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.

Think opposite, or keep on dreaming?

Sometimes when you look at a specific situation or problem it helps to think opposite. When you think opposite or try to do things entirely against existing rules it helps you to understand the system or to find new ways of dealing with it.

I was thinking about that last night while going to bed. I entered this half dreamy state right before you fall asleep and my thoughts were uncontrollably unleashed. A stream of thoughts appeared, related to activities on the web. I remember thinking about Facebook, MySpace, YouTube, all the major websites that drive traffic all the time. I linked it to current on-line  advertisement models and thought about how everyone is locked into this advertisement trap (all of this sounds like a conscious stream of thought, but it wasn’t really ). The portal, the network, the traffic, all of that is important for advertisement revenues. But this catch 22 leads to lock-in of the user instead of freedom. It leads to data hogging, instead of setting your data free. It leads to non-portability instead of the user travelling free around the web globe.

And then it came to me, what if we would turn it all around. What if we would think opposite? I fell asleep with this feeling that was a great thought, although now I’m awake again it is difficult to get that positive feeling back again. But I decided to think it through a little to see where it would take us.

What if customer lock-in was changed to customer freedom? Instead of portals and (social networking) sites trying to lock you in (for advertisement revenues) they would set you free.  Customer lock-in is a term thought up by marketeers. It helps them get a grip on their work, but it is pretty abusive to the one being locked in. Of course, all marketeers are idiots and do not understand customers any ways. Letting go of your customer or user is pretty scary stuff. But locking them in and thinking you really have a meaningful brand experience with them is an illusion that is held up by CPM metrics and other old school advertisement tricks.

Setting your customer free means a different approach and philosophy to web service design. No more big portals that have an urge to drive traffic. No more pulling in the customer and never letting him out again. No more data hogging or big brother is watching you. No more not allowing the customer to take his data away to another service or even burning it to a DVD archive (ever tried exporting your Facebook profile data?). It means the service owner doesn’t own the customer (yet another term thought up by old school marketeers), but provides the customer service. It means that monetising the network isn’t important any more. Instead the service provider needs to monetise customer value. It means the end of endless and annoying registration and profile processes when a user wants to obtain a service. No more profile mapping to advertisement schemes (SocialAds). These are pointless as we all look much better on our on-line profiles than in real-life.

Where does that leave the customer? It provides freedom. Freedom of choice, of movement, of service, of data. It means the customer is back in the driving seat. He or she travels around on-line and decides where to stop end get service.  It makes the customer important again. It means that the major services do not force the customer to come to them, instead, they come to the customer when he wants them to. The network is not important any more, it’s the customer. The Internet evolves around the customer, instead of the customer evolving around a Web service. But freedom comes at a cost (it always does). It leaves responsibility where it belongs, with the customer. The customer is responsible for his actions, his movements, his data, his privacy. It means that the customer might have to pay for a service that provides him value (now there is a weird thought), instead of running of to the nearest free service (that locks him in again). Freedom is great, but a bit scary too.

Where does that leave the service owner? He needs to stop thinking in monetising the network, social graph or user profile. He needs to monetise customer value. Instead of locking the customer in with free services he needs to draw the users attention by providing him value. He needs to compete on customer value services instead of the size of his user profile database and advertisement revenues. Letting go of his customer, and trusting that this customer will return for more because he provides him valuable services. No more social networking, but instead focusing on social interaction. It means sending the customer a bill, instead of sending a bill to the advertiser. It means counting on slow uptake of your service (as it might not be free any more), but getting customers on board that actually pay to obtain value. It means organic and natural growth instead of testosterone based power growth. It means you need to rethink your business model instead of going with the current free a-based model. Look where that got Amazon! It isn’t a bad business model to monetise customer value. It’s aactually the most effective business model there is.

Where does that leave the advertiser? He needs to stop thinking that screaming out his message to a large crowd provides the crowd with value. Providing the customer advertisement while he is interacting with his friends within a social network isn’t the right thing to do. It doesn’t provide the customer value, it’s most likely intruding. Thinking negative attention is better than no attention is a lost strategy. Instead the advertiser needs to think how his message, in itself, can provide the user value. Advertisement can only be effective and valuable when the advertisement itself provides value in the context that it is seen. That is why advertisement is so effective in search. That is why Google makes a fortune out of it leaving all competitors way behind. When a customer is searching for something advertisement makes sense. When he is interacting with someone, leave him alone, you’re only trespassing.

Sounds like a great plan to me. But who am I kidding, I was only half awake when the thought hit me.

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!

Current web 2.0 thinking is mediocre, lazy, and opportunistic

I had a great time reading though blog posts this morning. I am going to try and combine a few of the things I read and explain to you why web 2.0 thinking is becoming more and more mediocre.

Let’s start out with a TechCrunch post on a new product called MicroSocialAds from a company called Ads-Click. MicroSocialAds allows any Facebook user to display advertisement on his Facebook page, thus being able to spam any of the friends he might have left. There is an upside of course, you get a revenue share. Each time a “friend”clicks on an ad, you get a stunning 80% of the ad revenues. WOW. Erik Schonfeld from TechCrunch ends the article with:

In fact, MicroSocialAds are not limited to Facebook. The personal ads also work with MSN Messenger, and will soon be available on Twitter, Yahoo IM, Skype, and OpenSocial. If you have no problem spamming your friends, or if the ads could be micro-targeted by you to the point where they don’t feel like ads, but more like personal product suggestions, then they might actually work out. The concept, though, certainly blurs the line between the social and the commercial. They need to be social enough so that they are palatable to the people expected to add them to their social communications, but commercial enough that they offer a return for advertisers.

Let’s get one thing straight. Spamming “so-called” friends with advertisement is a bad, bad, bad idea. Not just because you won’t earn a decent living out of it (any fool can do the math on that, you would need HUGE amounts of traffic to earn a living). Not just because you would lose all trust and credibility from the people that are in your network and subjected to your ads (lets call them “Facebook friends” for the lack of a better description. And trust and credibility seems a bit important when a company tries to leverage “Facebook friends referrals”. Not because the company that brings you this marvelous revenue opportunity is named Ad-click. Ad-click, the name of the company probably describes their business model perfectly. Any investor investing in a company that optimizes ad clicks (unless the company is Google) should be rethinking it’s investment.

But the real reason this is a bad, bad, bad idea is of course that the ads within Facebook provide the user no real value. Making it the worst possible business model you could get involved in. A business model without the slightest idea of user value creation is a faulty business model. I was therefore relieved to find a posting by Howard Linzon who talks about a web 2.0 company that does understand user value. They have stayed away from the free but ad-based business model and actually charge customers. These customers are happy to pay of course, because they receive value. Can’t think of a better business model. And as Howard shows, they still have all the advantages any web 2.0 company has, like for example being able to create viral campaigns.

Then I read (yet another) great post by Doc Searl, one of the people I watch closely when it comes to envisioning the next step in web evolutions. He writes an excellent post called “the only real social networks are personal ones”. In this post he answers the question “should a brand join or create a social network?”. He says:

Forgive me for being an old fart, but today’s “social networks” look to me like yesterday’s online services. Remember AOL, Prodigy, Compuserve and the rest? Facebook to me is just AOL done right. Or done over, better. But it’s still a walled garden. It’s still somebody’s private space. Me, I’d rather take it outside, where the conversation is free and open to anybody.

And he continues with four reasons why social networks and brands don’t ft together:

First, I’m not sure a “brand” can get social at all. The term was borrowed from the cattle industry in the first place, and will never escape that legacy, now matter how much lipstick we put on the branding iron.

Second, the notion of “brands” either “building” or “joining” social networks strikes me as inherently promotional in either case, and therefore compromised as a “social” effort. Speaking personally, I wouldn’t join a social network any brand built, and I wouldn’t want any brand trying to join one I built. But that’s just me. Your socializing may vary. (And, by the way, if I wear a t-shirt with some company’s name on it, that doesn’t mean I belong to that company’s “network”. It means I’m wearing a t-shirt that was clean that morning.)

Third, I’m not sure social networks are “built” in any case. Seems to me they’re more organic than structural. Maybe I’m getting too academic here, but I don’t think so. Words have meanings, and those meanings matter. When I think about my social networks — and I have many — I don’t see them as things, or places. I see them as collections of people I know. The best collections of those for me aren’t on facebook or LinkedIn. They’re in my IM buddy list and my email address book. Even if I can extend those two lists into a “social graph” (a term that drives me up a wall), and somehow federate them into these mostly-commercial things we call “social networks” on the Web, I don’t see those “networks” as structures. I see them as people. Huge difference. Critical difference.

Fourth, the thing companies need to do most is stop being all “strategic” about how their people communicate. Stop running all speech through official orifices. Some businesses have highly regulated speech, to be sure. Pharmaceuticals come to mind. But most companies would benefit from having their employees talk about what they do. Yet there are still too many companies where employees can’t say a damn thing without clearing it somehow. And in too many companies employees give up because the company’s communications policy is modeled on a fort, complete with firewalls that would put the average dictatorship to shame. If a company wants to get social, they should let their employees talk. And trust them.

I think Doc is right about this. I have written before about the $16 Bln advertisement trap web 2.0 has gotten into. The free but ad-based web model is the most used web 2.0 business model, but if you are not Google, you might as well stay away from it. There are few companies that make a good living out of it and Google currently takes up 75% of that market. Not just because they execute so well. They provide the user with ads when it actually serves a purpose. The Google ad itself has user value. Ad-clicking is a terrible revenue driver, unless the use intentionally is looking to find or buy something.

Jordan Mitchel writes about the earlier released eMarketer figures saying that the on-line ad-revenues will increase to a stunning $42 Bln in 2011. Another eMarketer study also reveals that ad-spent in social networks will increase 37% to almost 4Bln in 2011. What strikes him, and me, is that the value of a click on an ad in an social network is very low.

Current web 2.0 thinking is mediocre and born out of laziness and opportunism. We have seen some companies growing remarkably fast in social networks, leading to crazy valuations. Web entrepreneurs all seem to have found the same holey grail. Providing a free service and stalk the user with ads, in the hope of becoming large and valuable very quickly and then getting the business sold to Google, Yahoo or Microsoft. While this certainly has helped a few of them becoming extremely rich, most businesses started this way are not sustainable. I’m not against ads at all. But you need to think about where to use them. Web 2.0 entrepreneurs seem to ignore the most basic rule to earn a living, forgetting to provide the user with value. And if you do that, you might just get other people to notice that and produce hilarious video’s (unfortunately with ads included ) about that. And that is sad, really.

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?

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.

It’s about interaction stupid!

Yesterday I wrote about the problem I have with the Facebook business model (actually, it is a web 2.0 business model flaw).  I am not concerned about advertisement in general. Advertisement is fine. It is a way for a brand to expose itself to its customers.  Its a way for Google to become the most successful company ever.

But the common mistake most web 2.0 companies are making is that they treat advertisement as the main  revenue stream or even as venture capital. They try to leverage the need for a brand to expose itself into a business model. It sounds like a great plan. It provides the web 2.0 company a stream of revenues by providing the advertiser with a podium. And it provides the advertiser a “cool” way of exposure towards potential customers. But the flaw in the business model comes with the third actor on the platform, the user.  It is easy to step over the needs of a user, when your business plan clearly shows sky high advertisement revenues and potential acquisition by one of the biggies like Google or Yahoo.

But the user is not always in need of exposure to advertisement.  That is where things go wrong. We are building these great advertisement podia, but the fans aren’t there to see them. The easy way out is to provide the user with something else that is valuable to him, and then hassle him with the advertisement anyways, cause that’s what the business model says we ought to do. The user gets free social networking capabilities, free storage, free profiles, free social graphs, and a free podium to express himself. That’s great, honestly, but it doesn’t resolve the main business model issue. As a consequence, the web 2.0 company starts monetizing the social graph, the profiles, the platforms by introducing “targeted” ads to its users.

But what happens to things that contain no value to the user? Exactly. They get ignored. And there is your catch 22. The web 2.0 business model is financed by advertisers who pay Facebook and others over $16 Bln advertisement this year, with a false illusion of reaching their targeted audience. The harder they try, the more they will be ignored.

And the user? He doesn’t care. He gets all spoiled with “free” stuff, that isn’t free at all. But the bill isn’t payed by him, so who cares. It is the most worthless driver for a business model. The Facebook user doesn’t mind SocialAds, is the tech blogging community fighting a lost cause? I don’t think so! If ignorance and indifference were the main driver for a web 2.0 company I’d fire the CEO and proclaim the main investors to be idiots!

I just don’t get it. The people I admire most are always those that think in terms of user value. But do we really need icons to tell us what is right? Do we really need marketing research telling us what the customer thinks? We only need a basic understanding of human nature. And as we are all part of this, we can always ask ourselves what is important, what matters.

Following Rolf Skyberg’s idea to keep Maslov’s hierarchy of needs in mind people have physiological, safety, love/belonging, esteem, and self actualization needs. Lets skip the physiological needs for now as the web can’t really provide any solutions (other than e-commerce) for that. Look at the other needs.

I would argue that it is interaction that drives most of these needs. Love and belonging, self esteem, respect from others or for others, self-actualisation. These needs are fueled by our interactions with others. Interaction is the most important thing that defines us. My interaction says more about me than any profile. We invented transport, the telegraph, and the telephone to break through physical barriers and interact with others far away. We invented the mobile phone, e-mail, chat, social networks, blogs, twitter to break physical barriers and reduce transaction costs of interaction. These virtual tools bring us new barriers, but technology always finds a way to clean up its own mess.

E-mail brings us spam, and an asynchronous demand of the sender to get an answer of a receiver.  Chat brings us synchronous on-line conversations, demanding our immediate and full attention. Social networks bring us the social graph and a poor excuse for interaction called a newsfeed. It also brings us privacy and data portability barriers. Twitter brings us easy sharing of thoughts and emotions, but at the same time, due to its asymmetrical relationships, sometimes makes me a groupie instead of a friend.

But these barriers can be overcome. And it starts with the acknowledgment that the current web 2.0 business model has got to be replaced by something better. No more free ad-based services leading to walled gardens, user and data lock -ups or -ins, indifference, waisted advertisement spend, the illusion of providing value to a user.

Instead we need business models that are user centric and monetize user value.  And the great thing about such a business model that it solves the current issues with data portability and privacy automatically. It’s what Chris Messina calls the citizens web, I prefer calling it the user centric web. If user value is the core of your business model, then privacy controls are included, and your data is your own. We wouldn’t need Tim O’Reilly calling out rightly “It’s the data stupid“,  or Doc Searl pointing us to VRM, because service providers thinking user value would make it a priority to put the user in charge. We wouldn’t need Dick Hardt to call for privacy and identity 2.0 because it would be in the genes of the business model to implement this correctly across the web. And we wouldn’t be thinking about mobile advertisement but concentrate on mobile interaction, because that is what the device is really about.

All it needs is investors with balls, willing to invest against the mainstream  but deteriorating web 2.0 business models. And entrepreneurs who build user centric services and aren’t afraid to let go of the $16 Bln advertisement trap. It also takes courage from the advertiser, who needs to understand that spending all that money on social networks is a total waist. It is an illusion to think you are adding value to the interaction, that you are adding value to Maslov’s hierarchy of needs. Forget it, you are merely trespassing the conversation. Instead, use that money to build your brand by improving your products  and services thus providing true value to your customers. And use real interaction with your customers to ensure you know how to improve your products or services. And finally, it takes courage from the user. To understand that “free” always comes at a price. And that, even though you seem trapped in your favorite social network, someone will come along and set you free.

I want us to work on the user centric web. But first, we need to get rid of the web 2.0 business model. We must break through this immense tough barrier to become free again. I know I will give it a try, because it is the right thing to do. If there are investors out there willing to give it a shot, or service creators that think user value is the way to go, you know where to find me!

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.

20 Bln reasons to get advertisement right

I do not dislike advertisement. If you are a regular reader of my posts, then you might get that impression. For example, I have started a countdown for the downfall of Facebook when they first mentioned their stealth ad system.

It is not advertisement I dislike, it is the effect advertisement money has on current web 2.0 business models I don’t like. It is the easy way out for investors and service owners. Provide something for free, and as a user deal with the consequences (you get ads). The current ad word auction model and underlying pay per click is fraud sensitive, and enforces walled gardens. The revenue generation machine of a “free” web 2.0 service is based upon locking users in the platform. Getting them in, and not letting them out. Of course, you need really massive amounts of traffic in order to get enough clicks to make an advertisement revenue living. But with size, operational costs increase, and with increase costs you need more traffic and lock in users harder. It is a deadlock situation where the user, the advertiser and service owner are trapped into. And a deadlock situation where everyone is held hostage rarely provides real winners. I have discussed other possible business models earlier, and will elaborate on that in the future. Some suggest that there lies an opportunity to offer customers premium ad free services, replacing the ad model. I have written about that as well, but from a different perspective. Don’t let people pay for not getting ads, let them pay for value they get.

We should try to rethink this advertisement model by taking the user perspective. It is his valuable attention the advertiser is looking for in this attention economy. If attention is a scarce commodity and economics is needed to control this, then the economic laws better start making some sense out of this user.

So what do Internet users do most? I’d say they spent most of their time on activities like: search, discover, interact with others, share things, publish, and buying and selling stuff. During some of these activities ads are good, and in some they are bad.

Lets start with the obvious one, search. Google gets that right. Search can be monetized with ad revenues. If a user is searching for something then a sponsored link addresses the need of the user. And as John Battelle points out, all search entries (often not controlled by the advertiser) are important brand building aspects. Let’s make no mistake about the value of this type of advertising. The IAB just reported a new all time high Internet advertisement revenue this quarter, passing the $5.2 Bln and up 25% with respect to last years 3rd quarter.

But lets also not forget that the majority of these advertisement revenues go to Google, as they have reported a $4.3Bln revenue the 3rd quarter, an increase of 57% with respect to last years 3rd quarter. So Google takes perhaps 75-80% of all on-line advertisement revenues and they do it with search!

Discovery is another activity. Whereas the goal of search is to find, with discovery the process is the goal. Earlier reports show that Facebook users do a lot of discovery. They look at other people’s profiles, pictures and interact with applications. Profiles feel as private space to a user. Combining those with ads is probably not a good idea. Building up social graphs will provide valuable information about relations, bu it cannot be exploited easily within the same network as the user is likely to distrust the motives of the advertiser. It becomes what Nicolas Carr has called the Social Graft. Discovery in relation to Facebook applications is different. Here is a chance to provide the user with value (through the application) and combine it with branding or advertisement activities.

People love to interact. A profile in a social network is filled with information about the way I would like to be viewed, it doesn’t necessarily depict reality. But interaction is more pure. It reflects much about me and my relation to the one I interact with. As interaction is mostly personal it is difficult to combine it with advertisement. The “this message was sponsored by” advertisement is invading my private space and won’t do. The same thing goes with more subtle forms of SocialAd advertisement. If I mention in my activity feed that I went to the movies, this might have value to my friends. But having this news being accompanied by a complementary SocialAd doesn’t provide my friends with value.

What SocialAds try to do is help advertisers influence word of mouth advertisement. Amazon makes a fortune out of it. If I get a recommendation for a product from a friend it will be worth much more than an advertisement from the product owner. We all know this phenomenon. Tara Hunt describes very well how advertisers should be connecting to communities.

It starts with trust and the buildup of social capital. It is about listening to your customers, not talking. But an advertiser who buys a Facebook page does not have trust in the community just by being there and adding fans as a friend. It needs to listen first, it needs to build up social capital within the community. But here is exactly where I feel Facebook might take a false turn with its SocialAds and Beacon scheme.

These fans are not fansumers and displaying their like of a brand or product in their newsfeed is hardly a “word of mouth” advertisement. In essence it is more like a personalised billboard which loses value very quickly as friends will see it for what it is, not what it was meant to be (an advise from a friend).

So let’s try to get rid of the illusion that the advertiser has active influence on word of mouth via SocialAds. Direct interaction with your customers is far more influencing. Word of mouth in the physical world is based upon a different process. By exchanging thoughts, emotions, speech, touch, look, feel we have meaningful interaction. In this interaction a recommendation from a friend builds up and creates value for me. By agreeing or even disagreeing the advise of our friends gains importance. This interactive process leads to word of mouth advertisement. It is futile to think that an advertiser can influence this process directly, unless they are in direct contact with their customer. People are thinking for themselves, better deal with it. The whole power of word of mouth advertisement lies in the indirect influencing.

There is one exception to the interaction activity. If a user is publishing, or self-expressing himself to a bigger audience, then advertisement may have value. It can create a podium for the user to self express and find an audience. Like an artist being sponsored by a brand.

That leaves buying and selling. Here advertisement can play an important role. People looking to buy or sell something won’t mind if advertisement is added to the orientation or transaction phase. Advertisement adds value to the user action, especially in the orientation phase where it acts as a specialised for of search.

So what do you think about this? I’m interested in hearing if you know examples where advertisement creates value for the user (not including search). Do you think that SocialAds will add value (besides making services “free” to its user?

There are $20 Bln reasons to get advertisement right. Google probably takes up 75%, leaving the rest of us with $4Bln to figure out how to apply advertisement in such a way that it draws the attention of the user and actually provides him with value. We better start working on it.

Every generation needs a new revolution

Facebook and Google are getting a lot of attention these days. Everyone, including myself, seems to have a take on it and the urge to write about it. It is time to step back, observe and try to understand what is causing this.

The CEO’s of rivalling companies are falling over each other, often like little children. Personally I like Steve Ballmer best (seriously), he is such an incredible promoter. Just look at his great response to John Battelle’s question on search here, or his quote on Android being a paper tiger for now. Business week summarises a few here (including one of my comments ). Or how about Mark Zuckerberg, the man that seems to have gained a pop star status with his incredible success in growing Facebook to 50Mln users. On top of his success he seems to have stated that the user really has no choice when it comes to SocialAds.

If the Internet has brought us one thing it is the ability to start a hailstorm as a counter-force  to the scooping blogging community reporting on the successful initiatives or people.  The first hacks on OpenSocial have already been reported, as well as a recipe to block SocialAds. 100 Year old laws have been dusted off to explain that Facebook SocialAds are illegal. And some even started a countdown for the downfall of Facebook .

Web 2.0 brought us an explosion of innovations in social networking services. The biggest contest ever for the attention of the user. Web 2.0 companies create phenomenal free services and show unprecedented user base growth. It is all about eyeballs, who has the most users, the largest network. The waves of success were driven by free services. The question how create revenues being the last to answer. But with the success of all these services, monetization becomes an issue. Pressure is now on all the successful CEO’s, how to make revenues that live up to the incredible valuations being drawn up? The way out is provided by the advertisement business, nearly $ 42 Bln is predicted to be available in 2011 in the US only. It is this pile of money available that provides everyone a way out. It is the golden pot at the end of the rainbow that can be used to pay for the costs of free services and to justify incredible $15 Bln valuations of successful web 2.0 companies.

So why the emotional responses, why the polarising blog posts on these matters? Is it jealousy, because some are more successful than others? Maybe, but I am inclined to think it is something else.

I think it is because we are finally starting to realise that everything comes at a price. There is no such thing as a free lunch. Your “free” Facebook account is payed by SocialAds. Your perceived secure privacy on social networks isn’t as secure as you might have thought. The service you thought was build for your needs is now turning into an ad machine. One that takes your personal information and relationships and uses these to provide you with ads that, luckily won’t feel like ads according to Mark Zuckerberg (phew, a relieve here).

These services need your attention, draw you in because it is free, but won’t let you out once joined.  Try taking your personal belongings, your messages, your friends, your emotions with you from one service to the next. It can’t be done. It is the Catch 22 for web 2.0.

I think it is precisely this trap we have fallen into that is now delivering all these emotional responses on the web. We are finally beginning to realise that web 2.0 didn’t give us freedom at all. It provided a well disguised containment, a trap that lured us in. Beautiful sirens singing to us, backed up by bloggers, newspapers and magazines telling us it is all about you. And now with our  saviour Mark Zuckerberg telling us that there is  no way out. But Mark is getting a bit nervous with rivals like Google who, in perception at least, do offer a way out with OpenSocial and  Android.

It is becoming clear to me now that the current web 2.0 generation needs a revolution. If we want to get out if this trap then there is, as always, only one way to do this. We have got to take control of our lives on-line. Don’t let anyone tell you different. Your data is yours! It isn’t Google’s, Facebook’s, or Microsoft’s. We need to start making so much noise about this that these guys will be forced to open it all up. And you have the power to do so. You can use the strength of the network that you have created yourself to protest and oppose this confinement. I can’t wait for the first protest groups on SocialAds to appear on Facebook. Let’s see how many supporters will join that. And don’t get me wrong. I am not against ads, but I do oppose to the idea that we currently have no freedom because of ads!

And in revolution, there are always new thinkers and leaders that can  show us the way. My vote is with people like Doc Searl, David Recordon, Tim O’Reilly, Dick Hardt, Dave Winer and Rolf Skyberg. People that not just complain about this trap, but thoroughly understand it and provide possibilities to get out of it. There are $16 Bln reasons to get out if this web 2.0 advertisement trap and move into a new era of user centric thinking, of true interaction!

It is like President Jefferson already said so long ago: “Every generation needs a new revolution”.

The myth of SocialAds, Beacon and Insights: it ain’t gonna work!

The countdown continues. After I decided to write a post on the downfall of Facebook as their stealth ad system is being revealed, we are now on another day after. The day after Mark Zuckerberg announced his 3 way ad system for Facebook. For me the counter is starting to tick a little faster now, I’ll explain in a moment why.

As always I am looking around for analysis on this. In general people seem to be either positive about the move with a warning that it is a “dangerous way to go”. Or they are negative and warning about the user that won’t like to be hassled by his friends with commercial messages.

There are a few posts that drew my attention.

Nicolas Carr really hits Facebook hard with his post called ‘the social graft’. He says:

“It’s a nifty system: First you get your users to entrust their personal data to you, and then you not only sell that data to advertisers but you get the users to be the vector for the ads. And what do the users get in return? An animated Sprite Sips character to interact with.”

Mathew Ingram describes a mental picture of some guy barging into a party at my house and yelling about free pizza or T-shirts or something, and handing out coupons to all my friends while dressed up like a giant Coke can.

He would punch the guy entering his house in that way. I would probably too.

John Battelle wrote a small entry in which he adds to a quote from a CNET article from a Facebook executive:

“The company that can process the most data will win.” I’d modify that – the company that can process the most data intelligently and in context, wins”

I think John is right and wrong. Right, because the company that can process data intelligently and in context wins. Wrong, because Facebook isn’t the right context! That is why Google wins, the not only score better on clever and massive amounts of data processing, but they use it most intelligent in a context where a user is actually begging for advertisement attention (during a search).

Business Week takes the angle of the marketeer and advertiser who is excited about the new initiative in their post called Marketeers are your ‘friends’. They quote Mark Zuckerberg saying:

“The next 100 years is going to be different for advertising, and it starts today,” Zuckerberg told the crowd of 250 or so enthusiastic marketers and advertising executives who had gathered at a midtown loft for soft drinks, hors d’oeuvres, and a demonstration of Facebook’s new ad system. “Pushing your message out to people is no longer good enough—you have to get into the conversation.”

But who wants marketers in their conversation? If not enough do, the new news-feed ads will be bad news for Facebook.

But Mark, you aren’t getting into the conversation, you are really only trespassing. And btw, the example you provide where 2mln Facebook users join a suport breastcancer cause,  is actually a very bad example. People joined to support the good cause, not to support some brand.

Dave Winer, although he is positive on the move made by Facebook, ends his article with an excellent observation:

Long-term, however they both have problems because advertising is on its way to being obsolete. Facebook is just another step along the path. Advertising will get more and more targeted until it disappears, because perfectly targeted advertising is just information. And that’s good!

I think SocialAds are a bad idea. Actually I think the current web 2.0 free (ad-based) business model is a bad idea. There are 16Bln reasons to get out of that advertisement trap. And now Facebook is doing the wrong thing for the obvious reasons. Mark Zuckerberg couldn’t have said it any better than in this quote, taken from the press conference:

People will not be able to opt out of these social ads or turn them off, at least for now, unless they stop revealing information about themselves on Facebook. Says Zuckerberg: “It is an ad-supported service. It is a free service.”

You couldn’t be more right Mark! This is the Catch 22 of web 2.0. Facebook creates a service, drawing users to it by providing it for free, provide the user with the false illusion that his privacy is safe and then leverages the user profiles and the Social Graph network Facebook ‘owns’ and protects but didn’t create himself (the users did) by monetizing with ads. I said before it isn’t going to hold, as this business model is fueled form the wrong side. But I would go a step further and argue that SocialAds are based upon an entirely wrong assumption of friendship in the wrong context!

The power, according to Facebook lies in the user becoming a brand ambassador towards his friends. The best advice you can get is that from a friend. We all know this phenomenon. You are sitting with a friend and he tells you enthusiastically about a movie he has been too. Makes you want to go yourself, right? Why does that work? Because a lot of things happen at the same time. In the physical world there are many different stimuli that affect your behavior. Things like speech, sight, hearing, touch, feeling, movement, trust, relationships, common experiences or taste, context (like the fact that you are hanging out at your home together), all come together in your brain providing you with a feeling of value to your friends story. It also provides you the opportunity to DISAGREE with your friend.

But in the on-line world you lose most of these stimuli. In Facebook you get flattened stimuli from the newsfeed: “Alex went to this movie and he liked it”, or personalised ads using the profile information. But there is no “hanging out together, no voice, taste, touch or other stimuli, no way of agreeing or disagreeing with your friend. And worse, the stimuli aren’t in the right context. I’m not looking for advertisement there. And if I get these stimuli from my friends in my personal space, what will that do to the trust I have in them? At best I’ll try to ignore it, at worse I get fed up with my friend and disconnect him. Facebook will be left with the bargain hunters (get a free coke if you…), ad blind people (ignoring any brand or ad message), brand bashers (have you seen these morons trying to sell me….) and finally nothing as users will start to see through the advertisement trap they are in and move to another place where services provide real value instead of “an animated Sprite bottle to interact with”.

The very best one being from Doc Searl here. In his post called New World Disorder he quotes The Guardian with an article by Jeff Jarvis, Chaos theory: advertising cash will soon decrease,

Advertising is no one’s first choice as the basis of a relationship. For marketers, it’s expensive and inefficient. For customers, it’s invasive and annoying. And targeted advertising is only slightly more efficient and slightly less annoying. Clearly, the direct relationship between a customer and a company is preferable. But that direct connection cuts out the middlemen – that is the media.

So true. As said before. The web 2.0 bubble is building up way too much pressure, who has a needle?

Google hits back hard with its OpenSocial plans but will the user benefit?

Well, there it is. TechCrunch reported it first (but everyone else has the same scoop!). Google is now revealing its social networking plans. Under the projectname OpenSocial, Google will launch a new set of APIs that application developers can use across social networks. This is definitely good news for the application developers. Instead of having to invest in yet another markup language or platform API they can do it all with one API. Very smart Google. It also matches a lot of the speculations I had on their strategy. As Mathew Ingram points out very nicely, Google has created the one ring that binds them all.

But let us not forget what that “one ring” was about. The real power of it lies in the hands of the creator, not in the hands of the one that wears the ring! Of course Facebook and MySpace have figured out that one for themselves, so they won’t be inclined any soon to join this Google blow to their kneecaps. I’m watching John Battelles take on this, as I always like his analysis.

It does take away a lot of the hype around the attempt of Facebook to launch SocialAds (here and a good analysis here). If Google can claim this central position (and they certainly have the capabilities for it) then Facebook’s attempts to leverage their closed network of approx. 50Mln profiles will be completely wiped away by the “We have access to approximately ALL Internet users worldwide” Google effort.

But what about the user. Will he benefit in the end? I have written a lot about flaws in web 2.0 and some of my wishes to correct them. It remains to be seen if he actually benefits. For example, I haven’t seen anything on privacy in the leaked Google plans. That will be an interesting one, especially if Google gets access to not only web pages and user profiles, but might also be able to leverage my interactions. A scary thought indeed, unless I get to control my own privacy. But the greatest threat to the user in my opinion is whether these Google plans will increase ad pressure on the web user. I am not a big fan of the advertisement model that currently is used as the mainstream web 2.0 business model. It inherently creates walled gardens, limits my options as a user and provides me with often unwanted confrontations with advertisers.

Having said all this I still think the world is better off with Google introducing these OpenSocial plans. It will scare the hell out of current successful but walled garden platforms like Facebook and MySpace. it will fuel an explosion of new and more open innovations. That is definitely beneficial to the user. But a warning is in place for Google. It only took a 3 ft small hobit and a lot of will power to end the domination of the ring that tried to rule them all!