Facebook Inc (FB)’s Search Ambitions: Microsoft Corporation (MSFT), Yahoo! Inc. (YHOO)

In addition to its own organic search platform, Microsoft Corporation (NASDAQ:MSFT)’s Bing has a search sharing agreement with Yahoo! Inc. (NASDAQ:YHOO) under which Bing powers the search results on Yahoo! Inc. (NASDAQ:YHOO)’s properties. Yahoo gets to keep 88% of the revenues generated. Yahoo’s search revenues have been rather steady in the last few quarters, because Microsoft Corporation (NASDAQ:MSFT) guarantees a large portion of search revenues under a previous agreement. However, this agreement in North American locations will end in March 2013, and might impact Yahoo’s search revenues going forward.

But Microsoft Corporation (NASDAQ:MSFT) has search intelligence data from its own organic platform as well as of Yahoo! Inc. (NASDAQ:YHOO)’s. For Facebook, Microsoft is pretty much the perfect partner for powering outside search results.

Only Facebook Can Pose a Meaningful Threat for Google

Facebook’s installed user base of more than 1.06 billion monthly users, along with heaps of user data makes it a wonderful ecosystem for the build-out of a search engine. Facebook Inc (NASDAQ:FB) also has the infrastructure and engineering capabilities for the launch, and the partnership with Microsoft also aids substantially under which users won’t have to step outside Facebook’s platform.

All the big technology companies including Google, Microsoft Corporation (NASDAQ:MSFT), and Facebook are ramping up their efforts to monetize their mobile presence. On mobile, Facebook Inc (NASDAQ:FB) has an edge with a huge audience of more than 680 million users of which most are daily users. Google’s search presence on mobile is not as strong compared to desktop, as consumers increasingly use apps to access and search for information. Facebook’s Graph Search with social features and business listings will enable the company to place sponsored ads below search results and monetize just like paid-search ads on mobile.

The Takeaway

Facebook Inc (NASDAQ:FB)’s graph search capabilities have the potential to pose a strong material threat for Google. A regular user base of 1 billion and counting, will aid substantially for this structured tool to gain momentum and widespread user acceptance. Facebook’s revenue dependency on display ads alone will go down substantially, as Facebook can earn a lot from search advertising.