The Facebook business model is the root cause of a lack of transparency

Mark Zuckerberg just announced that Facebook will revert back to the old terms of service as too many people complained about the new ones. I think it is a honorable that Facebook is retracting a pretty bad plan. It is also good to see that they are now engaging with their community about where to take this. In the post Mark states:

Going forward, we’ve decided to take a new approach towards developing our terms. We concluded that returning to our previous terms was the right thing for now. As I said yesterday, we think that a lot of the language in our terms is overly formal and protective so we don’t plan to leave it there for long.

More than 175 million people use Facebook. If it were a country, it would be the sixth most populated country in the world. Our terms aren’t just a document that protect our rights; it’s the governing document for how the service is used by everyone across the world. Given its importance, we need to make sure the terms reflect the principles and values of the people using the service.

Our next version will be a substantial revision from where we are now. It will reflect the principles I described yesterday around how people share and control their information, and it will be written clearly in language everyone can understand. Since this will be the governing document that we’ll all live by, Facebook users will have a lot of input in crafting these terms.

It’s a difficult thing to get right. Facebook has obligations to shareholders, advertisers, business partners, 3rd party application developers, the employees of the company, and yes, the user too. What makes the task even more daunting is that the Facebook business model (free, advertised based) forces them to leverage the size of the network, instead of monetizing on individual user value. It puts them in a balancing act where the advertisement capabilities need to outweigh the individual user rights in order to keep a decent revenue stream. In other words, the more freedom Faceook has to use the data coming from user profiles and interactions, the more capabilities they have to create revenues.

Why do people sign up for Facebook? I suspect in most cases to have a good time and connect with friends. They do not want or need advertisement. It’s a distraction from the core value they wish to receive from Facebook. At the same time, you can’t provide 175M people a free service without some way of creating revenues (although it remains to be seen if advertisement is going to create enough revenues). The problem is that most people are not aware of this and Facebook is not providing the transparency to make sure people are taking a conscious decision when they sign up for the service.

If anything, it is this lack of transparency that should be solved first. The TOS is only one aspect of that. When you sign up for Facebook it should be clear how the service is making money. It should be clear that when you start adding friends, interact, upload content, etc. that all these actions are monitored and stored. It should be clear that even when you are setting privacy controls to a high level it only affects other users, but that it doesn’t protect you or your interactions from Facebook. It should also be clear what Facebook does with 3rd party developers, advertisers and other companies that use the Facebook ecology to create businesses or revenues themselves. And when all of that is clear, then a user can take a conscious decision whether all of that is ok or not.

That is the dillema Mark faces. How are you going to educate 175M people about your business model and all its effects? A User-Centric or User Driven business model would force you to do the right thing for the user, and as a result of this you create revenues. Facebook is forced to do the right thing for the company in order to protect its revenue streams. And that is a big difference.

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5 Responses to The Facebook business model is the root cause of a lack of transparency

  1. Bertil Hatt says:

    Thank you so much for your insights recently. I have many questions — but the simplest way to express them might be: isn’t the situation you describe (free, ad-based) similar to Google’s? And hasn’t Brin & Page’s approach been to precisely raise user’s value — up to the point that they can make money from obscure queries?

    Having an ad-based business model (or any variation including the recently featured polling tool) demands to have detailed information, but Google is fairly transparent about how they use this both to make money (out of thin air) and offer relevant services. If anything, Fb ads haven’t been as relevant because they weren’t as engaging as gossip.

  2. Facebook might be what will show to the mainstream the limit of free services over the internet: an entire generation has grown up getting used too getting things for free, sometimes illegally (music and movie downloads), so it is going to be a real challenge for Zuckerberg, as you mention in your article, to advance his case before users.

  3. @Bertil, Google is obviously doning a similar thing. But their strategy is in many ways much more succesful. Most important is that Google has found a way in which the advertisement itself provides the user real value. Big difference. Advertisement in a social network provides the user no value (you are interacting with friends). But when you are searching, ads can provide real value, and for that reason Google is creating so much online revenue.
    My worry about Google doesn’t lie in their ability to track and trace data. It lies in their unprecedented computational power to exploit that data in real-time. No one in the world can beat their server parks and glass fiber networks.

    @Guillaume that is true. It is difficult to show users that some things may be worth paying for. But there are many examples where this is done successfully. It is the lack of transparency what makes Facebook a untrustworthy service provider right now.

  4. Pingback: Facebook Ultimately in Conflict with Its Users « Twilight in the Valley of the Nerds

  5. Grace says:

    “If anything, it is this lack of transparency that should be solved first. The TOS is only one aspect of that. When you sign up for Facebook it should be clear how the service is making money. It should be clear that when you start adding friends, interact, upload content, etc. that all these actions are monitored and stored. It should be clear that even when you are setting privacy controls to a high level it only affects other users, but that it doesn’t protect you or your interactions from Facebook. It should also be clear what Facebook does with 3rd party developers, advertisers and other companies that use the Facebook ecology to create businesses or revenues themselves. And when all of that is clear, then a user can take a conscious decision whether all of that is ok or not.”

    Bravo, I can’t say more than that word. Good inquiry, Alex

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