a search engine as is commonly understood because it doesn’t search the internet but only mines information on FB. In addition, it only filters information from the searcher’s FB network. It can, however, be of great value to marketers because it allows users to enter long search queries and this can help marketers customize their entire suite of products to specific target audiences.  Furthermore, if FB does expand this tool to the wider internet – as I hope they do – it will solve the primary complaint of many searchers.

As it stands now though, “Graph Search” is an excellent alternative to Yelp but no threat to Google’s search engine. It also gives users more privacy headaches since they will have to make sure to specify what they share with different groups. In addition, it raises further issues regarding FB “selling” its user data to generate revenue; the company has already responded to these potential concerns by stating that only information that has been shared will be accessible through this tool. This will obviously limit the success of this search engine. Finally, while businesses may appreciate the customized user information, they may question the trustworthiness of the “likes” that drive that customization.

The fact is that in the battle between Google+ and FB, the former is an also-ran and the latter has won the war. FB, therefore, shouldn’t be concerned with Google social network. On the other hand, the search giant shouldn’t be worried about “Graph Search” either. The only manner in which this application challenges Google is through FB’s massive user base.

Regardless, I remain confident that FB has significant untapped potential. This confidence comes from FB’s other resources such as the mobile newsfeed; the FB Exchange, which can be used by marketers to focus on targeted audiences; FB Gifts; sponsored ads and its free voice calling feature, which, incidentally, was announced along with “Graph Search” and may have more revenue potential.

The success of all these tools depends on two things. The first is the user base’s openness to sharing their information and the second is the active participation of this base. The recent report by Capstone Investments noting a 1.7 percent decline in FB’s domestic user over the last six months – mirrored by those in Hong Kong (1.7 percent) and Singapore (1.1 percent) – has to be disconcerting. Regardless, FB’s dominance is overwhelming and its user base continues to rise in India (20.3 percent), Brazil (45.6 percent) and Japan (60.3 percent).

The bottom line is that FB has loads of untapped potential but this potential is based on a rocky base whose actions are notoriously difficult to predict. This means that, in the immediate term, FB will generate significant revenue for its investors but, as it hurtles towards its apex and tries to control development costs, the long-term potential may not be as rosy.