Zynga apparently outperformed Facebook by 3x in net profits. Is Facebook in the wrong part of the eco system?
Death by advertising, according to the Economist
So the Economist has an interesting article up on how many large consumer web sites are having problems monetizing their audience’s usage. The point being that advertising isn’t ramping up enough revenues so these services now have to start charging for their services, which is difficult since barriers to entry are low and the user’s will then flee to some copycat service providing the exact same service but for free. And this service will do this for a while and then they will have to start charging and people will flee to another service, etc. etc. etc.
The article is somewhat ironic considering that it’s available for free, on a page surrounded by ads ;) Put that aside, I think that the article misses the mark somewhat since it assumes that Google AdSense is the the be-all-end-all approach to online advertising. And if that didn’t work, nothing will.
But AdSense only caters to the part of the marketing budget that is focused on channeling existing demand, and most advertisers (regardless of the economic climate) still want to invest the majority of their budget into creating new demand, driving new behaviors etc. And we still have no AdSense for that. But for whatever reason, there has been very little innovation in terms of ad technology since AdSense was launched, and most VCs and startups have been focusing on increasing usage, not improving technologies to better monetize that usage. The “solution” lies in enabling a more creatively driven approach to advertising, making it easier for agencies to leverage all that technology that we’ve created over the last few years. Much like what we’re trying to do with Burt.
My guess is that this downturn will lead to a surge in companies that focus on how to better monetize usage. And that the end-result for driving revenues will be a hybrid model, that charge money from both end-users and advertisers. Hum… where have we heard that before?
New Facebook UI: a better architecture for participation
After a few delays Facebook is set to launch their updated UI on monday, though anyone with an FB account can already access the new look and feel on http://www.new.facebook.com/.
I find it kind of funny that people are nagging about the delayed launch. It’s about a week late… which is quite decent considering the rule for most pre-announced updates/launches in the software business seem to be a year or two past the original date (if they’re ever launched).
Anyhow. I think it looks quite nice. They’ve got rid of the bulky, cluttered three column layout, in which both the outer columns were almost always wasted. The feed itself is very friendfeedesque, though I think it’s fair to say that Facebook was doing the whole activity stream before the Friendfeed guys quit Google ;) Calls to action in terms of participation are everywhere, pushing the user to add updates, photos, notes etc., but I think they’ve done a solid job in balancing the number of calls for participation on each screen.
Their aim is obvious: make people talk. Their strategy for this is creating more reasons to talk and making it easier to do so. Or in pseudo-Internet-social-psychology-babble: they’re increasing the number of social objects on the site and lowering the threshold for participation.
Conversations equals stickiness equals more conversation equals more stickiness etc.
Overall it’s a job very well done. The layout is a lot more flexible and easier on the eyes, and the navigation is more contextually relevant and much less invasive. And most interesting of all: the new layout and uncluttered interface makes the site a whole more interesting for advertising. Maybe they can finally push their RPU above 5 dollars/year? ;)
Quality of (social Network) advertising
Mashable has a quick poll on which social network provides the “best” ads, and naturally you get the “I hate ads, I never watch them…” etc. arguments in the comments. From the people who probably think that selling Coke using AdWords is a swell idea and the most appropriate way to market a drug that took 6 billion dollars and 12 years to develop would be using Twitter and YouTube virals.
Truth is, no one wants “to be sold”. We don’t like the feeling that we’re getting manipulated and that our tastes and behaviors fit in to some sneaky strategic planner’s description of a target audience. Because we think more of ourselves.
We quote stuff like “banner blindness”, “increased clutter” and “marketing savvy consumers” to imply that we as recipients are getting smarter. However, so are advertisers. Well, maybe not all of them … but all over the world advertising is alive and doing very well thank you.
People are still responding to advertising in the way we want to, meaning that being exposed to an advertiser’s message increases the likelihood of someone taking a preferred action further down the road. And you’re not different. Deal with it.
As for the social networks and their appaling low CPMs, which is certainly a testament to the fact that despite the humongous pile of data available to their dataminers, good ol’ content is still the most reliable source for relevance.
Not that this won’t change though. I’m pretty sure that reactive ads like that of my pet project Burt will completely change the advertising economics in these networks, and some clever chap in a research lab is probably working on some way to use conversation (instead of content) as context for advertising. Dialogue based, contextual advertising, perhaps? “Conversational advertising”?
The social networking sphere is still waiting for it’s Overture. But it’s out there, and my guess is that paying $1CPM to advertise in a data rich, high involvement environments like Facebook or MySpace will be long gone in two years time.
Facebook’s trojan horse (yes, another social app platform play)
Obviously Facebook agrees with my previous post, the most interesting stuff in social networks isn’t the social networks themselves. Or else, why on earth would they release fbOpen?
Details are a bit scetchy right now but the outline looks like they’ll be open sourcing the FB App platform so that anyone can deploy FB Apps on their Social Network.
Are they caving for the pressure to skip the walled garden or what’s going on in downtown Palo Alto? Probably not, my guess is that they’ll integrate some kind of advertising scheme in the FB App platform going down the road so that the apps will work as a trojan horse and make it possible for them to monetize users in other social networks. Would be damn clever if it were the case.
Ahhh… a distributed money making machine… where have I heard that before?
The most interesting social network?
So the other day I get asked which social network I found most interesting right now. Since social networks have been kind of boring lately I answered “Facebook”, motivating it with some lame rant about them being first to correctly model the user’s social behavior, the feed (which I actually don’t find that amazing) and then showing that they weren’t just a one hit wonder when they launched their platform play. Yawn. Right?
But what would be the “right” answer? After thinking about it some more, I still find Flickr the most interesting one, since they managed to cultivate such a creative atmosphere, look and feel. Or maybe it’s LinkedIn, aspecially from a business standpoint with their sky high RPMs, potential for becoming (they already are) a major player for recruitment etc. Or maybe it’s the metaplatform play of Ning, the social network to end all social networks?
The right answer, of course, is no social network is interesting by it self. At least not anymore. The interesting stuff are the services and features that can be enabled the social web as a whole, by using the social graph (lacking a better word) and the content produced with social distribution in mind. I can’t see why Facebook, MySpace and others will be able to keep apps from being distributed, since the limitations in those environments limits the quality that one can achieve in terms of features and user experience.
So the companies to watch aren’t the social networks in themselves, but the initiatives leveraging multiple social networks such as Slide or Rockyou, or data portability such as MySpace/Google Friend Connect, modular publishing platforms such as Wordpress etc, pushing the platform from being an individual social *network*, to the social *web* as a whole.
Online advertising: now what?
So 2007 was the year that Internet made it to the big league as an ad medium. In Sweden, it’s suppposedly the second largest paid ad media, after print.
But what happens now when Internet needs to pull it’s own weight? No TV or radio to help us drive awareness of our fabulous campaigns. Or at least less of both, and less print as well.
Banners? Widgets? Gadgets? Facebook apps? OpenSocial apps? Text ads? Advertorials? My guess is that 2008 is the year we find out.
Will Facebook allow negative word-of-mouth? (On Social Ads)
Finally. Facebook has announced what their Social Ads play is all about. Exhale. Turns out my Behavior Targeting prediction wasn’t correct. Water under the bridge. Anyhow, besides targeting based on user-info (wtf were they using earlier? hahaha), improved analytics (zzZZz…) and the ability to create an official company presence (in case you don’t have a website), Social Ads (including Facebook Beacon) is basically a Word-of-mouth-play.
Word-of-mouth (WOM) was actually all the rage a couple of years back in the marketing community. Books like The Tipping Point, Cluetrain, Anatomy of buzz, WOM Marketing etc. are all great reads, discussing the ins and outs of WOM, why it’s so important and when it isn’t. The Cluetrain manifesto says it best, when claiming that “All markets are conversations”, which is not completely true but close enough.
The fueling idea behind WOM is that advertising is not trustworthy enough to drive our consumption behavior. Instead, we rely on the advice and input (directly or indirectly) of people we trust.
When approaching WOM from a broad perspective, it’s tempting to venture in to the discussion on wether “mega-hubs” are really WOM. Regular hubs are a basic network term, referring to network nodes that have more than one connection. To be WOM specific, hubs refer to people that interact and influence many people on a given subject.
The mega-hub concept was coined by Emanuel Rosen in “The Anatomy of Buzz”. A bit simplified it refers to instances that “broadcast” their choices to many, many, many people that they most likely have no a personal relationship which. Oprah. Tiger. Arrington. Mike. Blah. Blah. Personal publishing platforms such as blogs has certainly blurred the line between hubs and mega-hubs, but I’ll leave that intriguing discussion for some other time or someone else.
There is also the financial dimension to take into account. Oprah has somewhat of an indirect revenue model, involving heavy barter with guests, prizes, publicity etc. for her endorsements. And sometimes it’s a direct revenue model, as with the Oprah Book Club. Blogging also involves a variety of revenue schemes; Amazon affiliates, Payperpost etc.
But today we’re talking Facebook’s Social Ads concept, which includes neither mega-hubs nor obvious revenue streams to those endorsing products. Instead, the driver behind peoples’ recommendations is simple: it gives them social recognition, and if you were right in your recommendation, more trust (which reinforces the previous sequence). Both social recognition and trust favors you in natural selection, so your genes get propagated and that’s basically why we do it in the first place (pretty much like everything else if you believe Richard Dawkins).
Marketers that want to leverage this fundamental consumer behavior insight and create buzz are should follow these steps:
- Create something worth talking about. Something that is exceptionally good, beautiful, funny etc.
- Craft a stories around your product. Stories are easier to remember and more convincing when told.
- Make it dead easy to spread the word.
For example, my Bose QC3 soundproof headphones are an amazing piece of technology that looks stunning (1. Worth talking about. Check.). I tell who ever will listen about how I use them to be undisturbed when working in crowded cafés or noisy parks etc. (2. Story. Check.). In their leather case, there’s a bunch of business cards, which are to be distributed to people inquiring about the awesomeness of them. Which I have actually done, many times(3. Dead easy to spread the word. Check.).
The point here my friends, is of course that my influence on you and other people is of value to the marketer, in this case Bose. And Facebook wants to “monetize” (oh, horrible word) the value that I created. Theoretically, the story for Social Ads is dead on:
- Word-of-mouth is awesome. Yay!
- Word-of-mouth is social.
- Facebook is social.
- Facebook is Word of mouth.
- Facebook is awesome. Woot!
Most objections to the Social Ads scheme is that nobody wants Coca Cola as their friend. Integrity. “Real people” will never sell out. Who will have the time to engage with these things. Blah. Blah Blah. Yada. Yada. However, most of these reactions are actually borderline stupid.
- People will add brands as their friend - conspicous consumption is not a theory…. Besides, at Daddy we’ve successfully plugged in characters from our campaigns in both MySpace and Facebook. Lots of friends for them, everyone lived happy.
- Fear about lost integrity? Omg please, all consumer trends point in the exact opposite direction, so for now the privacy issue is a purely academic discussion.
- And people will “sell out”, at least in the sense that they recommend products to other people. One might object to why they do it, but it’s there and doing the job. Reviews, recommendations etc. are all over the net since just about forever.
- No time? But of course we do: Facebook’s popularity (and maybe blogging) is the ultimate proof hahaha
Social recognition is a powerful driver, and it’s interesting to see how Facebook’s play will pan out. My initial prediction is that it will fail, at least if the objective of Social Ads is to become the new Adwords, and Beacon is to become the next AdSense. Wanna know why?
Nuance and choice.
The consumer landscape is not just a happy place. People hate some brands, and some brands seem to hate people. How is Social Ads going to account for the negative value that WOM can have? Store credit? Cash pay out to bashed brands? Because without nuance, no credibility. It’s just that simple.
Logic is that by being the platform that allows the conversation to take place Facebook is entitled to cash payout. But what about me wanting to recommend a brand that isn’t a paying customer? Can I only choose from the companies that are paying to be inside the walled garden of Facebook?
Reminds me a bit of the problems facing Price comparison engines; just substitute “conversation” with “e-commerce transaction”. Same logic applies; comparison engines facilitate the transaction and charges money for doing so. Problem is that charging for being the list raises prices, so some stores don’t want to pay because they can be cheaper without being in the listing. So they skip paying, but the comparison engines can’t boot them off ‘cause that would ruin the whole purpose of the engine for users. So they try and balance these different customer tiers against their own interests, and their customers’.
Facebook is far from the first company to realize the value of WOM. But WOM schemes are usually a slippery slope, usually since they focus too much on their own and marketer’s POV, neglecting key factors such as nuance and choice. Real WOM isn’t about money. That’s the whole point. It’s about creating value. Doing something insanely great that puts a dent in the universe. Maybe Facebook’s Social Ads will be a way to decrease friction in spreading the word, but it seems to me that they must follow thru a whole lot more for that to be the case.
One dayz we’ll all h4s cheezburger
I can’t stop being fascinated by the lolcats-phenomenon. For those of you not familiar with what lolcats, it’s basically a picture of an animal with a funny caption.
The picture can be created by anyone with less than basic skills photoshop, imageready or even windows paint. The Google of Lolcats, I can has cheezburger, has even created a deadsimple editor - The Cheezburger Factory - that enables even quickier to create these funny captions. They even provide images, if you don’t have any of your own.
The lolcats created in the Cheezburger factory lolcats are published to get rated by other users and the best end up on the front page, a Digg for lolcats if you may. What’s really interesting is, that the real explosion of lolcat-consumption is directly correlated to the launch of the Cheezburger-factory. So what we have is:
- Clearly defined contraints (funny animal picture + caption)
- Super convenient publishing platform
- User refined relevance mechanism
Recognize it? It’s the same pattern that has driven blogging, Youtube, Facebook etc. Constraints drives creativity, makes sure that submitted content is somewhat relevant and lowers barriers to creation; a simple publishing platform lowers barriers to creation even further; and the user refined relevance mechanism creates broad commitment and assures quality thru emergence by making sure that all the crappy lolcats are kept out of harms way (for all but the most obsessed fanboys).
You gotta love it. Not sure wether lolcats will survive in the long run… but funny animal home videos are pretty similar and they’re still prominent on most funny-home-video-shows on TV, right? Lolcats or not, it will be interesting to see what other kind of alternative culture that will spawn from platforms built on this pattern.
The Machiavellis of Mountainview
I tip my hat off. You have to hand it to Google, the OpenSocial coup is one sweet PR blow to Facebook. The name? Fantastic. And the timing is just insane. Hardly a coincidence, though.
However, I don’t agree with the Oreilly Radar’s opinion that Facebook and MySpace will not join the party. How could they not? They’re being painted as the bad guys by the very slick PR-geniuses over at the Googleplex. Quietly disguised as a more convenient way for developers to develop social apps:
The web is more interesting when you can build apps that easily interact with your friends and colleagues. But with the trend towards more social applications also comes a growing list of site-specific APIs that developers must learn.
But it’s so much more. If successful, the long term effect is that the value of “owning” the social graph will evaporate. The social dimension will be much more a “feature” than a “product”. Wich is definitely the way it should be. Maybe Brad’s portability scheme will come true? I hope so; it would be for the benefit of everyone (but Facebook heh). Btw, if you haven’t read Brad’s thoughts on the social graph before, you really should. It’s digital idealism at it’s finest.
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