On Knowing What I Want (to buy), Part 2

My last post sketched some reasons why the trove of data available to internet marketing firms has changed advertising in a number of meaningful ways.  I used Google as a placeholder for a variety of technology firms who have developed the tools and expertise to identify customers who are likely to be interested in a product or service, particularly when they are likely to be actually primed to purchase, and deliver ads to them across a scalable platform.  Moreover, the development of (then-)innovative models for more closely linking the compensation to the ad ‘distributor’ to its actual delivery of customer traffic upended traditional economic arrangements in ways that are still playing out among buyers and sellers of white space (whether manifested in publishing, display, radio, television, or the like).  In this post, I’ll consider to what extent the social graph might represent another evolution in advertising, and by extension how much potential a market-leader like Facebook has to monetize its data and technology (as before, on a largely anecdotal/conjectural basis; caveat investor).

Facebook brings a number of formidable characteristics to the advertising marketplace, even when evaluating them as a traditional media property in the absence of any grand theories of Web 2.0 (or whatever iteration we’re on): a massive subscriber base that actually spends time interacting with the platform, and none of the baggage of time-shifting, unsustainable legacy costs, or the tension between subscription businesses  and content aggregators that plague other competitors.  In interacting with the platform, Facebook’s subscribers voluntarily disclose a wealth of information about their preferences, status, values, and other potentially potent psychographic indicators in an incredibly granular way.  Moreover, the personal relationships among subscribers might lend credibility to certain products and brands, relative to the saturation (and perhaps cynicism) of mass-market advertising: imagine word-of-mouth, delivered cheaply at scale.  Facebook should have at least as good, if not better, raw material than Google from which to build a relevant profile of me as a consumer and tailor ads accordingly – it can know I’m attending a party on Friday, and predict (based on my employer, education, current city, and perhaps some measure of the pretentiousness of my musings) that I’d be a good candidate for a Grey Goose advert instead of one for Coors Light.

All well and good, but I think Facebook’s real disadvantage is that it’s just not close enough to the point of a likely consumer purchase to be able to extract meaningful, measurable value for advertisers.  Broadly, an advertiser can approach Facebook in at least four ways:

  1. As a self-selected choir to whom to preach – If I become a ‘fan’ of Pepsi, perhaps I can look forward to all manner of exciting brand-promotional messaging from Pepsi in the future.  I think the utility of this is somewhat analogous to an e-mail newsletter that one signs up for.  Granted, opt-in mailing lists are significantly more valuable than the sort a cold-caller (or spammer) might use, and perhaps for now a message delivered via Facebook is less easily-ignored than e-mail.  My hypothesis is that this approach to Facebook is much more useful to a retailer who can potentially drive traffic quickly as the result of a promotion (although I would assume that what usually drives traffic is some sale or discount that eats into the retailer’s margin) than to a brand owner looking to promote awareness, recognition, and other such fuzzy but meaningful concepts.
  2. As a glorified (but intelligent) display medium – There’s plenty of screen real estate Facebook could fill, and it ought to have an exceptional ability to target messaging based on whatever psychographic specifications an advertiser desires.  But is any of this meaningful?  Yes, Facebook knows I’m a yuppie; but I am bombarded by ads for luxury cars and status baubles at every turn on the internet, and I don’t know why I’m any less likely to tune these out on Facebook relative to any other media product.  Theoretically, Facebook has feedback mechanisms for delivering more relevant ads over time.  In practice, they are way off this mark – I have received essentially the same set of five advertisements from Facebook for years and years, no matter how many times I helpfully advise that they are irrelevant to me.
  3. As a quasi-display medium informed by context – It will be a much more interesting story once Facebook begins to develop awareness of the sorts of things I’m likely to buy in the near future, based on my traffic and postings; but even then, is this insight likely to be sufficiently specific to give an advertiser an edge over general mass-marketing?  Surely someone will post “I’m thinking about buying a car…” once in a while, but will anyone post “I’m looking to buy a snarky t-shirt” or something specific enough to really suggest that a customer is sufficiently primed that it’s worth paying to promote a product to him?  I think the search engine model (and others, such as merchants’ algorithms to recommend products based on one’s previous purchases and browsing history) is so much closer to the point of (likely) purchase that I’m skeptical that the conversion rates on this type of traffic will be anywhere near as effective as one might hope.  (I am also skeptical about the signal-to-noise ratio in such a data set; perhaps I will come back to this later.)
  4. As a proselytization engine – Of course, people are likely to recommend products to their friends; some may even do it on Facebook.  But why would a specific advertiser expect to have any influence over such conversations, just because they are happening on Facebook?  And besides, I think most people still consider it tacky to promote products (even to one’s friends) in an over-eager or unseemly fashion, and still generally resent being ‘sold’ to when they aren’t looking for a pitch.  My impression is that ‘social shopping’ business models remain to be proven, although there are some interesting variations on the theme (and frankly I don’t consider Groupon ‘social shopping’ as much as ‘digital local advertising’… but that is another story.)

This all said, I would not underestimate the real options that Facebook possesses by nature of its competitive position: perhaps, for example, as a distributor of paid content such as social games.  It is also a critical enabler of emerging ‘social’ business models and ought to be able to earn tolling revenue to the extent those take off.  (If I were Facebook, I’d insist on a revenue-share with Groupon on any deals sold as the result of a ‘share’ on Facebook.)  And, if push came to shove, would I pay a small monthly fee for access to Facebook?  Probably, provided that enough of my friends did so as well.

I’m curious if there’s a meaningful value proposition to advertisers that I’m just missing and would welcome any suggestions.  In the meantime, I will go back to my usual Facebook pastime of sharing YouTube videos of cats doing silly things.

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