Umair Haque / Bubblegeneration
umair haque  


Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Thursday, November 15, 2007

Research Note: Facebooked, or How to Fix SocialAds

Blodget says what needs to be said re 1 $15 bil Facebook valuation versus the reality of a desperate (and increasingly befuddled) Microsoft.

Let me make a couple of additional points, and then outline how SocialAds will evolve, and how to fix it.

First - Facebook's well-oiled hype machine turned out to be more of a disadvantage than an advantage. That's a lesson that other startups would do well to heed: hype is easy, radical innovation is the hard part. The full-on onslaught Facebook launched is overkill (ie, timing the Forrester stuff, etc), which sends the wrong signal - there's more hype here than reality.

Second - real innovators, orthe guys that wanna change the world, rather than take it over, remember - don't often need or want massive valuations so early in the game, because it makes really changing things that much harder, by the weight of expectations.

Rather, what they want is to make the world a better place first, and once they've done so, the valuation will inevitably follow. Again, a bad signal from the Facebook kru.

Look. SocialAds/Beacon have great potential. They're actually not as lame as people think they are. But Facebook's DNA is killing the potential for value creation. You don't need to make them nearly so corporate; so transparently pandering to advertisers against consumers.

Let's ignore the profiles for businesses end of the idea - if you think that's something new, you're (way) out of of the touch; it's old hat, and Myspace has done it for years. Instead, let's think about the larger network Facebook is trying to build.

I think it's likely that ie will simply end up being a platform that amplifies (real) viral effects, and attaches a pay-per-click to them.

What does that mean?

I buy shoes at Bluefly; if I want, my friends get a short, simple message saying I did so; if they want, they can click to see the shoes.

They can opt out, there's no overt endorsement (with cheezy smiling ad attached), and, best of all, it's a really, really simple revenue stream - if my friends click, Bluefly pays up.

See the point? The problem with Beacon/SocialAds is that there shouldn't be any any "ads" there at all - the original interaction is the ad.

The design I've outlined is by far the most likely outcome from an economic point of view. Not only is it hyperefficient in terms of attention, and so killer for consumers; it's deeply elegant for everyone else in the value chain as well - it doesn't require them to cannibalize/cross chasms/break commitments/etc.

Finally, note it unleashes (very) powerful network effects - every e-commerce player has a tremendous incentive to join this network.

So when that's how it shakes out, remember where you read it - and, oh yeah, tell Mark Z to drop me $15 bil or so.

-- umair // 11:34 PM // 6 comments

Comments: for example Amazon gives you an (affiliate) feed of your attention/purchases data with them - and you mesh this into your activity feed - DONE!
// Blogger Boby // 1:03 AM

I agree that the transaction should be the ad, but what's the incentive for the Bluefly buyer to opt into sharing their purchase data? I can see this working for brands & categories that people are passionate about and want to share with friends (ex. music). I have a harder time understanding why people would want to share personal transaction data for more mundane products and services.

Perhaps that's not a problem in that the passion-driven categories could still comprise a huge opportunity and are the natural fit for social advertising.

I enjoy your blog. Looking forward to reading your book... and possibly sharing the purchase of it with friends on Facebook ;)
// Blogger Joe Lazarus // 1:34 AM

That is what I was going to say. Basically you're proposing an opt-in Amazon-Associate affiliate type program where those who want their products featured pay Amazon the commission instead of the other way around. And that makes sense since Facebook is not a retailer--but they easier could become a retail facilitator.

Btw, I work for Aaron Ray. He says Hello.
// Blogger Ryan Holiday // 1:47 AM

For the sake of simplicity, I skipped the step of filtering of your attention/purchases stream - which could be done by tags, most this, most that, etc...
// Blogger Boby // 2:14 AM

Either you believe in the net promoter score, or you don't. If you buy a product/service you should want to tell someone else about it, usually a friend. If you would not want to tell a friend about that service, what does this tell you? The transaction itself is evidence. If I "broadcast" "Paul just moved to MBNA Gold Card", well some of my friends might think, "I should look at that, Paul's a pretty good financial decision maker". But, "Paul has jus bought socks".... well, maybe that shouldn't be broadcast!!
// Blogger Unknown // 9:26 AM

Beacon reduces social shopping friction by a few clicks. But if users really wanted to broadcast brand preferences, wouldn't they do this themselves, using status updates? I've never, ever had a friend send an update about a brand preference.

Users will come to see these ads as a tax for using the system. But the value created by associating their identity will exact a deeper toll and users will certainly opt-out of anything they're given an opportunity to.

You're so right about them raising money too soon. It's just greedy and they're taking it out of the ass of their users. FB is opening themselves up to non-commercial, culture-oriented competition.The costs to run a social net are low enough that FB and Myspace will see themselves losing out to a thousand culture-niche competitors. And there will be no need to go begging from money from Sprite to pay the bills.

The tech is still novel enough that the lack of culture on FB is not yet an impedance. But soon it'll seem very dry in comparison to other swinging jook joints opening up down the block.
// Blogger Marcus // 3:24 PM
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