Monday, March 9, 2009

Facebook: Privacy and Broken Business Models

Facebook had originally started as an online community for University students unlike MySpace which was inherently considered more public domain. Only as recently as last year did Facebook start allowing the creation of "public profiles" which are now not much more improved than short summaries of friends lists.

Even recently, Facebook had to retract changes made to their ToS because of IP issues associated with the changes. As they look for creative ways to make money from their services, they have to come to terms with the initial strategy with which they were originally modeled.

Because of this initial definition of their space, they are having difficulty when it comes to leveraging their extensive network. Their network size is larger than MySpace, but their revenue is struggling to match their growth pattern.

Using an advertising model to make up most of their revenue, Facebook users will notice that their interface has become plagued with irrelevant ads (IQ tests, get rich quick schemes and all the garbage we hated on other parts of the net).

They should be leveraging their "intimate" knowledge of us for more targeted advertising. This has already started to appear in its infancy as a form of social advertising: Your friend, X, has joined the Y group or become a fan of Z product (with the implied suggestion that maybe you'd also be interested). There is potential here to do more direct communication with your fan bases in a similar vein as a membership or frequent purchasers program.

Also as differentiated products and brands can also be a form of self expression. Actively becoming a member or fan of such products on your social networking site become a natural extension of this expression. Marketing Mavens in the community can create a "celebrity endorsement" in their communities by proclaiming their interest in certain products by signing up for and participating in these fan memberships and groups.

These fan memberships and groups also provide focused and attentive groups for targeted communication. They are a captive audience eager to consumer your products but more importantly are interested in learning more about updates or possibly participating in feedback relating to these products.

This greatly affects current advertising models as well as how corporations solicit feedback and communicate with their loyal customer bases.

This may be good solution and business model to follow which allows Facebook to have it's privacy cake and eat it too. For now it seems like this type of model is rapidly gaining popularity as a nice to have, but could very quickly become a necessity for businesses who want to stay in close quarters range of their customers.


Suziesaurus said...

Hasn’t blogger already done this with their advertisements?

I remember seeing a way to link only “relevant” advertisements to your blog based on the things you blog about.

Not only does this make the advertisements less annoying, but increases the chances that the viewers/users will click on them thus increasing profit even more.

Joshua Wong said...

Yes, that's true, but also consider the amount of intimate information you include about yourself: age, sex, geographic location, interests (music, television, reading), education level and even sexual orientation (depending on how much you choose to provide).

You don't have to share this information, but you can take an ad's target audience and directly apply it for a focused marketing campaign (for instance, I only want to target males age 18-34 in Toronto who have SCUBA listed as an interest).

Although Google boasts that they can get people in the "right frame of mind" with their search engine, unless you are logged in to a Google account when you search (and have filled out your Google online profile), it has no idea who you are.