One thing we know about Facebook (META -2.77%) CEO Mark Zuckerberg is that he's always willing to explore new, and better, ways to enhance the user experience and boost revenue. The long testing process of incorporating videos into Facebook's suite of ad solutions, dipping its toes into the burgeoning world of virtual reality (VR) via its $2 billion acquisition of Oculus, and waiting for just the right time to fully monetize Instagram are a few, recent examples.
As I noted in a recent article, Facebook's strength among the small to medium-sized business (SMB) community is what drives its sales engine. The vast majority of Facebook's 2.5 million paying marketing partners are of the SMB ilk. That said, Facebook's ongoing testing of a local business search and review feature could prove to be a lot more than a thorn in the side of Yelp (YELP 1.79%) -- it opens up a world of revenue opportunities.
What's all this then?
It was just a week ago that Yelp, the current king of local business search, was trading at nearly $31 a share. Fast-forward to the close of trading on Dec. 17, and Yelp shares were down about 11%. The culprit for Yelp shareholders' recent angst was news that Facebook is actively testing a new Professional Services search engine, complete with consumer reviews.
To help streamline the new search feature, it also displays local businesses from a laundry list of services that have earned the highest consumer reviews. During the testing phase, at least, local restaurants are noticeably absent from Facebook's search and review alternatives, but that's likely to change given the popularity of that particular search topic.
Given Facebook's 1.49 billion monthly active users (MAUs), it has a scale and reach unmatched by virtually all digital advertisers, save Alphabet (GOOG -3.89%) (GOOGL -3.78%). Of course, Alphabet has its own local business search and review service, but even as large and diverse as it is, breaking the hold Yelp has on the market remains an uphill climb.
But based on the recent sell-off of Yelp stock, it's clear Facebook and all those MAUs are viewed as posing a different kind of threat, and for good reason. Already, Facebook boasts over 40 million active SMB pages on its site, which gives it a fantastic base from which to kick-start its professional services search and review service.
The best part of Facebook's SMB search function? The myriad opportunities it presents to boost revenue and improve the user experience.
Oh, the possibilities
An integral part of Alphabet's 13% jump in revenue last quarter to $18.7 billion was its impressive 23% increase in aggregate paid clicks (including its member sites), led by a whopping 35% rise in paid clicks on its own sites. But what if Facebook is able to take its share of the local search pie and generate its own per-click ad revenue? Thanks to its new professional services feature, it will soon be able to.
Like Alphabet, Facebook's ability to gather, analyze, and ultimately utilize user data to target ads is no secret. Now imagine the potential of boosting its number of SMB advertisers -- remember, there are already 40 million plus non ad-paying SMBs onboard -- as Facebook's professional services gains traction.
Geotargeting, which simply means targeting ads based on user interest and location, is a natural extension of Facebook's professional services tool, and it works incredibly well. According to a recent study, an overwhelming 71% of digital shoppers said they were more likely to respond to an ad from a local business versus a national brand. Professional services will give Facebook yet another tool to target its marketing partners' ads like never before.
Finally, a local search and review service gives users one more reason to stay logged into Facebook's flagship site rather than switch over to Alphabet's search engine to "Google" a local business and review what other consumers are saying about it. Bottom line, Yelp shareholders have every reason to be worried that Facebook is likely entering the local search and review fray. As for Facebook investors, Professional Services is yet one more revenue growth opportunity in 2016, and beyond.