Beacon and other forms of advertisement have no place in Social Interaction

Facebook is bringing us back Beacon again. According to Nick over at All Facebook Beacon had not really disappeared. It was just less intrusively in sight. A little storm appeared on Techmeme over it.. For the very few of you that failed to hear about Beacon before. It’s Facebook;s attempt to monetize the user data and social graph from their 100Mln users. Facebook is, just like almost any other web 2.0 site, unable to create enough advertisement revenues to justify their $15Bln valuation. Beacon is their attempt to create more advertisement revenues.

Personally I believe that the future of on-line advertisement lies outside of social networks. If I’m connecting with friends, whether I know them in real-life or just on-line, there is no room for advertisement. It sits in the way of our interaction, adding zero value to the conversation. I don’t see the difference between on-line or real-life behavior.

Let’s make this Beacon and other social advertisement projects a bit more practical and project it to your normal life. What would you do if you found out that while you were sitting at your rented home taking to a friend, the house owner is recording your conversation, your relationship with this friend, the way you have decorated your home, what movies you like, what political views you have, the coffee brand you are using.  What if that house owner takes all this information from you and then uses it to provide you a better advertisement experience?  Would you enjoy the commercial message? Think wow, what a cool brand, this is just what I need? Glad that I know this house owner who brings me this cool stuff?

Somehow I doubt that. More likely you would either sue the house owner for breaking in to your privacy. Or, you might find your copy of the rental agreement only to find out that somewhere on page 12, buried deep in incomprehensible juridical language it says that the house owner is allowed to do all this. Would you stay in that house? Or get out of there to find a place that is yours?

People often react a bit uncomfortable when I provide this example. I am always surprised how little people understand about the way they are tracked and traced on-line. I’m also amazed to find that  tech savvy people often don’t seem to mind. We seem to have a fait accompli attitude towards free ad based business models. You get stuff for free right, so don’t complain about it. I find that attitude dissatisfying. As if there are no alternatives and we just have to live with it.

So why do we not accept this in real life but are we willing to be tracked and traced on-line? I believe that there are two basic reasons for this behavior.

The first one is naivety. I believe a huge part of the people on the web do not realise nor understand the length at which they are watched. I doubt many have ever tried to read the terms of use or privacy policy of any web service. Too much unreadable text, so why bother. But there seems to be another reason, and it is more subtle. I believe that people aren’t concerned as much with protection of their privacy on the web because their real lives aren’t taking place on the web.  It seems a less real place. A place where your digital self can travel around, play, have fun. But that digital self seems to be partially disconnected from real life for most. As a result we tend to use different behavior or values when we go on-line. It isn’t real so it’s not as important. We seem to find it justifiable that anyone on the web can invade our privacy and use our data, our interactions and our profiles for commercial reasons.

Facebook does this particularly well. They provide you privacy controls to set your privacy level. This provides any naive user the comfortable feeling that he and his privacy are safe with Facebook. But what this user doesn’t seem to understand is that Facebook merely provides you privacy controls against third parties. The question no one ever asks or gets answered is, “who is protecting you from Facebook”?

The answer is no one of course. Facebook offers privacy controls for everything but Facebook. Once you sign on your soul is theirs, and they get to commercialize it any way they can. They tell marketeers that a new era has begun in advertisement. Marketeers see advertisement wet dream appearing (what do they know, marketeers are idiots). The user is left in ignorance, providing him a false sense of security as Facebook protects their privacy. And in the end old school advertisers get to pay for this mess as users continue to ignore advertisement that provides them no value. A great business model. Such a waist of energy, of creativity, of user value and of advertisement money spend.

Privacy is the most under discussed, underestimated and undervalued theme of what we now call web 2.0. Even Tim O’Reilly feels that we’re not doing ourselves a favor with these business models. But I would take it one step further. if Tim gets his way data will be the future. But who is going to control that data? If we go on like this it sure isn’t going to be the user. No one is building services that help the user get a grip on his digital tracks. There is no business model for it. We need to open up, give the fellows even more data to ensure that they can all live a prosperous and wealthy live as web service owners.

I’d like people to challenge that line of thinking. We need think more about privacy and start thinking user value. We need developers to build tools that help users control their privacy. And we need entrepreneurs ad investors that build user value based business models. Chris Messina provides a good example of this line of thinking in his Diso project. He is doing the right things there.

I am a bit behind on my reading. While I finished this post I noticed that Skott Karp has a very similar post up now in which he questions why Facebook doesn’t make more advertisement revenues. His conclusion is the same as mine. Advertisement doesn’t provide the user any value in social interaction.

Facebook popularity will decline because of a wrong business model

In Dutch culture people rarely stand out of a crowd. There are a lot of sayings that (badly translated) essentially say something like: “just act normal, that’s crazy enough”, or “don’t stick your head out”. We all try to fit in, be the same and feel uncomfortable when people stick out of the crowd. If someone performs better than others, he or she almost apologizes for it (I was just lucky). In Holland it is not abut winning, it’s about playing the game. That’s probably why we will never win the world cup in soccer, in general perform good but not great on important tournaments like the Olympics or world cups.

Interesting enough a very similar tendency can be seen when people discuss the success of web companies. There are a few untouchables, companies we never speak badly off. Google is great, and there isn’t much it can do wrong.

In other cases however we tend to be more harsh. Think about the monopoly Microsoft had the past years and the way people started reacting to that. In some cases this leads to annoying customers or press, but sometimes it also leads to innovation and competition. If Microsoft hadn’t tried to monopolize their Internet Explorer there wouldn’t have been a Mozilla organization that is now celebrating it’s incredible 500Mlnth download of their popular Firefox web-browser.

It seems that when a new web initiative is showing incredible growth figures we tend to wait for it to start making mistakes or showing decline again. After the initial “wow” people start thinking about how this unnatural growth can’t go on forever and when that day comes, we all knew it would happen, right? This is exactly what seems to be happening with Facebook right now. They have been able to create unprecedented growth in the past 2 years and are now one of the largest Social Networks worldwide. But now bloggers are declaring Facebook to be dead after they had a first dip in their growth figures. In January 2008 the number of Facebook users declined from 8.9Mln in December 2007 to 8.5 Mln in the UK. This was the first decline after a 712% growth overall in 2007.

Why does Facebook stir up such emotions? Why are people waiting for them to fall? Is it because they grew too fast? Because they are constantly measured against the success of Google? Is it because Mark Zuckerberg seems to be having a difficult relation with the press and the blogging world? Or is it because people just love to see something so successful break down again?

I’m not sure. But I do know that screaming out loud Facebook is dead because of a small dip in the number of users in just one country is plain stupid. There are web services out there that wouldn’t mind having such a dip if they also had the number of users and traffic Facebook still has.

Personally I think Facebook will face some really difficult times and I have doubts if they will remain as popular as they are today. But I’m not basing this on a small dip in the number of users. I’m basing my opinion, for what it is worth, on their chosen business model. Facebook has fallen into the $16 bln advertisement trap and they can’t and won’t get out of it. I started a countdown on the downfall of Facebook a while back already. The business model, based upon providing a free service and compensating that with ad harassment, has an incredible upside. It allows services to attract users really quickly and show remarkable growth figures. But with the almost unnatural growth comes the pain. Facebook has faced platform issues. They face the backlash of unsatisfied users that organise themselves in protest groups within Facebook. They face the press and blogging fury that arose when they tried to monetize the build network using SocialAds and Beacon. They have to deal with friend spamming, which is caused by 3rd party application builders that want to lift off of the success of Facebook to create their own glory and fortune. And now they face the press that can smell blood. And all of this isn’t because of Mark Zuckerberg, the incredibly childish or lobotomy like applications Facebook has to offer its users. It’s the business model.

If your business model is based upon monetizing of the Social Graph or network that has been build then you are bound to make the network more valuable than its users. It means that spamming friends is ok, because in some cases these friends might just sign up for yet another zombie-like application. It means that showing ads to relevant profiles is more important than trying to get a meaningful interaction between a user and a brand. It means that customer lock in is much more important than customer or data portability. It leads to the false illusion that sheer numbers of traffic and number users are more important than the quality of the service you provide. And most important of all, it distracts you from the one thing that makes you different from all your competitors. The fact that you are there to provide the user value. Once you lose that notion, your business is likely to decline. And that is what will happen to Facebook and the like in the end. As long as they aren’t monetizing user value, they will be fighting a cause that will be lost in the end.

That is why we like Google so much. Google monetizes user value. They use advertisement, just like Facebook. But they have managed to make the advertisement in itself valuable within the context the user gets to see it.

That is also why Firefox will win in the end over Internet Explorer. Not because of their 500Mln downloads or their technically superior product. No, it will  be because they have chosen to open up the browser. to develop and innovate it with and by its users. To be open about the mistakes they have made and the bugs it still contains. And the assurance they will resolve those to make it a better product.

Facebook isn’t going down because we are all jealously waiting for them to fall down. Facebook is in trouble because they are forgetting the one thing that is really important in business. Provide the customer with value!

I will end this by quoting Rolf Skyberg who has said it better than I could have:

This “luxury lens” also puts close scrutiny on some topics like “social networking”. Is the value you get out of social networking in any way a luxury?

If you had unlimited resources (money), could you deliver a better and more profoundly useful experience than we’re seeing with FaceBook and MySpace?

If the answer is yes, then you should get on building it, because obviously somebody is not delivering on an opportunity.

We need a revolution in ads, but this ain’t it yet

The Wall Street Journal just published an article written by  Esther Dyson, called “the Coming Ad Revolution”. It is an interesting article. I think Ms Dyson starts out right when she discusses the current bombardments of ad pressure that ultimately leads to users ignoring ads. She says:

This market will get more competitive, and users will be barraged by ads to which they will pay less and less attention. Call that public space, a world of billboards and cacophony. Even though the ads will be more “relevant” than ever, users will increasingly tune them out.

So far so good. But I don’t agree entirely with the rest of her article. She continues with:

Now consider the new world of social networks. Facebook, unwittingly or on purpose, has been teaching people to manage their own data about themselves. Facebook’s launch of the Beacon service — which informs Facebook of members’ activities (i.e., purchases) on other sites — was a PR fiasco. But it still familiarized millions of users with the notion that they can control information about themselves online — and determine to whom it is visible.

What might seem like a horribly complex and tedious task to their elders — categorizing “friends,” managing news feeds, handling intersecting communities of contacts — feels natural to the Facebook users of today. They want more granularity of control, not less.

I agree partially with Ms Dyson here, people need more granularity of control. I doubt everyone understands that yet. Once people become less naive and begin to understand what Facebook and other social sites do with their profiles, more people will want to control which aspects of their digital lives can be used or not. But she goes on to explain how this behavior will help change the advertisement scene and provides us with a traveling example.

So what’s the business model? I’ll “friend” British Airways, which will say, “We see you’re going to Moscow next month. Why not fly through London and we’ll give you 10,000 extra miles?” I’m no longer in a bucket of frequent travelers, my privacy protected. I’m an individual with specific travel plans, which I intentionally make visible to preferred vendors. British Airways, of course, will pay Dopplr a handsome sponsorship fee to be eligible to be my “friend” (just as a Nike rep might pay to sponsor a basketball game and be part of the community). Someday NetJets may show up, offering to ferry me and my friends to a conference we’ll be attending together.

I’m far more likely to respond to BA or NetJets within a trusted site, and for a specific offer, than I am to heed their ad while reading a newspaper article on the troubles in Russia. (As for Orbitz, my old standby: After five years, it still doesn’t acknowledge my preferred airlines.)

I couldn’t agree more with her that this is a good example of a commercial message adding value to my actions. But there will be a long way ahead to reach this excellent fitting proposal from an airline. It assumes that not only I have taken action to allow British Airways to provide me offerings, but it also assumes that British airways, or any other advertiser for that matter, knows or can infer enough from my on-line behavior that they can provide me with a matching proposal.

The power of search is that when I search using a search engine, I essentially tell the advertiser that I am looking form something. In that case, providing me with an advertisement or commercial offering that matches what I’m looking for is not a difficult task. Hence the success and domination of Google. But, if computer systems are going to predict or analyze my on-line behavior and try to match that with an advertisement or commercial offer that comes at the right time with the right content is much more difficult.  It is precisely for that reason that Beacon failed before it even launched (privacy aspects not even included). Even if Facebook has found out that I have an interest in cars, a commercial message or offering for a new car will only be useful if I am looking for it at that specific time. If I happen to be talking to a friend on Facebook and we chat about cars I would probably be annoyed if a car ad would pop up in that conversation. It would likely make me distrust Facebook. If I start looking at car sites, because I’m looking for a new car, then it wouldn’t be a problem. It isn’t just about content, previous behavior or profile. It is also about context, trust, and things I’m doing right now.

I believe that Ms Dyson is right about the user getting fed up with advertisement. Advertisement is simply one company yelling at a user, who does his best not to listen. Targeted advertisement doesn’t really change the underlying issue, it doesn’t matter how sophisticated it is. It is still one way traffic, and the user can and will ignore it if the context isn’t right.

Providing the user with value is the best way to go as the example from Ms Dyson above shows. But the question is if there is enough context in which this value can be provided when we look at the amount of advertisement money spent on-line. Current on-line advertisement is old-school billboard thinking, translated to the on-line world. Facebook SocialAds and Beacon are potentially powerful advertisement tools which happen to be in a totally wrong context where friends interact. And friends that interact don’t want or need commercial interruptions.

There is still one area in which targeted ads, behavior, preferences, interactions, profiled information can help.

It is in search of course. If I am looking for something I’m essentially opening up the door to advertisement and commercial offerings. Who is going to build me a tool in which I can deliberately contact advertisers to tell them what I’m looking for? Sometimes a direct interaction can be so much simpler than all these indirect behavioral mechanisms to find out what I want. Why not let me ask for it? Now that would be a revolution in advertisement.

 

Social networking may be declining, social interaction won’t

I read a Business Week article this morning which suggests that the current MySpace generation is becoming fed up with the ad bombardments on the site. They seem to be spending less time on MySpace because of it. A quote from the article:

The MySpace generation may be getting annoyed with ads and a bit bored with profile pages. The average amount of time each user spends on social networking sites has fallen by 14% over the last four months, according to market researcher ComScore. MySpace, the largest social network, has slipped from a peak of 72 million users in October to 68.9 million in December, ComScore says. The total number of people on such sites is still increasing at an 11.5% rate, but that’s down sharply from past growth rates. “What you have with social networks is the most overhyped scenario in online advertising,” says Tim Vanderhook, CEO of Specific Media, which places ads for customers on a variety of Web sites.

I don’t really know if we are now seeing a decline that marks a steady downfall of the current social networking sites. There seems to be contradicting numbers around. TechCrunch, for example, showed in January that Facebook is still growing in traffic, while MySpace is going down. According to Mashable traffic is increasing and they use a totally different measure, using the traffic measures from one of the largest content delivery networks Akamai. According to Akamai, they have delivered 5 times more data over their network to social networking sites in the last year. this suggests that people are spending more time on social networking sites.

And then there is the information Google provided for last quarters results. It suggests that Google has trouble monetizing ads on MySpace:

CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”

So what does all of this mean? Well, for starters, monetising social networks through ads is hard. If Google, best in class,  is still struggling with this then you can imagine others will have similar problems. I believe that ads in itself provide little value to the users in social networks, and for that reason it is a faulty business model. Essentially the same thing happens on a web page as on TV. People will ignore ads when the ad itself does not provide the user any value in his actions. Ads work in search because you are looking for something, but do not work when you are interacting with a friend. The ad itself doesn’t provide extra value to the interaction. It is as if you and I are having a drink in a bar together, and the bartender keeps drawing our attention with commercial messages. It’s annoying, and most likely, we will simply go to the next bar to grab a beer without commercial interruptions.

SocialAds launched by Facebook have, and will, experience the same problems. Although the underlying mechanisms might be smarter (Facebook watches you and your friends like a Big Brother and uses your profiles and interactions to match ads) it essentially doesn’t solve the real problem. There is no room for advertisement when people interact. And their first Beacon attempt wasn’t a success either. Facebook got an overwhelming negative response mostly because people didn’t like it that the feature couldn’t be turned off or that it would invade privacy.  In my opinion, the beacon system is build upon a wrong assumption. it assumes that mimicking the “advice from a friend” on-line will help increase sales or better targeted advertisement. As I have said earlier, the interaction you and I might have when I tell you about a new car I bought isn’t the same as the beacon message in my newsfeed that says that “Alexander just bought car X on site Y”. In the first example there is trust, talk, emotions, gestures, the opportunity to agree or disagree with each other, in other words true interaction. In the second case there is a “computer system” that tells my friends I just bought a car. Not the same, and not enough value to help my friends to buy a car too.

I believe for this reason current most popular social networking sites will either evolve into something better, or disappear all together. I don’t know if the figures I started out with are a measure that show this decline in popularity, but I’m betting on something that is a constant factor throughout. Social behavior. People have jumped on the social networking train to be part of its success. But now that the hype is over, the question becomes if these sites provide the user real value.

Building and looking at other people’s profiles is fun at first but becomes tiresome pretty quickly. I see this all around me. People joining a network, spending a lot of time to build a personal profile. But after a while the fun wears off, and less time is spend on that activity. So what do these people use social networks for? Interaction of course. They use the chat functionality to chat with their friends, send them messages etc. the profiling and all the applications that help you beef up your profile aren’t interesting enough. And I’m betting that current social networking sites do not provide the user enough value to keep him on board while the advertisement pressure is increased. Maybe new initatives like Friendfeed will do a better job at it.

What are we left with then? Interaction. It is always about interaction. People love to interact. Social networking sites will have to evolve into social interaction sites where friends can use any tool needed to interact with each other. Through feeds, sms, tweets, IM, e-mail, voice calls, video messages, you name it. The web entrepreneur that can think of a web business model that monetises user interaction will be the winner. Providing value can always be monetised. Social networking may be declining, social interaction won’t!

Freedom to the people (part 2)

In a previous post I talked about some major changes I would like to see happening to the current web. The most important aspect of that is to provide the user freedom again. I said:

More than 2006, when Time Magazine unfortunately called YOU the most important person of the year, I think and hope 2008 will be the year where the user gets his long-wanted freedom back. 2008 will be a year in which we will see the first brand/portal/network/social graph/device- agnostic services pop up. What does all of that mean? It means that the portal or network concept we are so used to is slowly replaced by initiatives where the user isn’t locked in, but viewed as a traveler reaching a place where service is required.

To reach freedom for the users we need new business models. No one will freely remove the existing “customer or advertiser lock-in”, walled gardens, locked user data unless there is a new economic engine that can really set the user free. At the same time we might question the user’s comprehension of what it means to be locked in or set free. Millions of people are already locked into walled gardens and exploited for advertisement reasons without really knowing it or even caring about it. The same thing holds for advertisers. They are locked into a promise that a new era in media has arrived and that it will bring endless new possibilities to reach a targeted audience using tools like Beacon and SocialAds on Facebook.

At best an advertiser reaches a semi-targeted and somewhat ignorant audience. But most likely these new ways of reaching targeted sets of people will lead to indifference by the user. A new business model or economic engine isn’t enough, we also need to show the user that being free has advantages over being locked in. We need to show the advertiser that advertisement only makes sense if the advertisement itself provides the targeted user value. And we need to convince service creators to work on user value monetization instead of network value monetization.

What would such an economic ecosystem have to look like? What benefits should it address? Difficult questions with difficult answers. Chris Messina points this out very well when he says:

We need instead to frame the discussion in terms of real-world benefits for regular people over the situation that we have today and in terms of economics that people in companies who might invest in these technologies can understand, and can translate into benefits for both their customers and for their bottom lines.

The discussion is continued with Anne Zelenka at GigaOM.

Real-world benefits for the user

What could be real-world benefits for the user to be free? Although some obvious advantages like data freedom and privacy control come to mind immediately, we might need to look beyond that. Let’s face it. There are currently hundred of millions of people locked into social networks like Facebook and MySpace and they do not seem to care that their profile data, friends data, relationships and interactions aren’t their own. It is impossible to export any of that into another service thus providing the user choice. But he doesn’t seem to mind much. His privacy isn’t guaranteed and his data is being used to target advertisers onto his profile. Users are often described (and often behave) like ignorant, lazy, “entertain me” like people. Some even predict it is human laziness that will burst the web 2.0 bubble.

I am a more positive thinker about human nature. People need to interact, and they want to do this as conveniently as possible (we are a bit lazy right). Freedom is about having a choice. Being able to say I can choose it the way I want. I believe that if a user is offered choice between spending time within walled gardens or traveling around as a free man, the choice will be on freedom. Freedom would provide the user the possibility to integrate real-life experiences with “cyber” experiences. In a way that is convenient to him.

I wrote about the web being a surrogate of real-life interactions. But if you can integrate real-life interaction with the ability to share and interact with people who are not physically present it would add value.You should be able to decide how, where, when and with whom you would have that interaction. Regardless of device, technology or platform. That is what freedom is about.

You can use Facebook and the friends you have there, but if you want to do something else, then it should be possible as well. Without you losing the ability to interact because some platform locked your friends away behind some wall. And freedom is a blade cutting 2 ways. If you have the choice to interact in the way you want, a service provider that wants to service you needs to provide value. For it is only that user value that makes you want to use that service provider. So freedom for the user leads to user value innovations, everybody wins.

And with this freedom comes the ability to be able to identify yourself anywhere with one means, and the ability to perform transactions anywhere using a simple mechanism.

Benefits for the advertiser

If a user is free he will choose to interact with a brand or an advertiser. It will be a positive choice, one of free will. It provides the advertiser with a meaningful interaction with the user, providing him valuable opportunities to build a brand, advertise or sell stuff that matter. The advertiser can learn more about the user in a way more targeted than a Facebook profile or Beacon message.

It means letting go, stop waisting enormous amounts of advertisement spendings on large groups of users. Instead the advertiser will have to learn to interact on an almost individual basis with users. Microbranding. Scary, but also potentially very powerful. It also means that advertisers will have to deal with the user being on the move (for he is a traveler). It will focus the attention of the advertiser to add value to the experience of the traveler. Not just broadcasting a message to him, but understanding what the travelers needs are when using a service, and adding value to that user experience by providing brand or advertisement that actually matters.

Benefits for the service creator

If the service creator would be able to let go of the concept of “customer lock-in” and think about his business in terms of serving a free traveling customer he would be forced to think in terms of user value. There is no need to put up walls and lock customer or advertiser within those walls, as the user is free to go wherever he wants to. Instead he needs to work on his main competitive advantage, providing the user more value than a competitor could do.

Service creators need to let go of their proprietary platforms, the lock in of users and their data, the free but ad-based business model. They need to participate in a user-centric web, become a gas station next to a freeway servicing the traveler passing by.

There are clear benefits for the service creator. Most importantly, instead of providing services for free and creating revenues through ads, the user will pay for the value he obtains. This leaves the service creator to concentrate on user value and monetizing that. It implies that the service creator should not focus on page rank, page views and user clicks but instead focus on meaningful interactions of the user via his service. Interactions to buy or sell things, to find help or provide help, interactions with friends or strangers, search information. Each of these interactions can be monetized if they provide the user value. We are happy to pay for sending an SMS because it allows us to interact with our friends. We pay for a professional Flickr account because it provides us more freedom and value than a free account. We should be paying Twitter when sending an SMS for it adds value to my interactions with others.

This is not an easy step to be taken by the service creator. Right now he is in control, he owns the platform, the data, the social graph, the connections to the advertiser, and yes, even parts of the user in some way. They have to believe that freedom in the end benefits us all. A user that willingly chooses to go to a service creator will be more valuable than a user that is (unwillingly) locked into the service by the service creator. As Milton Friedman, Economics Nobel prize winner, has said rightly:

“Underlying most arguments against the free market is a lack of believe in freedom itself”

I have only provided an outline or framework in which an economic engine might be redefined allowing the user to become free (and taken too many words for it already). More and detailed work needs to be done to define the benefits for all. Then again, courage and the willingness to start is all it takes to set the user free and and the same time making huge amounts of money on the monetization of user value. Any takers out there?

Freedom to the people

We are nearing the end of 2007 so human nature forces me to look back and forth, thinking about things that happened and things to come. I am by no means a good trend or technology predictor, but here’s my take on it.

Looking back the most talked and blogged about subject is probably Facebook and it’s plans with monetization of their build up social graph. The story remains a top item on TechMeme, and it is a controversy as most either love or hate their Beacon attempt. Now that we are slowly recuperating from the privacy backlash they received, the next thing already being discussed is the possible inflation of visitor numbers or even the stealing of people from other companies. Facebook is now getting payback for the hype that was created around it. This almost seems Dutch behavior. In Holland we tend to talk anyone down sticking his head above the play field. Facebook is in that league now and I predict for 2008 that they will get into more trouble than they are already in right now. Not because they might be doing things wrong, but more likely because they are becoming too popular and the blogging community seems to be smelling blood. And that isn’t good. Fear isn’t what Facebook needs now. It needs leadership and making the right choices together with its users.

Looking forward towards 2008 I feel that the time is there to make some major changes in the current web. We need technological barriers to be taken down by developments such as Android, openSocial, OAuth, and OpenID.  It will take time, but in the end the user wins. I’m not going to worry too much about the technology needed, it always finds a way. More interesting is to think about human nature and the needs that we might need fulfilling in 2008.

More than 2006, when Time Magazine unfortunately called YOU the most important person of the year, I think and hope 2008 will be the year where the user gets his long-wanted freedom back. 2008 will be a year in which  we will see the first brand/portal/network/social graph/device- agnostic  services pop up. What does all of that mean? It means that the portal or network concept we are so used to is slowly replaced by initiatives where the user isn’t locked in, but viewed as a traveler reaching a place where service is required.

If you think about  the user becoming a traveler instead of a profile in a network or social graph then you quickly realise that current service isn’t all that fit to service the traveler. We have walled gardens, locked data, privacy issues, spam, free but ad-based web business models, crappy mobile to Internet solutions, locked mobile phones and networks, a total lack of standards, competition on the network and profile layer instead of on the application service layer, customer “lock-in”, advertisers “lock-in”, iPhone wannahaves, Beacon, DRM, etc. Essentially things that are meant to keep you locked into a specific place, instead of letting you move around wherever you want to go.

But a traveler really doesn’t need all that. What would you take with you when you go on a trip? Basic needs probably include:

A passport that identifies you at all destinations, a traveling bag where you can keep your personal belongings, money, food, drink, a good map for the area you travel to, a language guide, and easy ways for you to: obtain relevant information/keep track of/meet/interact with friends and strangers.

It is a very basic and simple list of needs. Translate these needs onto the (mobile) web and we can easily come up with services that address these needs. Entrepreneurs need to think more in terms of running a gas station on a freeway waiting for a car to arrive and servicing the traveler, instead of becoming an amusement park owner, letting children drive a Donald duck car, but only if you visit Disneyland. This sounds easy enough, but with it comes a radical change in business models. Not based upon page views or clicks, as these are easily inflated, but based upon user value.

As Rolf Skyberg puts it, the network should become the commodity. The question is, who’s going to do the plumbing?

My hopes for now lie with new initiatives like OpenSocial, and Android,  because they do the open “talk”. Let’s see if they can do the “walk” too. Let it be noted that I could care less about the Social Graph, web 3.0, or whatever you want to call it. It is time to free the people, who will take the first step in 2008?

The art of becoming successful

Fred Wilson has written 2 excellent posts on his personal success/failure rate as a venture capitalist, and on the reasons why early stage ventures fail. It is good reading material, especially if you are not in the venture capital business yourself. His most important reasons why ventures fail are:

1) It was a dumb idea and we realized it early on and killed the investment. I’ve only been involved in one investment in this category personally although I’ve lived through a bunch like this over the years in the partnerships I’ve been in.
2) It was a decent idea but directionally incorrect, it was hugely overfunded, the burn rate was taken to levels way beyond reason, and it became impossible to adapt the business in a financially viable manner.

He goes on and talks about his most important lessen drawn fro these failures:

So it’s pretty clear to me that most venture backed investments don’t fail because the business plan was flawed. In my experience at least 2/3 of all business plans we back are flawed.

Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.

There is so much truth in this. Most of us have had a “great” idea before, thinking this would change the world we are living in now. I know I have, many times. But the interesting thing about it  is that it really isn’t about the idea or the business plan that matters. It is about execution and discovery. Willing to let go of your initial idea’s and discovering what actually works. Setting up a successful  business is really an art. It takes great skill  and adaptation to become successful. While I write this, I’m listening to Michael Hedges in the background. Talking about skill, check out the way he masters his guitar.

One of my favorite books is “Good to great” written by Jim Collins.  In his book Jim explores why some companies are able to make the leap from being a good company to becoming a great company. One of the things I always remember about this book is the idea that great leaders first create a great team of people, before they figure out where the bus(-iness) is going. He goes on and describes 3 key characteristics of companies that made the leap, in a concept which he calls the hedgehog concept:

More precisely, a Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles:

1. What you can be the best in the world at (and, equally important, what you cannot be the best in the world at). This discerning standard goes far beyond core competence. Just because you possess a core competence doesn’t necessarily mean you can be the best in the world at it. Conversely, what you can be the best at might not even be something in which you are currently engaged.

2. What drives your economic engine. All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability. In particular, they discovered the single denominator—profit per x—that had the greatest impact on their economics. (It would be cash flow per x in the social sector.)

3. What you are deeply passionate about. The good-to-great companies focused on those activities that ignited their passion. The idea here is not to stimulate passion but to discover what makes you passionate.

I was thinking about these things this morning, after a long weekend of Facebook backlashing. Mark Zuckerberg and his team are having a hard time at the moment, and a lot of bloggers are getting into the “after success comes the backlash” modus.  I wonder if Fred, who is not very hard on them, would consider investing in Facebook a success or failure. My guess is that it is a success, given the enormous growth and valuation of Facebook. But It might become a failure if Facebook isn’t able to turn the sentiment around.

Their main concern shouldn’t be the user walking away at this point. Their concern should be advertisers turning away. Advertisement is the main business driver for Facebook, and if companies like Coke are now “reconsidering” others might follow. And what to think of the questions Dana Boyd asks herself in “who clicks on ads and what might this mean“. In her post she writes about a study done by Global Advertisement Strategy:

What did we learn? A lot. We learned that most people do not click on ads, and those that do are by no means representative of Web users at large.

Ninety-nine percent of Web users do not click on ads on a monthly basis. Of the 1% that do, most only click once a month. Less than two tenths of one percent click more often. That tiny percentage makes up the vast majority of banner ad clicks.

Who are these “heavy clickers”? They are predominantly female, indexing at a rate almost double the male population. They are older. They are predominantly Midwesterners, with some concentrations in Mid-Atlantic States and in New England. What kinds of content do they like to view when they are on the Web? Not surprisingly, they look at sweepstakes far more than any other kind of content. Yes, these are the same people that tend to open direct mail and love to talk to telemarketers.

What does all of this mean? It means that while clickers may be valuable audiences, they are by no means representative of the Web at large. Focusing campaigns to optimize on clicks means skewing campaigns to optimize on middle-aged women from the Midwest. If these folks are not your target, then you should be ignoring the click-rate and looking deeper, to what audience your impressions are being delivered, and what audiences are converting (there is a large body of evidence that shows that click-rates and conversion rates rarely correlate with each other).

If your business model is about advertisement and click throughs, then you better figure out a way to extend this to other populations than just middle-aged women from the Midwest.

I have always felt that the metric itself is becoming less useful. With all of these things in mind I wonder if Facebook has the strength to work on their own hedgehog concept. They are already a good company. Few have seen such an incredible growth rate in such short time. But the question to be answered is, will they become a great company? I think they have a lot of great things in place. An incredible user base, application API’s, great people on board. And there is a huge advertisement market in place, where unfortunately Google right now takes up 75% of all ad revenues. All they need to do is figure out where to take their bus. If SocialAds and Beacon aren’t it, they better figure out what it should be. I vote for opening up their platform and resetting the balance between user value and advertiser value. That is really what their business should be about. It’s a balancing act.

Anyone care for a free lunch?

Chris Anderson, of the long tail, wrote a nice post about the “free” business model. He gets a lot of questions on that, as people are often confused how it works (someone has to pay the bill, and someone has to earn revenues). He provides 5 simple examples:

1) Giving away things for free and make sure the bill is payed by advertisement. He accurately  points out that the master of this game is Google.

Think of these markets not as a two-way relationship between buyers and sellers, but a three-way relationship where the third party can be drawn in by something free that creates the product to be sold  (in the case of advertising, this “product” is the fabled “eyeballs” that advertisers buy).

2) Redefine the market you are in. Easyjet is the example here. They do not seel airplane seats, they sell transportation. A flight can then cost only 5 pounds.

They sell hotel and rental car reservations to passengers. They sell tourists to the smaller cities the carriers serve (the payment is in the form of the huge discounts they get on landing fees). They sell cargo shipment to the companies that put packages in the hold (which is why the low-cost carriers tend to charge extra for baggage). They even make money off the food and drink they sell on board

3) His third point is interesting because he talks about the truly free services now competing with the “free but ad-based” services. This is the part where Facebook is wandering around in my opinion. Their business model makes them vulnerable to consumers that don’t want ads. Under the pressure build up they are now retracting their original beacon ad model and providing the user (an inefficient) opt-out possibility. Facebook will be stretching the limits on this one, but I bet, if users have to opt out every time for different applications they will get even more annoyed than when they didn’t even know they could opt-out. Oh boy, this is like a boomerang catching up.

Chris ends with the observation that since transactional cost on the Internet are virtually zero anyone can use it as a distribution mechanism.

Finally, is this a trick? Well, yes, sometimes it is. But not a deceit, just an appeal to psychology. “Free” has a power to entice. It grabs the attention, and no more so than when it really does appear to involve some sort of magic. And let me tell you, a flight across Europe for five pounds is indistinguishable from magic. Not quite free, but close enough to fire the imagination. What else could cost almost nothing?

I have taken a stand against the current web 2.0 free but ad based web model so far. I was thinking about the article Chris wrote and if it would change the way I feel about it. It hasn’t. Not really. Chris actually does a great job pointing out the successful cases. In my opinion in all of these cases the business model was driven by user value! Google’s revenue streams are ads, they take 75% of ALL ad revenues on the Internet. And they provide everything for free. But they are so clever with ads. You never associate Google with negative feelings about ads because they serve them at the right time. Why others even bother to get their advertisement business up and running against such a large competitor is beyond me, unless they can provide user value like Google does.

Easyjet, Ryan air, they provide appealing user value. Travel around the world (almost for) free. You take the small seats, the lack of service, the small hotel rooms, pay for drinks on the plane, because Easyjet provides you value. You know that if you get out of the plane you are in the centre of Rome, having the time of your life!

It did get me thinking on one aspect I have been talking about. I tend to advocate that in your business model you should focus on user value, and make him pay for that. This is a valid, and often much preferable business model than the free but ad-based model. But, Chris nicely pointed me to another option. It is an option that goes beyond the buyer-seller relationship. It is the option that involves 3 parties, as you can read in the quote of Chris I provided earlier. But this option only works if the user gets (or perceives to get) value.

Given the commotion on the Facebook strategy, small ripple turning into an avalanche which will gain strength over time, I think they got it wrong. They are providing the user value with the Facebook functionalities. But they aren’t providing value with either Beacon or SocialAds. And that is where they get it wrong. It is just a billboard scheme in a new coat. People will recognise it for what it is, and ignore it.

Thanks Chris, your observations have made me think again about business models. User value remains the single most important driver in any business model. Anyone care for a free lunch?

Getting the turkey ready for Thanksgiving

A lot of fuzz this morning about Facebook’s SocialAds and Beacons. Charlene Li from Forrester got her first personal, unexpected and unwanted encounter with Facebook ads as she found to her surprise that in her Facebook newsfeed there was a reference to a purchase she had made at overstock.com. Her biggest complaint about Facebook ads is the lack of transarency.

There is a whole movement arising now that want to put the pressure on Facebook. MoveOn.org is taking on Facebook Beacon ad strategy. They think it is a violation of Facebook user privacy. Facebook has respondend, saying the information is only shared with your friends, so no privacy issues there. Josh Catone responds to this and says that MoveOne.org might not be making a point that really concerns Facebook users, as it only has 8.000 people joining up right now. He is not so concerned about the Beacon project, but warns that a better and global opt-out switch (which isn’t there) would be good for the user. But he comes with another privacy issue, Facebook applications now seem to have access to your e-mail address.

I feel privacy is an issue, but not a major one. Lets face it, if you join Facebook and assume your personal information is only shared with your friends then you are, to say it nicely, a bit naive. I have to answer numerous questions these days about my relationships with friends on Facebook. This is all part of the Social Graph exploitation model in Facebook. I don’t answer any of these questions. Not because Facebook would use that information for SocialAds, but because it doesn’t provide me any value as a user. I already know I went to high school with you dude, no need to write it down.

Looking at the different comments sections the readers are at least widely spread in their opinions about Facebook SocialAds. Going from “They got to make a living” to ” I’m leaving this overhyped crappy service”.  Mathew Ingram gets it right (yet again), stating these woes are overstated.  He says:

As Justin notes, 100 times as many people got upset about the news feed as joined the Moveon protest, and that one blew over eventually. Maybe Facebook will tweak things so it’s more obvious, or give you the blanket opt-out ability — or maybe not. I think it’s mountain and molehill territory myself. Will I have to ignore news feed items about people like Charlene buying coffee tables? Sure. Just the same way I ignore people telling me they just added the Zombie application. Big deal.

And that is exactly what will happen. People will ignore it. It doesn’t provide them any value so SocialAds and Beacons will be yet another play toy for the advertisement industry that is ignored by the consumer! The business model just doesn’t work, as it isn’t based upon user value. I always like reading e-Bay’s Rolf Skyberg about user needs. He breaks it down into things that matter to a user. And that is still the best business model there is.

We are all getting ready for thanksgiving dinner. I wonder who is the turkey to be served by Facebook. Is it the user, or might it be the advertiser who has  spent $16 Bln in 2007 and will be spending $42 Bln in 2011 in on-line advetisement and thinking he gets  targetted audience from Facebook? I think Mark Zuckerberg will have a great meal, either way.