Monetizing facebook

2010 July 14
by Dave

The fellows over at facebook have been trying for ever so long to figure out how to turn the ridiculous amount of user traffic and personal data that they have into a mountain of money the likes of which has never been seen. Unfortunately many of their attempts come off seeming cack handed and intrusive. The frustrating thing for me, watching from the sidelines, is that the facebook crew needs a paradigm shift in how they view the value of their business in order to achieve their goals.

The store of value in facebook is not the personal information that they have collected. It is the personal networks that they host. There is definitely a place for well targeted, unobtrusive, useful advertisements, but that is a mousetrap that can only be improved so much before the mice stay away. The thing that users value in facebook is the network, not the data collection. If facebook wants to build a decades spanning dynasty, then they are going to have to align interests with their users. If the social network operator can monetize the networks rather than the data, then the push and pull over privacy will go away. This will free up extra development resources to focus on making the social networking aspects better which will benefit both users and facebook.

But how to monetize the networks rather than the data. It’s a good thing for facebook that Google already figured out how to monetize networks really well when they monetized the entire internet. It’s a bad thing for facebook that Google is desperate to apply this ability in the social networking space. Can facebook monetize itself before Google makes a popular social network? I think they can if they take the simple steps of applying Google’s network monetization methods soon. If they delay, and continue to focus on selling you a late when you are already in Starbucks, they will be beat.

Google’s advertising juggernaut has two arms, search and AdSense. The lowest hanging fruit is for facebook to emulate AdSense. Facebook needs to allow users to curate the ads that appear on their pages and to get a cut of the revenue generated by those ads. Allowing users to control what ads that their friends see on their pages provides two huge game changing benefits.

First, as much as facebook “knows” about a user, that user still knows more about themselves and their friends. If I am excited about a movie enough to put a link to a trailer for it on my profile, my friends will probably be excited too. If I can personally choose ads that I like, and my friends know that the ads that they are seeing are ads that I like, they will be much more likely to click on them in order to see what I like about them. Allowing users to pick ads will force advertisers to make better ads, either more fun, or less annoying, and will provide a market mechanism for less popular ads to pay more per click in order to get posted by users.

The second benefit is the perception of who is advertising to you. Right now, facebook is advertising to you. There are lots of reasons not to like that. When it is your friend that is advertising to you, and profiting from it, the whole interaction resides in a completely different mental space. It is a recommendation rather than an ad for a razor because I am a boy. The click is a half penny for my friend rather than a distraction that takes me away from my friend and gives a penny to a faceless company.

Facebook could roll this out for beta by the end of the year and move away from the privacy infringement business model. Combined with their existing strength in location based advertising they could seriously challenge Google in the short term on the non-search advertising revenue front. We’ll see if Zuckerberg can shift his focus away from peeping in people’s windows.

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