facebook

The Facebook Money Machine

An update to this column: According to the Wall Street Journal, any of Facebook’s most popular applications have been transmitting identifying information — in effect, providing access to people’s names and, in some cases, their friends’ names — to dozens of advertising and Internet tracking companies. See here (paywall).

This year, Facebook will make about $1.5bn in advertising revenue. On average, this is about three dollars per registered user, a figure that is significantly higher for the 50% of the social network’s population that logs in at least once a day. How does Facebook achieve such numbers? Last week, we looked at the architecture Facebook is building as a kind of internet overlay. Now, let’s take a closer look at the money side.

If Google is a one-cent-at-a-time advertising machine, Facebook is a one-user-at-a-time engine. The social network is putting the highest possible value on two things: a) user data, b) the social graph, e.g. the connections between users.
For a European or American media, one user in, say, Turkey (23m Facebook users) carries little or no value as far as advertising is concerned. To Facebook, this person’s connections will be the key metric of his/her value. Especially if she is connected to others living outside Turkey. According to Justin Smith from the research firm Inside Facebook, in any given new market, the social network’s membership really takes off once the number of connections to the outside world exceeds domestic-only connections. A Turkish person whose contacts are solely located within the country is less valuable than an educated individual chatting with people abroad; the latter is expected to travel, has a significant purchasing power and carries a serious consumer influence over her network. As a result, Facebook extracts much more value from a remote consumer than any other type of media does.

Advertisers rely on three main strategies on Facebook, as explained by Frederic Colas, chief strategic officer for FullSix Group, a Paris-based interactive agency. The first one is the fan page. The goal is to manage and optimize user engagement with a brand through community management. Numbers are impressive.
Here are the top 15 compiled by Facebakers:

Getting high traffic on a fan pages is still more art than science; interaction volume varies widely. In a recent study (here, in French), FullSix demonstrated that, within a same market segment such as fashion, the number of monthly interactions per 1000 fans will be 4 times more important for H&M (4.3m fans) than for Gap (0.75m fans) and 25 times higher for Victoria’s Secret (8m fans) than RayBan (1.4m fans).
The second approach uses social plugins (such as the “Like” button, recommendations, external login, etc.).
And the third strategy is more like classic advertising campaigns with an unparalleled degree of targeting: Facebook makes possible to combine precise parameters, ranging from location to company name and the precise timing of an ad with a high degree of precision (find the women above 40 who work for IBM, in northern New York state and deliver an ad every Friday between 18:00 and 22:00, for instance). This advertising resource is self-serve, totally automated, and accounts for half of Facebook’s commercial revenue. More

Mark Zuckerberg, The Architect

The Social Network is an excellent movie. It’s fast, entertaining. And words crafted by Aaron Sorkin, one of Hollywood’s most talented screenwriter, flatter the Harvard crowd and make it sound wittier than it actually is. In addition, digital imaging enthusiasts will enjoy the Red Camera’s performance, demonstrating its extraordinary low light and depth-of-field creative potential. David Fincher’s movie has to be seen as fiction based on a true story. Nothing more. There is no room or need for an exegesis here.

And yet, Facebook’s most game-changing feature couldn’t be rendered into pixels. It is actually encapsulated on page 34 of Sorkin’s script, when Zuckerberg is facing the too-perfect Winkelvoss twins (played by a single actor in the movie, thanks to special effects) who pitch him their idea of the “HarvardConnection” social network. Their sketchy description triggers a short but intense burst of activity in Mark’s brain. The 20 year-old geek is seen processing the idea at light speed, before mumbling: “I’m in”.

No further questions. In five seconds, we’ve witnessed the fictitious Zuckerberg envisioning the seeds of a grand plan, going well beyond his own (and gross) rate-a-girl algorithm, and beyond the Winkelvosses project of “an exclusive Harvard-dot-e-d-u” network. (In the real life, the twin eventually sue Zuckerberg for stealing their idea, and settle for an alleged $64m). More

The Facebook Gravitational Effect

Over the next twelve months, the media industry is likely to be split between those who master the Facebook system and those who don’t. A decade or so  ago, for a print publication, going on the internet was seen as the best way to rejuvenate its audience; today, as web news audiences reach a plateau, Facebook is viewed as the most potent traffic booster.

If you are looking for the ultimate cyber black hole, point your browser toward Facebook. Beyond the 500 million users milestone, even more significant gravitational pull await the media industry. Here are facts to keep in mind.

— While the average online newspaper is viewed about 30 minutes per month (see data from the NAA), users spend 12 times more on Facebook: a worldwide average of 5hrs 52 minutes, 6hrs 02 minutes in the United States and 4hrs 12  minutes in France. Globally, social networks represent about 10% of the total internet time; and 2/3 of the internet population visit one such network at least once a month. And the growth is about  30% per year; in three years, that’s 220%, a multiplication by 2.2!

— Facebook dwarfs other social networks: worldwide, measured in time per month, it weighs 6 times MySpace, and 12 times twitter and 30 times LinkedIn.

— Of the half billion users, 250 million are logging every day, for about 34 minutes.

— Just as important, or more, 150 million access Facebook through their mobile phone.

— In June alone, on the US market, users spend more time on Facebook than on sites owned by Google, Microsoft and Yahoo combined (source: Nielsen).

Update Aug.2:  Nielsen just released this study showing that American spend 23% of their internet time on social media, vs. 16% a year ago.

The time spent numbers are always spectacular… but some view those as misleading considering how users interact with Facebook: uploading videos or photographs takes inherently more time than glancing over Google News. Granted. Let’s then consider more media related metrics. More

The Facebook Micropayment System

This week’s question: Will Facebook launch a so-called “PayPal killer”, a micropayment system for members to pay for goods real or virtual? To me, this is a Flat Earth debate, meaning there is no debate, Facebook is ideally placed to become a powerful payment system player.

First, a bit of history: the Minitel. Once upon a time, a rather statist country, France, decided to equip telephone subscribers with a home information terminal. Merchants of various persuasions were invited to connect their servers to Transpac, the backbone network. Sellers could tout physical, groceries, or logical, entertainment, information, goods and services. For the logical kind, the phone company graciously did the billing and the collecting for the merchant, taking a courtesy 25% fee for its pains. The buyer saw a new section at the end of the phone bill, everything automagically deducted from the subscriber’s bank account — after a legally mandated 10-day bill presentation delay.
Effective and efficient.
This reduced the overall cost of doing business for all, sellers, buyers, the phone company, that’s the efficiency part. And effectiveness manifested itself in a huge spurt in new enterprises. So much so the network, Transpac, initially underwent several major outages because buyers and sellers had much more fun than expected. For several years the French phone company would rather forget, it became the largest pornographer in the Western world.
I won’t dwell into the phone company’s initial resistance to the Yankee invention, the Internet, but all is well now: French netizens now enjoy very good broadband services, and the Minitel is largely forgotten.

But the micropayment lessons shouldn’t be discarded. And, in a way, they aren’t: Look at Amazon. More

Not Dead: The Paid-for Online Model

Death reports of paid-for models on the Internet have been greatly exaggerated. Granted: the network’s genome carries the “free” nucleotide.  As in both freedom and free goods and services. Like it or not, its publicly funded origins (universities and the Pentagon) led to the emergence of widely adopted services such as search engines or Wikipedia.  In turn, these have sealed the fate of the paid-for model as the dominant one. Right. I intentionally emphasize dominant. Because like everywhere else, hybrid forms are likely to emerge. More

Wait, Wait, This Is My Stuff!

Social networks and PC becoming an arranged knwoledge network

Let me start with an example. Hopefully, the concept will emerge.
Facebook. The latest fracas is their conflict with Goggle’s Friend Connect,
technology that gives any web site simple tools to acquire social networking features.

As a result, users of my organic gardening site connect, share ideas, recipes, pictures with their friends on other participating sites, such as Facebook, hi5, Orkut and many others (social networking or not). The point of Friend Connect not being forced to become members of other sites, just sharing. A side-effect is it becomes easier to take my personal data from Facebook and move my information elsewhere.
No, no, says Facebook. After initially agreeing to the Friend Connect interchange, it blocked access.

This raises the question in the title: Is my Facebook information mine or not? The company has spent upwards to two hundred million dollars building a “free” service. The value Facebook counts on to generate advertising revenue is what they felicitously call the social graph. As the name suggests, this is information about me, about the people I connect to, what we like, picture we share, music recommendations, games we play, purchases we make, invitations to events.

Everything about everyone, arranged in a knowledge network. Slight exaggeration, but you see the idea. Not just tons of details about me but a web of such details. This leads to the advertiser’s wet dream: ads focused on one individual, at the right time. Gee, Joe just told his friends he’s got a new job, let’s see if he’s in the mood for a new car or a new suit, or inviting his best friends to a celebratory dinner. For you, special prrrrice today!

Facebook is currently investigated by Canadian authorities for its ways with user privacy and we’ll recall last Fall’s stumble with Beacon. Users weren’t pleased to discover Facebook passed information to merchants without their knowledge and consent. The plan was creepy: even when users weren’t logged on Facebook, some of their moves were recorded and passed on to “partners”. There is a pattern here: Facebook thinks it owns my data. This is the gold mine they want to exploit and they don’t like the idea of the data flowing somewhere else (read Google).

They are not alone. Many suppliers in our PC/Internet life clearly think they have extensive rights on our machines and our data. I recall the incessant Orwellian demands to download Windows Genuine Advantage (nice bit of newspeak) to enable operating system and Office updates. But I already proved last week I have a genuine copy of Windows! Never mind, do it again. In ironic ways, it gets worse with companies such as Symantec and their security products. Once installed, they are exceedingly difficult to remove. This is for your safety, you see. We conceal key bits so the virus bad guys can’t remove them. Well, no, you keep insisting and Symantec will reluctantly tell you where to download a removal tool the bad guys can use as well. –JLG

Facebook’s maturity problem

Like many startups, Facebook is confronted with a growth problem. Its outstanding traffic (30-35m unique visitors a month) is no longer growing; newcomers tend not to stay with the service as much as the early adopters still do; the Google-induced OpenSocial protocol is a threat and advertising has not taken off as promised. Recently, the investors in Facebook imposed teenage supervision of a kind: they hired Sheryl Sandberg, a former Google executive (see her interview at the D6 Conference)

Facebook is under more pressure from its investors as explained in New York Times DealBook. There, a professor of economics brilliantly reminds Mark Zuckerberg what are the rules of high tech funding. (For an overview of the social network current situation read also the story in Fortune)