Facebook yesterday unveiled its social graph feature dubbed Graph Search, which allows people to use the network as a search engine to find people, photos, places and interests.
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But while the tool has been lauded by analysts, the announcement did not sit well with investors, many of whom may have thought Facebook chief Mark Zuckerberg would be announcing a Facebook phone.
The new service could be used by recruiters as an alternative to LinkedIn to find potential employees, while dating websites may take a hit as it could be used by members that are looking for a dating partner.
Users will be able to ask "Who lives in London and likes football?" and the new tool will provide them with a list of people who fit those credentials.
But as the product is still in its early stages, Zuckerberg could not reveal any information on how Facebook will look to make money from the new service. This led to the social media network's shares falling from $32 to $30.10 a share, a drop of 2.74 per cent.
The new service will be heavily linked to Microsoft's Bing search engine, which means that if Facebook can't answer a user's query, the query will instead be passed on to Bing.
In a blog post, corporate vice president of search at Bing, Derrick Connell, explained how Bing would be used in conjunction with Graph Search.
"It means that when people want to search beyond Facebook, they see web search results from Bing with social context and additional information such as Facebook pages," he said.
"To the Facebook user, they will not only see useful results, but we think have serendipitous experiences. Imagine searching for Jay-Z concerts on Facebook, and not only finding Facebook content, but also web results from Bing including concert tickets, news about the tour and other web results-annotated with Facebook Likes and Shares. We think this is a powerful combination," he added.
The new search results page on Facebook will have two columns with Bing results on the left-hand side with social information from Facebook such as Likes appearing alongside it. On the right-hand side Facebook pages and apps related to the search will show up.
The choice of Bing ahead of Google was down to differences in opinion on the privacy of personal data between Facebook and Google, Zuckerberg said, although he added that he "would love to work with Google".
Google impinged on Facebook territory when it announced its social network Google+, and many believe that Facebook's decision to go with Bing is deliberate as it looks to compete with Google's most important asset, its search engine.
"It positions Facebook as a much more significant strategic threat to Google than it has been to date. Facebook has effectively rolled Amazon, TripAdvisor and tribal search engine capabilities into the ecosystem in one fell swoop," said Victor Basta, managing director of technology M&A firm Magister Advisors.
"To date it has been very difficult to serve up advertising on a small screen. Search is really the only way to do it - Google gets more than 90 per cent of its revenues from advertising, and search drives advertising, so this is really the only way that Facebook can take revenues from Google," he added.
