"For a certain set of searches, this is going to be far more powerful than Google," predicted Ovum analyst Jan Dawson.
Yelp Inc.'s online business review service also could be hurt if Facebook's search feature makes it easier for people to find recommendations from the people that they trust instead of relying on the opinions of strangers posting on Yelp. Facebook's search tool also will allow people to find people who worked at a specific company — one of the advantages of LinkedIn Corp.'s online service for professional networking.
Yelp's stock fell $1.36, or 6.2 percent, to close Tuesday at $20.61 while LinkedIn's stock added 39 cents to finish at $117.91.
Facebook doesn't have plans to show additional ads as people use the new search tool, but analysts said that is bound to change. "If the appropriate privacy protections are in place, this could be a significant boost in value that Facebook can provide to its users and, in time, that will provide some really valuable new advertising avenues for advertisers," Dawson said.
Google is trying to overcome its social network disadvantage with Google Plus, a service that the company launched 19 months ago in attempt to glean more insights into people's relationships and counter the threat posed by Facebook.
Helped by Google's aggressive promotion of the service, Plus boasts more than 135 million people who post information and photos on their profiles. But Google Plus users still aren't sharing as much or hanging out on its service as long as Facebook users do, raising questions about whether Google will ever be able to grasp the Internet's social sphere as firmly as Facebook does.
Facebook now must prove it can master the intricacies of search and picking the right ads to show to the right people at the right time — complicated tasks that Google has honed during the past 14 years to establish itself as the Internet's most powerful company. It currently produces 10 times more annual revenue than Facebook. Though neither company has released its 2012 financial results, analysts are projecting $52 billion in 2012 revenue for Google versus about $5 billion for Facebook.
The search tool is laying the foundation for Facebook to close the gap, said Chris Winfield, co-founder and chief marketing officer for online ad agency BlueGlass Interactive.
"They can just chip away incrementally," Winfield said. "The can start by just taking away one in every 100 Google searches, then one in every 20, then one in every 10."
In an opinion apparently shared by many investors, Forrester Research analyst Nate Elliott doubts the search feature will prove to be a boon to Facebook. He views it as little more of a way for Facebook users to find new friends online more quickly and make new connections that ensure the social network remains relevant.
"It's vitally important, but it's also unsexy," Elliott said. "If Facebook thinks people are going to start searching Facebook when they would have searched Google, then they I think they are going to wake up in a year and find they are sorely mistaken."
Liedtke reported from San Francisco.