Last week, Facebook (NASDAQ:FB) acquired TheFind, a personalized commerce search app. Facebook immediately shut down the small company, and seems to have plans to use its assets -- including some of the staff -- to help bolster its new Product Ad units, which help businesses advertise across all devices and tailor the featured products to the viewer's activity and interests
Facebook's clear intent to move heavily into the online retail advertising space should scare Google (NASDAQ:GOOG) (NASDAQ:GOOGL), which has a strong position with retailers with both its search engine and its Shopping platform. Product-based search ads offer some of the highest returns for Google considering there's clear purchase intent from a searcher looking for a specific product. With Facebook entering the market more strongly with the help of TheFind's technology, it poses a direct threat to Google's share of the market.
What can TheFind help Facebook with?
TheFind isn't just an e-commerce search tool; it uses personal information to sort its results. In the company's About page, it says, "TheFind personalizes results based on your taste and style, as determined by your social profile and shopping behavior." That kind of targeting ability will be extremely valuable in the hands of Facebook and its social profile data.
Additionally, TheFind offers Facebook its relationships with retailers and their inventory feeds, so Facebook knows when an item is in stock at a local retailer. This ensures ad dollars aren't wasted, especially for smaller retailers.
TheFind also has several patents describing a method to crawl retailers' websites for pricing, inventory, and other data that help improve its search results. In the hands of Facebook, this could improve its ability to retarget ads to users who visited a retailer's website, and ensure accurate product information.
TheFind's focus on local retailers, as well as online stores, means that Facebook has an opportunity to turn those local retailers into bigger web advertisers. Facebook's user base is becoming increasingly mobile, so it can use location-based information on top of its additional targeting information as a selling point to use Facebook ads over Google.
Continuing to increase its ad pricing
The end result of all the potential improvements TheFind can offer should be an increase in the average price per ad at Facebook. As mentioned previously, product-based search ads are some of the most valuable for Google because the searcher has clear purchase intent.
Retargeted product ads are also valuable due to a shopper's clearly expressed interest in a product. TheFind makes Facebook's ads more accurate and better targeted, which increases their value to advertisers. As a result, Product Ads will carry a significant premium over Facebook's average ad unit.
For now, TheFind's data is limited to the United States; but with Facebook's scale, it could easily extend its web-crawling and targeting algorithms to the rest of the world. That means it would eventually provide a lift to revenue per user globally, not just the United States. That's particularly noteworthy as marketing dollars have become increasingly concentrated in the company's home continent despite stronger user growth abroad.
Should Google worry?
With TheFind's assets in tow, Facebook now represents an even bigger threat to one of Google's most valuable ad units -- Shopping Ads. Last quarter, Shopping Ads accounted for one in five clicks for search-based retail advertisements. By the end of the year, Shopping ads are expected to account for 30% of Google's search clicks. As a percentage of revenue, those numbers likely will be higher due to the additional information -- pictures, price, etc. -- provided in those Shopping Ad units.
Facebook is one of the few companies that can rival Google for eyeballs, and TheFind was one of the few companies that could rival it for its ability to crawl retailers' websites. Combined, they pose a formidable threat to reduce Google's share of retailers' online advertising dollars.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). 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.