With Instagram opening up ads to everyone, and Messenger and WhatsApp both on paths to reach 1 billion monthly active users, it's easy to forget about the potential Facebook (NASDAQ:FB) has with its own search engine. Facebook's flagship product has more than 1 billion daily active users conducting more than 1.5 billion searches each day through its search bar. That's around half of the latest figure from Google -- the Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) company.
Those searches have thus far been for friends and Pages people know are already on Facebook. Last quarter, the company said it had indexed all of its trillions of posts, and users can now search through everything, surfacing things like news stories. Even more recently, the company launched local services, another use case for Facebook search that seems to be aimed at Yelp (NYSE:YELP).
A Yelp killer
To give you an idea of how Facebook could overtake Yelp, consider these facts: Facebook has more than 50 million small and medium-sized businesses on its platform actively maintaining Pages. The company added 10 million new SMBs since April. Yelp has just 2.5 million claimed local businesses, adding just 600,000 over the last year.
While Yelp maintains a database of unclaimed businesses and reviews, having a presence on the site makes a difference because it allows businesses to respond to reviews and clarify issues customers may have had in the past.
Likewise, Facebook reaches a wider audience, accessed by more than 75% of smartphone users in the United States. Yelp reaches less than 30%. Combining Yelp's monthly app users, mobile website visitors, and desktop visitors totals just 188 million, and there's likely a fair amount of overlap. Facebook has 1.55 billion monthly users around the world, 217 million in the U.S. and Canada alone.
The one area where Yelp excels is reviews. It has 90 million of them on its platform. Facebook only introduced ratings and reviews two years ago, and hasn't said how many ratings it's subsequently collected. Still, even a few million will allow Facebook to produce search results competitive with Yelp.
The big opportunity with search
Focusing on local services provides a clear path to monetization of search results. Users are accustomed to seeing sponsored results at the top of searches from Google and Yelp, and Facebook will likely take the opportunity to do the same. But Facebook has the added benefit of owning the News Feed, which allows businesses to retarget users in another area of the site. If a user searches for "iPhone repair" in services, local (and national) businesses can target those users in the News Feed.
Yelp is expected to generate over $500 million this year from advertising. That's not much for Facebook, but it's on par with early estimates for Instagram's ad revenue. This one search feature, in other words, has the potential to contribute to Facebook as much as Instagram's early advertising opportunities.
As Facebook expands the use cases with search, it could find itself competing with Google for things like product searches. It's already testing a dedicated shopping section filled with items that Pages have listed for sale. Products is another easily monetized vertical, with huge potential for ad sales. Retailers are one of the largest industries contributing to Google's ad revenue, only surpassed by the insurance and financial services industry.
The social aspect of Facebook makes searching its platform less of a solitary experience. You can see what friends thought about a local restaurant before you go, or if your friends like a certain item before you buy it. This is an advantage no one can compete with, because only Facebook has the requisite ubiquity.
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Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.