REPORT: Facebook Revenues From Search Falling

Facebook's average revenue from searches has dropped to $5 per thousand searches from $8 per thousand searches, according to estimations by members of Trefis.

Facebook’s average revenue from searches has dropped to $5 per thousand searches from $8 per thousand searches, according to estimations by members of Trefis.

Revenue per search (RPS) is calculated by multiplying the the click through rate (CTR) of the ad with the cost per click (CPC). And Trefis is a financial community structured around trends, forecasts and insights.

Trefis members expect Facebook’s RPS to decline over time, since Facebook is neither a search engine like Google or Bing nor a web portal like Yahoo or AOL.

However, it’s still possible that Facebook will become a search destination and eventually start winning more users from Google and Bing. In such a scenario, the nature of searches on the social network would become more commercial and advertisers could start paying more for ads served besides the search results.

But unless Facebook gives more prominent placement on the site to the ability to search the web, the social network won’t attract a lot of ad dollars, and that would result in RPS falling as low as $3.2 per thousand searches by the end of 2017.

Facebook’s RPS is also declining as a result of global expansion, ironically, since revenue from search in U.S. market has always been higher than Asia or Europe. It sounds contradictory at first, but an increase in percentage of searches conducted from outside of U.S. will result in a decline in cumulative RPS for Facebook. The scenarios listed below explains how this would work:

Scenario 1: 50 percent U.S. searches, 50 percent non-U.S. searches

Let’s assume that revenue per thousand searches is $5 for ones in the U.S. and $1 for non-U.S. If 5,000 searches on Facebook are conducted in the U.S. and the other 5000 from elsewhere in the world, then revenue from U.S. searches would be $25 and revenue from other parts of the world would be $5. This would result in a total revenue from search to be $30, and revenue per thousand searches of $3.

Scenario 2: 10 percent U.S. searches, 90 percent non-U.S. searches

If, however, 5,000 searches on Facebook are conducted in U.S. and searches elsewhere in the world rise to 45,000, then revenue from U.S. searches would remain constant at $25, but revenue from worldwide searches would rise to $45. This would increase the total revenue from search to $70, but would decrease the revenue per thousand searches to $1.4.

So while the total revenue from searches increased from $30 in scenario 1 to $70 in scenario 2, the RPS decreased from $3 per thousand searches to $1.4 per thousand searches.

Do you think that Facebook will likely lose revenue on web search while Google and Bing continue to gain?