How Facebook Could Create a Revolution, Do Good, and Make Billions
Great bruising battles between powerful antagonists is good for media. It "sells papers," as we used to say, or "generates clicks", as we now say. When you mix in a love triangle and jilted lovers, well, the audience just goes wild. And Wired did a great job in its piece on Facebook, Google, and Microsoft: riveting stuff. But the thought that kept coming back to me is that Facebook's bravado, its "grand vision" talk, is what you would expect from a concept-level startup. Surely by now, about 6 years into its venture, Facebook should show some substance? It is time to deliver some real financial results. The concept-level talk is great for attracting capital and talent. Facebook has done that brilliantly. But the point of attracting capital and talent is to be able to generate financial results.
Give It Time? Too Important to Rush?
Anybody who criticizes Facebook's financial results gets accused of being small-minded, of missing the point, of (gasp!) "not getting it." In digerati circles, not getting it is like having body odor. Facebook is changing the world, they say. It is a new form of communication, akin to the printing press. Once you get to scale, profits always follow. Google created a service without knowing how to monetize it.
In fact, far too much money has been invested (in both Facebook and hundreds of "me too" ventures) based on that one premise, that "Google created a service without knowing how to monetize it." The statement is true. If it had not devised the AdWords revenue model, Google would perhaps have sold some kind of enterprise search technology to Fortune 500 companies and rented banner ads on its home page. With AdWords, it found the perfect native revenue model for search, meeting two contradictory needs at the same time:
- Do not irritate or interrupt the user, and even occasionally add value for the user.
- Provide a compelling value proposition to paying customers.
The problem is that Facebook does not seem to have a clue how to do that. Google did not wait 6 years to unveil AdWords, and when it did unveil it, revenue and profit took off like a rocket. Facebook keeps trying. But to date, its attempts look weak and subject to diminishing returns.
There is a world of difference between increasing returns (what Google gets) and diminishing returns (what Facebook gets with its current strategy). That one-word difference equals billions of dollars.
Email Permission Marketing 2.0 Won't Cut It
At Federated Media's Conversational Marketing Summit in New York a few weeks ago, Mike Hoefflinger, Director of Product Marketing at Facebook, gave a talk titled:
"Adventures in the Funnel: Awareness, Consideration, and Intent in Media that is Social
Facebook's new director of product marketing presents his case for why advertising must engage, rather than exhort."
In a conference full of great case studies, this was a weak presentation. It sounded like Email Permission Marketing 2.0. Yes, email is all spammed out. Yes, every trick in the SEO/SEM book has been tried. And "tradigital", as social media mavens call it, looks old and tired. But Facebook's revolutionary alternative is to allow consumers to invite brands to communicate with them, like we used to invite companies to send us emails. That would get over-used and spammy in a heartbeat. Highly innovative brands would do well, as they always do in a new medium, but the law of diminishing returns would apply. By the time this model scaled, and it would have to if Facebook wants to move the revenue needle, users will have switched off in droves.
These are the diminishing returns. The more the model scales, the more it will irritate users, and the more users will switch off, and the sooner growth will slow down and reverse. As with email, Facebook can "make up for this with volume." But unlike with email, which is virtually free, Facebook has to pay money to serve each user.
Sorry, "Coca-Cola wants to be your friend" is in no way an enduring revenue model. If it sounds phony, maybe that is because it is phony.
The one lesson from social media marketing is that authenticity matters. What no one has shown -- and methinks this would be impossible -- is how to scale authenticity.
This is where behavioral marketing supposedly comes in. Wired calls this the "third rail of Internet marketing." Back in March 2008, we wrote about the toxic mix of legislation and user backlash that hinders behavioral marketing. Or, as Wired puts it, "As the Beacon debacle showed, there is a fine line between 'targeted and useful' and 'creepy and stalkerish' -- and so far, not enough advertisers have been willing to walk that line."
Facebook Should Be Genuinely Radical
Facebook talks a great game about helping the world to communicate. It tries to sound like a group of benevolent revolutionaries. But then it turns to really old-fashioned tools to make money. Its basic message to marketers seems to be, "We have 'em locked in. Yep, Google can't see them, so we are the only way to get to them. And not only that, we can tell you what every one of them is doing and saying right now. Step right up, folks!"
The one thing that Facebook has on its side is trust. Users trust the company with their real identities. That is massive. Break that trust and bye-bye.
If it were really radical, Facebook would use that trust to good advantage and really turn the tables. It could show users how to do better business with big companies and with each other. That would be radical. Facebook could create a revolution, do good, and make billions in the process.
This is where I move from easy (critiquing) to hard (suggesting an alternative).
To be revolutionary, to disrupt a market, be prepared "to be misunderstood for long periods of time." That is Jeff Bezos speaking. Or, to quote Mahatma Gandhi, "First they ignore you, then they ridicule you, then they fight you, then you win."
One revolutionary who has been banging his drum for over a decade is Doc Searls. He became famous as one of the authors of The Clue Train Manifesto. Ten years ago, those authors heralded "The End of Business as Usual." Eerily prescient, they spoke of social media before it existed. Now that social media has arrived and is everywhere, they may be disappointed to see that business is very much as usual. They are seeing that when 300 million people get together to communicate, the end result is (drum roll, please)...
"Coca-Cola wants to be your friend."
For many years, Doc Searls has been promoting a radical alternative that he calls vendor relationship management (VRM). In simple terms, it the inverse of CRM. We first wrote about it here back in October 2007; its Wikipedia entry is here.
VRM is a wonderful idea that has largely been ignored, despite a passionate and highly talented set of true believers. It has limited traction, but hasn't seen the breakthrough it deserves.
Mark Zuckerberg, meet Doc Searls. No fee for the introduction, please. Do you two know each other? Are you already working something out?
VRM has suffered from sounding a tad academic. Proponents have not been able to show its relevance to real consumer needs. But relevant it is, particularly to three types of consumer-facing companies. I call them "the three horsemen of the consumer-clypse":
- Phone companies,
- Health insurance companies,
- Credit card companies.
I know, I know: there should be four horsemen. But these are the only three that come to mind.
These are companies that:
- Have services we cannot live without in a modern consumer society,
- Nickel and dime us and tie us up in knots because of the simple reality that a big company can out-negotiate the individual consumer.
Or, as the Beatles put it, more eloquently:
"You're holding me down,
Burning me round,
Filling me up with the rules."
The VRM model says, "I, the consumer, will tell you, the vendor, the terms under which I am willing to buy your product or service." A lovely idea. Consumers who have felt burned for decades would love it. It would do particularly well right now, when times are tough, and particularly in emerging markets where Facebook is growing and in which traditional consumer marketers (i.e. US marketers) are not interested because the consumers there are not rich enough.
Would phone, health insurance, and credit card companies love VRM? No, they would hate it, and resist it in every possible way... until, that is, they are faced with 300 million Facebook users all saying, "My way or the highway." Then those companies will see things their way. It's called clout.
The terms don't have to be outrageous. Companies have to make money, after all. If the price is genuinely too low, they won't play. This is less about the base price than about the nickel and diming pettifogging rules that you supposedly "agreed to when you clicked on that form."
In fact, the terms should be such that you would accept them the other way around, in which case they could even be used for peer-to-peer business as well. If a bank wouldn't loan money on those terms, would any peer from your network do so instead?
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Interesting idea, only problem is that people with $$$$$$$ or lots of time could still game a VRM system by proposing terms that vendors would really like, and vendors would/could simply turn away people whom they don't want to do business with -- poor people, for example.
It would require regulation such that customers could not be turned away etc.
Tom, I will leave it some VRM experts to address that question. I don't know the details, but I would be very surprised if they have not thought that one through.
Facebook trusted. That is a very big reach.
We have integrated many of the ideas of VRML into our service.
We put the community and members first.
I don't think you need a VRM expert to address Tom's question. Most industries do not cater to the very rich, since there are so few of them. Bill Gates doesn't dictate what cars will be sold in the U.S., even though he is the richest man. Even the three "horsemen" don't necessarily cater to the rich. Phone prices, especially mobile phones and plans, have been dropping in cost over the long run. That benefits the poor much more than the rich.
Nomination for a fourth horseman: consumer banking industry (I call on Scott Adams for support - http://tr.im/pS2i)
Ross, every Net based system is open to being gamed. Its the nature of the beast. So everybody who thinks this through has to work out how to minimize damage from gaming. What VRM basically can do is be a more market based approach than heavy-handed government regulation. Let a few hundred senators/congresssman work out how to do this? Not ideal. Take just one simple term. The ability to jack up rates based on some lack of response from you because you missed some small print (like you actually read that stuff?) or missed a deadline by a day.
William, yep! Credit Card companies and banks, hard to to tell the difference at times.
This is a great insight to Facebook. Things said here I have not thought of. Kind of makes a guy get up and think a little as to what he is doing.
Bernard,
I was specifically addressing whether rich clients could game the relationship with vendors to the detriment of the poor, per Tom's concern. Perhaps they can, but your example does not address that.
I certainly hope that VRM can address the other type of problem you are talking about.
Have you ever considered that perhaps the purpose of Facebook and most things Google is not to generate money? If that intrigues anyone I invite them to read my posts about privacy - especially those with the most comments in them - and particularly "When FREE Is Definitely Not: What Those Free Services Are Really Costing You".
Interesting thoughts, but i fear you are not seeing the broader picture clearly enough. VRM or no VRM, the equilibrium between consumers and businesses will always end up in approximately the same place.
Even if a VRM kind of thing is setup (and really, such things already exist indirectly though they are not really called as such), businesses would hardly gain much. From the consumers' side, being able to tell businesses what they want is really not going to cause any great changes because businesses are limited by many constraints beyond what consumers desire (economies of scale, mktg costs, logistics, response/dev times). The clout of grouped consumers will only push every industry towards the disaster that is the airline industry. And companies will fight back and you'll need another 'x'RM to fix it then. The competition between companies already ensures to a great extent that each of them try to deliver to consumers what the consumer wants while making money at the same time. So what you hope to achieve for consumers through a VRM is already achieved through plain old free market competition. The reason they nickel and dime is that compeititon forces them to build opaque pricing structures, transparent pricing leads to 0 profits in the long run. Even with a VRM, there is no reason to believe this will change.
Vendors would love to know what consumers want, and truth be told they already know about as much as they can or need to know. Lack of information is not really a problem for companies but inability to 'act' on information. So FBs claim of knowing everything about their users, is not really as much value added as it seems. Infousa, experian, choicepoint, epsilon/abacus know a lot more about these people then facebook ever will, and they have been around for decades. To be honest, whatever money FB makes is not because of the info they have, but the amount of time people spend on it. But that's a low margin business..
LOL,
'when 300 million people get together to communicate, the end result is (drum roll, please)...
"Coca-Cola wants to be your friend."'
Facebook jumped the shark already and they don't even know it. I barely use it any more, too much information overload. Many of the people I know don't use it as much because of privacy issues. It is too easy to for someone to steal identities from Facebook. Mighty MySpace tried to fly too close to the Sun and its wings are already burning, Facebook with their arrogance will soon follow.
Eventually, we should see a movement towards complete customization, where every product, every service is tailor made to your own needs. Are you left handed? Then keep the iPod headphone socket to the left, the lock switch to the right.
"Made to order" should be the key.
Facebook's attempt to make a system where we get recommendations from our friends is stupid (as per the Wired article). We all have our spheres of expertise. None of my friends know anything about social media; I couldn't ask them one thing if I had a question. At the same time, a few of my friends are medical students. I wouldn't know a pancreas from a liver if they ever asked me.
What we need are spheres of experts, where you can ask questions to the right people whom you can trust. This is the reason why WikiPedia is such a big hit.
I can see Facebook keep on growing, as they are slowly wiping out any competition they have, they are going to generate a lot of money, don't look at the small picture.
www.fliptexteffects.com
This is an idea, but the minute it actually started to happen the companies would lobby for laws to stand in the way and they would get their way. The only way to truly turn the table on the corps is to stop their ability to change the rules of the game anytime they want.
Facebook got too big, too fast to do it right. They are a vendor to be managed. They are also a vendor we can easily do without.
http://www.jeffschult.com/blog/2009/06/08/the-next-insanely-great-thing/
If someone gives me the tools I want to manage my online personage(s) I'll drop FaceBook as fast as my kid dropped MySpace.
And someone will. Curiously, it might even be Google.
Thanks a lot for that link Jeff and great article Bernard! I run a hyperlocal social networking site and I want to do things differently. It's nice to hear other people's take on what the future of this movement will be.
Fully portable identities in combination with social networking apps will kill Facebook in about ten minutes if they don't get their shit straight before then.
VRM is some key stuff, for real, but I don't quite see how Facebook will pay for themselves with it. Eventually some real smart dudes will completely annihilate the competition in every thoroughly-hated industry using VRM via social networking platforms. I've been hammering on some ideas regarding how that might go down, but honestly I think it will take some serious development, and I am highly doubtful that currently existing companies will be able to muster the balls to be the sort of company that dominates the 21st century until the method is well-proven. I think of it as more of an alternative method of business management and development that has not yet ascended, as business management techniques evolve slowly and we're just now getting so the necessary social and tech capability is there to do things radically better...
Anyway, like you said, the key to social networking is AUTHENTICITY. Coke can't ever have authenticity. It is fruitless for massive global corporations to talk about it-- when we talk about big corporations we're talking about great big sociopathic collectives that take every opportunity to screw over their employees, their customers, and their community if it improves their profits in the stock market, and then they lie to everyone in the glitziest way possible and attempt to brainwash their customers in their marketing. It's sleazy. It's that friend you don't leave alone in your house for fear that your game boy might go missing. As far as big corporations go, authenticity is a myth that idealistic consultants try to sell, it is a technique to co-opt, a marketing campaign to mimic in the most crude way possible. Authenticity for Coca-Cola is a bad joke and everyone knows it. Authenticity doesn't scale well, it's true, but only because these big companies are amorally malevolent bastards 90% of the time, and that's not changing until they get their asses handed to them in the market, which is pretty damn difficult in a world where Coke and Pepsi buys half the 'organic' juice companies and carefully neglects to mention that fact on the bottle while they dump enough money into marketing and distribution to kill the remaining truly authentic companies.
Coke is just a convenient example, of course. Few public companies are any better, to be honest. But I digress. Facebook is in a hairy situation-- they need to show a profit, and yet they'd be best off accomplishing that if they could go acquire a half dozen key companies without over-leveraging a money-losing business. I would heavily localize, incorporating an extensive business review system to their "coca-cola wants to be your friend" feature. Oops! There goes the profits again! Not that it was going to cover the gap, anyhow, though having greater image control set on a sliding scale according to the size of the company vs the overall reputation might be a good motivator... With a bottomless bucket of money, you could make a strong argument for building it up and building it up, continually adding features that screw over linked in, buy the tech from one of the better music social networking sites popping up and trying to outdo myspace in that area, and dumping whatever it takes to make it work, UI-wise. Release a really robust set of desktop applications to run it on just about every platform there is, make FB synonymous with computing itself, a true killer app. But still, where's the frickin profits? I dunno. Basically FB is becoming a new AOL, but there just ain't no money in this market for them to to go out and buy companies that actually make profits like their predecessor did.
Facebook's got an uphill battle, all around, no doubt about it. 300 million non-paying customers that cost them money and don't give a damn. It's a tricky time to be in business, that's for sure.
maybe Facebook can make profit if they limit their expenditure by limiting the user's usage bandwidth, but huge profits, maybe no..
I don't know how comfortable some people are with the idea of bartering, but it is starting to show up. As far as insurance companies, Progressive has a new strategy of "tell us how much you can afford and we'll build a plan for you". So yes, I think it's coming. I just don't know how many people are ready for a change to actually thinking things through.
(Reference Post #16 above) Read the Jeff Schult Blog article at http://www.jeffschult.com/blog/2009/06/08/the-next-insanely-great-thing/ and then read the InverSearch Blog and let us know what you think at http://inversearch.blogspot.com.
InverSearch has inversed the roles of individuals and businesses and professionals with respect to how they connect. See if this doesn't help the issue of different personae.
I propose we add ISPs as the fourth horseman. After all, France has already declared access to the Internet is a fundamental right (http://www.readwriteweb.com/archives/is_internet_access_a_fundamental_human_right_franc.php)... and, for once, I agree with the French courts.
I also find it interesting that all of the examples provided around VRM as a viable solution are industries dominated by oligopolies. For the non-economist readers, oligopolies are industries dominated by very few competitors and, generally, are not efficient (so the free efficient market arguments go out the window pretty quickly). Whether you want to site text message charges, opaque rate policies or arbitrary bandwidth caps, these oligopolies genuinely damage our competitive edge as a society (you'd have better cell service and high bandwidth access in a rice field in souther Korea, so much for competition).
I think the name has to go. You don't want to associate yourself too closely with CRM, given the rather tenuous value CRMs generally provide despite firms insisting they're worth millions in capital.
That being said, the VRM concept strikes me as something like a 21st century version of a consumer union. I've made the argument that unions are generally dead in fully industrialized countries (and killing several industries such as automotive along the way). Developing countries are another story, because developed countries have moved beyond industrial complexes taking advantage of workforces (mostly). Perhaps this is simply the next iteration along those lines for "developed" countries to mitigate oligopolies.
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Joshua: you're right about the consumer union, that's where it seems to be heading. There are some specific developments offshooting right now in the VRM community.
If you need a way of thinking about VRM, think about the demand and supply curve. For too long, our society has been dictated by the supply side - mass production, fixed prices - purely transactional. (Whereas for hundreds of years, our society worked as a market, where conversations and relationships also complemented the transaction side). VRM is creating a way to peronify the demand curve and make it more accurate - so that the demand side can now (rightly) dictate the market.
This is all part of the user-centric world being developed now, that a lot of the innovators in the industry are working on in a loosely coordinated way.
I've believe the VRM community has some brilliant minds contributing. The problem as I see it is that it's too grounded in philosophy, without practical implementations. That's not a bad thing, because the answers are still being worked out - but from my reading of history it sounds similar to the invention of hyptertext. Meaning it underwent several decades of innovation, discussion, and attempts - and it wasn't until a maverick developer who broke some of the rules - that it became a reality. That maverick of course, is Sir Tim Berners-Lee and his creation of the World Wide Web.
Ellias, good thoughts. But I think that the person VRM needs is more like Jeff Bezos. Somebody who connects to a deep consumer need and executes relentlessly to serve that need. Doc is like TBL in this story, don't need another one, need a different person. In this case I think standards will be created de facto by market success, not by committee. I will write about that person when I see them for sure.
There will be a very big difference defined with what is business and what is actually not,otherwise proof signifies that competition wd out weigh fb.
For now,Innovation shd not be an issue,practical is the part. There's so much reasoning instead of actually training,supply and market flow gets in presumptive action.
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Much of our business development goes forward like looking in the rear view mirror to drive a car. Bernard this is a good article, and raises some important questions.
I have been studying actor-networks for about 12 years, I started as an academic, studying small business users of the Internet - but I've also developed some systems to build a bridge between customers and providers.
I too believe Jeff Bezos is someone we can look to as a visionary who looks forward to imagine new opportunities with these "technology tools". I think "consumer centric" thinking is not where the focus should be. That model is well developed in corporate America, and Internet businesses have been looking at and exploiting that model to the nth degree - and as mentioned by others, the bridges have been burned.
Where I believe the opportunity lies is in examining user behavior as far as "personal utility". What is actually happening as a result of all of this "social networking"? I think after awhile people start to examine what kind of benefits they are receiving from spending all of this time at Facebook, or any other social network for that matter (like the T.V.). After awhile the clever games and quizes aren't satisfying people's basic needs for personal rewards - or to connect with others of similar interests and then to actually "do" something. Bernard when I saw the title of your article what came to my mind was - the possibilities for Facebook to be an "agent for change" in the world. This is an important article Bernard, and I have seen some interesting comments here (e.g. Elias). And like the Google example, if the right model is found that satisfies basic human desires and brings rewards for time spent, I believe the business (and money) will follow in due course.
I think Facebook's opportunity lies in asking the questions, "Ok, now that we have all these high-school and college friends re-connected, what are we going to help them do now? Oh yeah, has anyone thought of how we could support these "groups"?
I remember seeing an article about FB in Fast Company a few years back - about there being over 4000 applications (back then) that people had developed. I imagined it as a huge "toy-box". But the thing is, eventually after you've played with all of the toys, people generally want to go out and do something a little more useful. There is a lot of creative energies flowing in the world, and FB, with 300 million users, could really shake things up. But I think this is a classic case of technology people not really being able to think about how what they make can really help people - they are into making the stuff.
I'm looking into opportunities to take the Internet as a communications "tool" to the next level. If others would like to venture into a dialog beyond just "a posting" please drop a note.
Doc Searls has a good take on this - see:
I have reproduced my comment on his blog here:
http://dv8-designs.com/2009/07/the-trillion-dollar-market.html
Doc, thanks for the link. This hits the nail on the head. The one thing that does not change is the law of supply and demand and right now we have weakening demand and growing supply. So the sensible business decision is to represent the buyer and not the seller. In the past that was a crazy idea as demand could not be aggregated. Social media makes it quite easy to aggregate demand, flash mob style.
Although I wrote this about Facebook, I think that they are the least likely to make this happen, still too mired in old school thinking and, sadly losing trust. MySpace is run by a guy who has always served the advertiser, so don't expect a change there. The real possibilities:
1. Twitter: a nice clean sheet as far as monetization is concerned.
2. Google: they have the financial strength to take a risk and need to show that they are still innovating in social media, not "tradigital"
Fun revolutionary times on Independence Day :-)
Thanks a lot for that link Jeff and great article Bernard! I run a hyperlocal social networking site and I want to do things differently. It's nice to hear other people's take on what the future of this movement will be.
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I think a decent model for this might actually come from Facebook already. When they had their TOS debacle, earlier this year, they let users into the decision making process to find a new set of terms.
Sure, the process was flawed and only let the users choose between two possible outcomes (and required an impossible percentage of users to get involved). But imagine if this process went through a few iterations, and allowed for more of a negotiation. That could be a killer app for any Facebook Page, and some forward-thinking brands would certainly sign up for it.
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great article with great comments until the seo spammers started to muck it up
"great article with great comments until the seo spammers started to muck it up" I agree!
Nobody has made full use of facebook . It is a great tool .
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After this I will read all your posts thankful.
Aren't companies like Progressive Auto Insurance the closest thing to representing the VRM model? You buy the plan that fits your needs piece-mail like? Just trying to think of some other vendors with similar offerings....Burger King, Apple, other computer manufacturers? Mini?
Thoughts?
Joe