Research Note: Lord of the Flies, Or The Shape of the Faceconomy

You know, I'm really sick of writing about this topic by now...

But let's get on with the inevitable. What's gonna happen with Facebook's SocialAds, Beacon, etc.

A quick analysis.

1) What's the value of Beacon? How much value can recs really unlock?

Yes, we all know referrals are powerful. But real referrals aren't what Facebook's offering. Real referrals aren't broadcasting preferences; they are matching preferences. See the difference?

So that's the wrong question. Let's start with the real dynamics of Beacon.

The right question is: do brands that get rec'd need to be rec'd? Or is this a case of adverse selection: lemons selecting themselves into the market?

Let's check out the list of brands:

"...In addition to their Social Ads partners, Facebook has announced the following partners on their Beacon project: eBay, Fandango, CollegeHumor, Busted Tees, iWon, Citysearch, Pronto.com and echomusic. Additional partners include Travelocity, AllPosters.com, Blockbuster, Bluefly.com, CBS Interactive (CBSSports.com & Dotspotter), ExpoTV, Gamefly, Hotwire, Joost, Kiva, Kongregate, LiveJournal, Live Nation, Mercantila, National Basketball Association, NYTimes.com, Overstock.com, (RED), Redlight, SeamlessWeb, Sony Online Entertainment LLC, Sony Pictures, STA Travel, The Knot, TripAdvisor, Travel Ticker, TypePad, viagogo, Vox, Yelp, WeddingChannel.com and Zappos.com."

Hmmmm. Some interesting players - but on the whole, not exactly brands consumers luv. And, interestingly, the already cool ones are the ones that stand to least benefit from Beacon. In other words: the beginnings of adverse selection.

Why are we already seeing these dynamics? Because Beacon is essentially a biased market mechanism. That is, advertisers have control - but connected consumers (despite Facebook's hype) don't.

Consider:

"...The Coca-Cola Company will feature its Sprite brand on a new Facebook Page and will invite users to add an application to their account called “Sprite Sips.� People will be able to create, configure and interact with an animated Sprite Sips character. For consumers in the United States, the experience can be enhanced by entering a PIN code found under the cap of every 20 oz. bottle of Sprite to unlock special features and accessories. The Sprite Sips character provides a means for interacting with friends on Facebook. In addition, Sprite will create a new Facebook Page for Sprite Sips and will run a series of Social Ads that leverage Facebook’s natural viral communications to spread the application across its user base."

Now go read Nick's post.

Got that? Beacons, for Coke, means, basically, Sprite Zombies flooding your social feed.

Uhh...this sounds kind of like, from an economic point of view, a consumer's worst nightmare - ads that are even dumber, less interesting, and far more irritating than ads are already.

But hey - at least they're "relevant"; because they're coming from one of the hundreds of people in your network.

And that's the problem - that (massively fake pseudo) relevance is all firms and media buyers care about at the moment.

And so: zombie-floods from lemons are the almost inevitable equilibrium of a negatively biased market.

This is critical: Google was succesful because AdWords is a neutral market. Craigslist is succesful because it's neutral (or positive) to consumers. Etc...

Ok. Let's pause for a second to catch a breath.

Now - all of this just backs up my now ancient hypothesis. Facebook is a deeply cynical and evil company. As Dave Rosenberg notes:

"...Additionally, Facebook has unveiled targeted advertisements that will allow marketers to target by any information inside Facebook profiles, from relationship status to favorite television shows."

That's what negative bias means: that's (distinctly) not the implicit contract people are signing when they use Facebook. If it was - why would your profile info be hidden from everyone but your friends?

Note the difference in logic here. At Myspace, profile info is open - the implicit contract is very different.

Now, let's not labour under any illusions. Despite these obvious flaws in thinking, sheer hype will make Facebook successful via ad liquidity.

The synthetic relevance Facebook is pushing is a drug for the strung-out advertisers of the world: they desperately need a hit of something to make them believe they matter again.

It will take a long time - 6 months, a year - before they start to come down to earth, and see and understand these economic problems.

And that's really the point I wanna make: the Faceconomy is an ugly place - it's like Media 1.0, but nastier, more violent, more brutish: it's the Lord of the Flies version of the mass mediaconomy.

As advertisers buy into Facebook - no one will be better off - except Facebook.

Marketers and firms won't gain true connection with consumers.

And, crucially, consumers will be trapped into not just receiving crappy ads - but sending them as well.

In fact, I like Nick's take on these dynamics much better: the medium is the message from our sponsor. The irony is so deep it's subterranean.

But he leaves out the essential last bit: and most of your so-called friends are carpet-bombing you with it.

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