Marketing Ninja

The biggest story in online business for 2007 was (arguably) Facebook’s rise to power and the onslaught of relentless hype & buzz after the announcement of the F8 platform. I have blogged many of my thoughts about proper approaches to monetizing Facebook applications I haven’t yet discussed Facebook’s "grand strategy" to produce some profit in 2008.

Some aspects of Facebook’s current monetization strategy are relatively harmless (gifts, sponsored polls), but Facebook’s newest initiatives (Beacon) have forced writers and bloggers alike to question the integrity of Zuckerberg and his executives.

Facebook’s Current Revenue Sources

A quick look at some of Facebook’s current sources of revenue:

• Facebook Gifts ($1 per transaction; millions of gifts have been sold)
• Facebook banner ads served by Microsoft (sports abysmally low click-through rates; I’d imagine that the Targeted Ads aren’t much better);
• Premiere Sponsored Ads and Sponsored Groups (ads & groups purchased for large fees that are supplanted onto the tops of many users’ news feeds);
• Facebook targeted advertising (ads created by Facebook users with specific demographic targets; used for marketing Facebook Pages); and
• Facebook Beacon (reports Facebook users’ transactions on external partner sites in their mini-feeds).

I may be forgetting some sources, so please complain at me in the comments along with a link if I’m wrong.

How Facebook Utilizes their Users in the Course of Earning Revenue

Source: Facebook Blog

I think we can all agree that Facebook Gifts are absolutely harmless, simply because it’s a transaction conducted between two Facebook friends who already have some sort of established relationship; the user buying the gift gets to select the gift to his or her liking and the user receiving the gift can choose to hide it from their profile.

Facebook Gifts are really a "transaction fee" charged to the gift giver, and the cost to earn the $1 revenue for Facebook is negligible.

Facebook’s banner ads have been around for some time now; the only time they seem to get any attention is when Microsoft dumps millions of investment dollars in exchange for guaranteed advertising contracts with Facebook. These ads are served via a standard contextual advertising engine, which lexically parses the content of the pages its being served on in order to determine the most appropriate advertisements for those pages. The banner ads served are usually broadly targeted at Facebook’s audience, given that all Microsoft has to go off of are the frequency of terms that appear on Facebook pages.

While these banner advertisements may be annoying, they do not compromise the privacy of Facebook’s users as Microsoft’s contextual advertising engine is not actually "aware" of any users; it’s only aware of the frequency of keywords.

Facebook Sponsored Ads, Sponsored Groups, Sponsored Polls, and Targeted Ads are different animals. Sponsors have the option of being able to pick out specific demographics within Facebook in order to make their sponsored groups, ads, and polls more effective. While these ads may not be a red-flag privacy violation given that they don’t explicitly sell your data to advertisers, they do present some other privacy concerns.

For instance, let’s take a look at my original Facebook account, which I guarantee you is older that most of yours. I signed up for Facebook originally in the fall of 2004, when I was entering Vanderbilt University as a freshman. Facebook was first starting to get popular among college students. That’s right, I’m a member of the original "Facebook Freshman Class."

When I signed up for that Facebook account back in 2004, did I give Facebook my consent to:

• Data mine my information in order to serve appropriate advertisements;
• Data mine my entire class’ information in bulk and resell it to marketers for the purpose of determining generation-wide trends;
• Collect external information about me from across the Internet, such as college newspaper articles and AIM away messages (which it no longer collects); or
• solicit me with polls based upon my demographic data?

The answer to all of those questions is a resounding "no."

Facebook Beacon is an even grosser violation of user privacy, as many bloggers have pointed out. Not only did Facebook mislead its advertising partners about the opt-in/opt-out nature of the Beacon service, but it never even bothered to acquire the consent of its users.

The Problem with Monetizing Social Networks After the Fact…

While the targeted ads can be considered a privacy violation, as I have made the case for, Beacon, as it was originally launched, constituted a gross violation of user privacy because it reported your activity from other services that users weren’t necessarily aware of. Facebook did give users the ability to opt-out on individual items, but presented no global opt-out option, initially.*

The basic problem with Beacon is that it took control out of the hands of its users, or at least made it difficult for users to control the distribution of personal information about them.

The advertising industry is moving from canvassing a passive audience, i.e. TV and print media advertising, to personalized active advertising where potential consumers are presented with ads targeted to their tastes. While many of those ads are still served passively on websites, many ads are served actively by explicitly contacting consumers with offers.

It can be argued that personalized ads are more "effective" to both consumers and advertisers in that it reduces dollars spent on broad canvassing and helps consumers discover goods and services that are tailored to their tastes, it can also be argued that the data-gathering techniques employed to help target those ads appropriately presents a serious privacy concern.

The fundamental issue of the privacy is to be able to control the flow of one’s personal information; when services gather or sell your personal data without a proper disclosure or without acquiring a user’s explicit consent, these "unauthorized disclosures" present significant privacy concerns.

What if Facebook is able to sell your personal information to corporate recruiters, who peruse over your drunk party photos, your wall posts, messages exchanged between you and your friends, and so on? Facebook makes it clear in its terms of service that both you and Facebook co-own your personal data once you put it on Facebook’s service, specifically:

All content on the Site and available through the Service, including designs, text, graphics, pictures, video, information, applications, software, music, sound and other files, and their selection and arrangement (the "Site Content"), are the proprietary property of the Company, its users or its licensors with all rights reserved. No Site Content may be modified, copied, distributed, framed, reproduced, republished, downloaded, displayed, posted, transmitted, or sold in any form or by any means, in whole or in part, without the Company’s prior written permission, except that the foregoing does not apply to your own User Content (as defined below) that you legally post on the Site.

But does this give Facebook the authority to sell your data as it pleases, whether it is through a targeted advertising gateway, Beacon, or any other number of potential uses? Facebook says that The basic problem with ANY social network that tries to monetize itself after selling it’s "free, no-strings-attached" service to users is that it eventually has to sell out its own user base to make a buck, and this is often done, as Facebook has demonstrated, without any regard to the potential cost inflicted upon its users.

Facebook and other social networks that are established without any monetization strategy up-front are going to find themselves in a jam when they have to turn to taking advantage of their users’ trust when it turns to earning a buck. One of the features that drew me and all of my classmates to Facebook was the notion of increased privacy, being able to shut out the sort of weirdos who lurk MySpace and other open networks, but when Facebook started readily offering my data for a premium to advertisers, I resented it simply because I was not asked for permission when I originally agreed to the TOS.

*For the record, Facebook added a global opt-out for Beacon eventually.

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