Recently my site has been hit with a ton of “manual spam” – folks who are paid to post short comments in the hope they’ll appear and drive pagerank back to various sites (or perhaps just increase their or their clients’ visibility.) It’s not hard to kill these comments, though it’s a bit of an irritant when they pile up. I don’t really mind, because their full-blown amateur-hour earnestness is pretty entertaining. Besides leaving chuckleworthy comments like “Facebook now 100 billion company there big really now”, the spammers also leave behind their user handles, which are simply priceless. Enjoy:
I’ll admit it, I’m one of those people who has a Google News alert set for my own name. Back in the day, it meant a lot more than it does now – the search results used to pick up blog mentions as well as “regular” news mentions, and before FacebookLand took over our world (and eschewed Google’s), a news alert was a pretty reliable way to find out what folks might be saying about you or your writing on any given day.
Like most folks who maintain a reasonably public conversation, I now watch Twitter’s @replies far more than I do Google news alerts. Of course, Twitter doesn’t catch everything, so I never unsubscribed from my Google News alert.
Yesterday, one came over the transom, and it kind of crushed me. “The End of the Tech Conference?” it asked. The opening line was included in the snippet: “The heartbreak was palpable when John Battelle announced via blog post back in April that the Web 2.0 Summit would not be held for the first time since its debut in 2004.”
The funny thing is, while I think the writer intended to describe the Web 2 community’s “heartbreak” – certainly an arguable supposition given how overwhelmed our industry is with conferences – what she may not have realized is how close to home the line hit for me. When I read it, I felt my own loss – it’s difficult to stop doing something you’ve done well and for a long time. In my case, I’ve hosted a gathering of Internet industry leaders nearly every year since 1998 (before Web 2, there was The Industry Standard’s “Internet Summit”). That’s a decade and a half. Not doing it is far harder than I thought.
I took the decision to step away from the Web 2 Summit as inevitable for two main reasons. First, I needed to work on the book, and there didn’t seem to be room for such an ambitious project if I kept my two other day jobs (Web 2 and Federated Media Publishing). Web 2 takes an extraordinary amount of time to do – with nearly 70 speakers and three days of programming, my life very quickly becomes overwhelmed with research, production calls, and pre-interviews, not to mention all the sales, operations, and marketing work.
Second, I had been doing Web 2 for a long time, and I wanted to step away and look at it with fresh eyes – let it lay fallow, so to speak. Stop tilling and seeding the same soil, let it repair, in the most catholic interpretation of the word (“repair” derives from the Latin “to go home”). And it’s this part that’s been really hard. It’s a natural cycle of grief, in a way – I’m probably deep in the trough of sorrow right now – but I do kind of miss the work.
In other words, it’s hard to lay fallow.
But the beauty of a fallow field is what’s going on underneath. If you trust yourself enough, you’ll realize all kinds of seeds are competing to push through and gather the resources of your attention. I’m learning that it takes a lot of will power to let that process run its course. I find myself “watering” all sorts of potential new growth ideas. I’m not sure which will take root, which are weeds, and which might yield the wrong crop, so to speak. And that’s scary.
But it’s also good. If you’re not a little scared, you’re not really paying attention, are you?
Meanwhile, I can report that I *will* be involved in a new kind of gathering this Fall, one that I can’t yet announce, because it involves many other wonderful partners. It’s not a typical tech conference, and it’s certainly not on par with Web 2 in terms of commitment or time – either from me or the attendees. But it’s a seed, one I’m happy to be cultivating. Stay tuned for more on that soon.
Meanwhile, back to the fallows…
I had one of those kind of days yesterday that reaffirm my belief in our industry, in its people, and in the work I do.
It’s not easy to sit here and write, much less write a book, and I’ll admit lately my faith (and my productivity) has flagged – there’s so much work left to do, so little time in which to do it, and so many other things – Federated Media, conferences, board positions, family, new business ideas – competing for my attention.
Fortunately I had reserved yesterday for a Valley reporting day. I managed to drag myself out of my recently-unproductive writer’s lair and into the bright sunlight of Sand Hill Road, Sunnyvale, and Palo Alto. I was fortunate to meet with some of the smartest folks in the business, and as I did, I relaized how easy it is to shake yourself out of a funk: Just get the hell out of your routine, pick up the phone, make a few appointments, and go talk to some interesting folks.
I’ll give you another example. Last week I went to Chicago for a joint board meeting between the IAB (where I am a board member), the Association of National Advertisers, and the 4As (that stands for the American Association of Advertising Agencies). I’ll admit I really didn’t want to go. I have come to hate business travel because it interrupts the flow of creation – I find it nearly impossible to write anything if I have to take the majority of the week to drive to the airport, get frisked, eat crap food on an airplane, then spend a couple of days in an airless, soul-sucking ballroom that practically drips with the steamed ghosts of ten thousand badly cooked chickens. Lather, rinse and repeat for the trip back. Ugh.
Only…once I settled into the meeting, I learned more in two days than I ever could from two weeks sitting in front of this screen. I got far smarter on the issues of marketing measurement, self regulation, and Do Not Track. I serendipitously managed to do some due diligence on a business I’ve been looking into. I gathered some critical intel on another deal I’ve been working, met a handful of senior people in the marketing industry I’ve been meaning to get to know, had lunch with an old colleague with whom I’d have otherwise never connected, and even managed to take a long run in the woods of Northbrook, Illinois, during which I happened upon a family of raccoons happily climbing a tree.
I left both excursions feeling like I had far more to say than when I began. And that’s my point. When you’re stuck, get out and talk to people. It always works for me.
If you’ve been following this site for a while, you’ll remember my experiment earlier this year with posting pictures of wine, bike rides, and other “life” things. Many of you liked those posts, others, not so much. (Here’s one example.) My reason for posting these photos was pretty simple – I prefer to have my content emanate from my own site, rather than be bound to Facebook, Pinterest, Instagram or some other third-party walled garden. If I could figure out a way to post stuff to my own site, then I’d share it out to those services, but keep the content firmly planted in what I call “The Independent Web.”
But I knew not all of you wanted to hear about my rides or consumption of wine, so I created feeds that filtered out the non-work related stuff. Alas, that wasn’t enough. I heard from a lot of you that you didn’t like my site clogged up with the pictures, and I don’t blame you. Having a website should mean having flexibility, so I’ve created a section of the site, which I’m calling “Four Letter Words,” for posting personal stuff. You can find it here.
The main RSS feed for Searchblog will include only posts that are *not* tagged with “Four Letter Words,” and the main site will only display my typical industry-related stuff. But if you want to check out the other side of my life – one of my favorite four letter words, along with life, wife, kids, bike, and wine – check it out. And thanks for coming. Means the world to me.
A couple of days ago Google released its latest “Transparency Report,” part of the company’s ongoing commitment to disclose requests by individuals, corporations, and governments to change what users see in search results and other Google properties such as YouTube.
The press coverage of Google’s report was copious – far more than the prior two years, and for good reason. This week’s disclosure included Google’s bi-annual report of government takedown requests (corporate and individual requests are updated in near real time). The news was not comforting.
As the Atlantic wrote:
The stories Google tells to accompany the broad-brush numbers (found in the “annotations” section and its blog) paint a picture to accompany those numbers that Google calls “alarming” — noting, in particular, that some of the requests for removal of political speech come from “Western democracies not typically associated with censorship.”
The number of takedown requests from governments is on the rise – up about 100% year to year for the US alone. Part of this, perhaps, can be explained by what might be called a “catchup effect” – governments are coming to terms with the pervasive power of digital information, and finally getting their heads around trying to control it, much as governments have attempted to control more analog forms of information like newspapers, television stations, and books.
But as we know, digital information is very, very different. It’s one thing to try to control the press, it’s quite another to do the same with the blog postings, YouTube videos, Twitter feeds, and emails of an entire citizenry. Given the explosion of arguably illegal or simply embarrassing information available to Google’s crawlers (cough, cough, Wikileaks), I’m rather surprised that worldwide government takedown requests haven’t grown at an exponential rate.
But to me, the rise of government takedown requests isn’t nearly as interesting as the role Google and other companies play in all of this. As I’ve written elsewhere, it seems that as we move our public selves into the digital sphere, we seem to be also moving our trust from the institutions of government to the institution of the corporation. For example, our offline identity is established by a government ID like a driver’s license. Online, many of us view Facebook as our identity service. Prior to email, our private correspondance was secured by a government institution called the postal service. Today, we trust AOL, Microsoft, Yahoo, Facebook, or Gmail with our private utterances. When documents were analog, they were protected by government laws against unreasonable search and seizure. When they live in the cloud….the ground is shifting. I could go on, but I think you get my point.
As we move ourselves into the realm of digital information, a realm mediated by private corporations, those corporations naturally become the focus of government attention. I find Google’s Transparency Report to be a refreshing response to this government embrace – but it’s an exercise that almost no other corporation completes (Twitter has a record of disclosing, but on a case by case basis). Where is Amazon’s Transparency Report? Yahoo’s? Microsoft’s? And of course, the biggest question in terms of scale and personal information – where is Facebook’s? Oh, and of course, where is Apple’s?
Put another way: If we are shifting our trust from the government to the corporation, who’s watching the corporations? With government, we’ve at least got clear legal recourse – in the United States, we’ve got the Constitution, the Freedom of Information Act, and a deep legal history protecting the role of the press – what Jefferson called the Fourth Estate. With corporations, we’re on far less comforting ground – most of us have agreed to Terms of Services we’ve never read, much less studied in sixth grade civics class.
As the Atlantic concludes:
Google is trying to make these decisions responsibly, and the outcome, as detailed in the report, is reason to have confidence in Google as an arbiter of these things if, as is the case, Google is going to be the arbiter of these issues. But unlike a US Court, we don’t see the transcripts of oral arguments, or the detailed reasoning of a judge. …The Transparency Report sheds more light on the governments Google deals with than with its own internal processes for making judgments about compliance….Google’s Transparency Report is the work of a company that is grappling with its power and trying to show its work.
I applaud Google’s efforts here, but I’m wary of placing such an important public trust in the hands of private corporations alone. Google is a powerful company, with access to a wide swath of the world’s information. But with the rise of walled gardens like iOS and Facebook, an increasing amount of our information doesn’t touch Google’s servers. We literally are in the dark about how this data is being accessed by governments around the world.
Google is setting an example I hope all corporations with access to our data will follow. So far, however, most companies don’t. And that should give all of us pause, and it should be the basis of an ongoing conversation about the role of government in our digital lives.
And thought to myself – “Hey, didn’t I predict that a while back?”
Every year I write predictions, and every July 1 or so, I see how I’ve been doing. So I went back to my 2012 predictions, and nope, it wasn’t there. Ah, time flies….it was in 2011 that I wrote, as Prediction #6:
Apple will attempt to get better at social networking, fail, and cut a deal with Facebook.
This past week’s industry tempest centered around Microsoft’s decision to implement “Do Not Track” (known as “DNT”) as a default on Internet Explorer 10, a browser update timed to roll out with the company’s long-anticipated Windows 8 release.
Microsoft’s decision caught much of the marketing and media industry by surprise – after all, Microsoft itself is a major player in the advertising business, and in that role has been a strong proponent of the current self-regulatory regime, which includes, at least until Microsoft tossed its grenade into the marketplace, a commitment to implementation of DNT as an opt-in technology, rather than as a default.*
For most readers I don’t need to explain why this matters, but in case you’re new to the debate, when enabled, DNT sets a “flag” telling websites that you don’t want data about your visit to be used for purposes of creating a profile of your browsing history (or for any other reason). Whether we like it or not, such profiles have driven a very large business in display advertising over the past 15 years. Were a majority of consumers to implement DNT, the infrastructure that currently drives wide swathes of the web’s monetization ecosystem would crumble, taking a lot of quality content along with it.
Once released, it’s estimated that IE 10 could quickly grab as much as 25-30% of browser market share. The idea that the online advertising industry could lose almost a third of its value due to the actions of one rogue player is certainly cause for alarm. Last week’s press were full of conspiracy theories about why Microsoft was making such a move. The company claims it just wants to protect users’ privacy, which strikes me as disingenuous – it’s far more likely that Microsoft is willing to spike its relatively small advertising business in exchange for striking a lethal blow to Google’s core business model, both in advertising and in browser share.
I’m quite certain the Windows 8 team is preparing to market IE 10 – and by extension, Windows 8 – as the safe, privacy-enhancing choice, capitalizing on Google’s many government woes and consumers’ overall unease with the search giant’s power. I’m also quite certain that Microsoft, like many others, suffers from a case of extreme Apple envy, and wishes it had a pristine, closed-loop environment like iOS that it could completely control. In order to create such an environment, Microsoft needs to gain consumer’s trust. Seen from that point of view, implementing DNT as a default just makes sense.
But the more I think through it, the more I’m somewhat unperturbed by the whole affair. In fact, I’m rather excited by it.
First off, it’s not clear that IE10’s approach to DNT will matter. When it comes to whether or not a site has to comply with browser flags such as DNT, websites and third party look to the standard settings body knows as the WC3. That organization’s proposed draft specification on DNT is quite clear: It says no company may enforce a default DNT setting for a user, one way or the other. In other words, this whole thing could be a tempest in a teapot. Wired recently argued that Microsoft will be forced to back down and change its policy.
But I’m kind of hoping Microsoft will keep DNT in place. I know, that’s a pretty crazy thing for a guy who started an advertising-run business to say, but in this supposed threat I see a major opportunity.
Imagine a scenario, beginning sometime next year, when website owners start noticing significant numbers of visitors with IE10 browsers swinging by their sites. Imagine further that Microsoft has stuck to its guns, an all those IE10 browsers have their flags set to “DNT.”
To me, this presents a huge opportunity for the owner of a site to engage with its readers, and explain quite clearly the fact that good content on the Internet is paid for by good marketing on the Internet. And good marketing often needs to use “tracking” data so as to present quality advertising in context. (The same really can and should be said of content on the web – but I’ll just stick to advertising for now).
Advertising and content have always been bound together – in print, on television, and on the web. Sure, you can skip the ad – just flip the page, or press “ffwd” on your DVR. But great advertising, as I’ve long argued, adds value to the content ecosystem, and has as much a right to be in the conversation as does the publisher and the consumer.
Do Not Track provides our industry with a rare opportunity to speak out and explain this fact, and while the dialog box I’ve ginned up at the top of this post is fake, I’d love to see a day when they are popping up all over the web, reminding consumers that not only does quality content need to be supported, in fact, the marketers supporting it actually deserve our attention as well.
At present, the conversation between content creator, content consumer, and marketer is poorly instrumented and rife with mistrust. Our industry’s “ad choices” self regulatory regime – those little triangle icons you see all over display ads these days – is a good start. But we’ve a long way to go. Perhaps unwittingly, Microsoft may be pushing us that much faster toward a better future.
*I am on the board of the IAB, one of the major industry trade groups which promotes self-regulation. The opinions here are my own, as usual.
I’m reading a fascinating biography of Samuel Morse – Lightning Man: The Accursed Life Of Samuel F.B. Morse by Kenneth Silverman. I’ll post a review in a week or so, but one scene bears a quick post.
Morse successfully demonstrated his telegraph between Baltimore and Washington DC in May of 1844. Three days later the Democratic party convention commenced in Baltimore. In what turned out to be a masterstroke of “being in the right place at the right time,” Morse’s telegraph line happened to be in place to relay news of the convention back to the political classes in DC.
Recall, this was at a time when news was carried by horseback or, in the best case, by rail. It took hours for messages to travel between cities like Baltimore and DC – and they were just 45 miles apart.
Adding to the sensationalism of the telegraph’s public debut, the Democratic convention of 1844 was fraught with controversy and political implication – candidates’ fortunes turned on nation-changing issues such as whether to reclaim Oregon from the British, and whether to annex Texas into the Union, which had serious implications for a growing movement for the abolition of slavery.
Remember, this was 15 years before the Civil War began, and just 30-odd years after the war of 1812, during which the British torched the House of Representatives.
Morse, who by his fifties had endured nearly a dozen years of false starts, failures, near-bankruptcy, and more, turned out to be a master publicist. He positioned his partner Alfred Vail at the convention and himself near Congress. Vail began sending regular reports on the convention to Morse, who was surrounded by hundreds of reporters, Senators, and other dignitaries in DC. News came in short bursts familiar to anyone who’s spent time on Twitter or Facebook. In the “conversation,” most likely the first of its kind to report news in real time, all of Washington learned that the “dark horse” candidate James Polk, who supported bringing Texas into the Union, would prevail.
It makes for fascinating reading, with a funny kicker at the end:
V[ail] Mr. Brewster of Pa is speaking in favour of Buchanan
V Mr Brewster says his delegation go for VB but if VB’s friends desert them, the Delegation go for Buchanan…. The vote taken will be nearly unanimous for J K Polk & harmony & union are restored
M Is it a fact or a mere rumor
V Wait till the ballot comes…. Illinois goes for Polk … Mich goes for Polk. Penn asks leave to correct her error so as to give her whole vote for Polk….
M Intense anxiety prevails to … hear the result of last Balloting
V Polk is unanimously nom
M 3 cheers have been given here for Polk and 3 for the Telegraph.
V Have you had your dinner
M yes have you
V yes what had you
M mutton chop and strawberries
And so began a revolution in communications and industry. But even back then, folks shared both the extraordinary and the mundane across the wires….
Part of the research I am doing for the book involves trying to get my head around the concept of “Big Data,” given the premise that we are in a fundamental shift to a digitally driven society. Big data, as you all know, is super hot – Facebook derives its value because of all that big data it has on you and me, Google is probably the original consumer-facing big data company (though Amazon might take issue with that), Microsoft is betting the farm on data in the cloud, Splunk just had a hot IPO because it’s a Big Data play, and so on.
But I’m starting to wonder if Big Data is the right metaphor for all of us as we continue this journey toward a digitally enhanced future. It feels so – impersonal – Big Data is something that is done to us or without regard for us as individuals. We need a metaphor that is more about the person, and less about the machine. At the very least, it should start with us, no?
Elsewhere I’ve written about the intersection of data and the platform for that data – expect a lot more from me on this subject in the future. But in short, I am unconvinced that the current architecture we’ve adopted is ideal – where all “our” data, along with the data created by that data’s co-mingling with other data – lives in “cloud” platforms controlled by large corporations whose terms and values we may or may not agree with (or even pay attention to, though some interesting folks are starting to). And the grammar and vocabulary now seeping into our culture is equally mundane and bereft of the subject’s true potential – the creation, sharing and intermingling of data is perhaps the most important development of our generation, in terms of potential good it can create in the world.
At Web 2 last year a significant theme arose around the idea of “You Are the Platform,” driven by people and companies like Chris Poole, Mozilla, Singly, and many others. I think this is an under-appreciated and important idea for our industry, and it centers around, to torture a phrase, the idea of “small” rather than Big Data. To me, small means limited, intimate, and actionable by individuals. It’s small in the same sense that the original web was “small pieces loosely joined” (and the web itself was “big.”) It’s intimate in that it’s data that matters a lot to each of us, and that we share with much the same kind of social parameters that might constrain a story at an intimate dinner gathering, or a presentation at a business meeting. And should we choose to share a small amount of intimate data with “the cloud,” it’s important that the cloud understand the nature of that data as distinct from its masses of “Big Data.”
An undeveloped idea, to be sure, but I wanted to sketch this out today before I leave for a week of travel.
The headlines about Facebook’s IPO – along with questions about its business model – are now officially cringeworthy. It’s an ongoing, rolling study in how society digests important news about our industry, and it’s far from played out. But we seem at an interesting tipping point in perception, and now seemed a good time to weigh in with a few words on the subject.
Prior to Facebook’s IPO, I drafted a post about its core business model (targeted display advertising), but decided not to publish it. The main thrust of my post is below, but I want to explain why I didn’t post right away, and provide you all with something of a “tick tock” of what’s happened over the past few days.
The truth is, I didn’t post last week because I didn’t feel like piling on to what was becoming a media frenzy. Less than 24 hours before the biggest Internet IPO in history, the negative stories questioning Facebook’s core revenue model were coming fast and furious. My piece wasn’t negative, per se, its intention was to be thoughtful. And in the face of a media scrum, I often pull back until the dust settles. (There’s a media business in there somewhere, but I digress).
I figured I’d wait till Monday. Things would have settled down by then…
Well, that didn’t happen. Compared to Google’s IPO, which was controversial for very different reasons (they ran a “modified auction,” remember?), the Facebook IPO is quickly becoming the biggest story in tech so far this year. And unfortunately for the good people at Facebook, it’s not a positive one.
The starting gun of Facebook’s IPO woes was the news that GM planned to pull its $10 million spend – but would continue to invest around $30 million in maintaining its Facebook “presence.” Interestingly, that $30 million was not going to Facebook, but rather to GM’s agency and other partners. I’m not sure how that $30 million is spent – that’s a lot of cheddar to have a presence anywhere (you could build about 15 Instagrams with that kind of money, for example). But most have speculated it goes to staffing social media experts and working with companies like Buddy Media, buying “likes” through third party ad networks, and maintaining a burgeoning amount of content to feed GM’s myriad and increasingly sophisticated presence on the site.
Now, some folks have said the reason GM pulled its ads were because the auto giant failed to understand how to market on Facebook – but if that’s true, I’m not sure it’s entirely GM’s fault. Regardless, since the original WSJ piece came out, a raft of pieces questioning Facebook’s money machine have appeared, and they mostly say the same thing. Here’s last week’s New York Times, for example (titled Ahead of Facebook I.P.O., a Skeptical Madison Ave):
“It’s one of the most powerful branding mechanisms in the world, but it’s not an advertising mechanism,” said Martin Sorrell, chief executive of WPP, the giant advertising agency.
“Facebook’s a silo,” said Darren Herman, the chief digital media officer at the Media Kitchen, an agency that helps clients on Facebook. “It is very hard to understand the efficacy of what a Facebook like, or fan or follow is worth.”
It seems, just ahead of the IPO, folks were realizing that Facebook doesn’t work like Google, or the web at large. It’s a service layered on top of the Web, and it has its own rules, its own ecosystem, and its own “native advertising platform.” In the run up to the IPO, a lot of folks began questioning whether that platform stands the test of time.
I’ll have more thoughts on that below, after a quick review of the past few days in FacebookLand.
What Just Happened?!
As I outlined above, Facebook faced a building storyline about the efficacy of its core revenue model, right before the opening bell. Not a good start, but then again, not unusual for a company going public.
One of the inevitabilities of negative news about a company is that it begets more negativity – people start to look for patterns that might prove that the initial bad news was just the tip of an iceberg. When word came out last week that demand for the stock was so high that insiders planned to sell even more shares at the open, many industry folks I spoke to began to wonder if the “greater fool” theory was kicking in. In other words, these people wondered, if the bankers and early investors in Facebook were increasing the number of shares they were selling at the outset, perhaps they knew something the general public didn’t – maybe they thought that $38 was as high as the stock was going to get – at least for a while.
Clearly, those industry folks were talking to more than just me. The press started questioning the increase. As Bloomberg reported at the time: “…insiders’ decision to pare holdings further may heighten some investors’ concern over Facebook’s earnings growth, said Greenwood Capital’s Walter Todd.”
That quote would prove prescient.
As Facebook opened trading last Friday, the stock instantly shot up – always taken as a good sign – but then it began to sink. Were it not for significant supportive buying by the offering’s lead banker, the stock would have closed below its opening price, an embarrassing signal that the offering was poorly handled. Facebook closed its first day of trading up marginally – not exactly the rocketship that many expected (a crowdsourced site predicted it would soar to $54, for example).
Then things got really bad. Over the weekend, officials at NASDAQ, the exchange where Facebook debuted, admitted they bungled the stock’s opening trades due to the massive demand, citing technical and other issues. Monday, the Wall Street Journal, among many others, questioned Morgan Stanley’s support of the stock. To make matters worse, the stock slid to around $34 by the end of the day. A frenzy of media coverage erupted – including a number of extraordinary allegations, first made late Monday evening, around insider information provided verbally to institutional investors but not disclosed to the public. That information included concerns that Facebook’s ad revenues were not growing as quickly as first thought, and that mobile usage, where Facebook’s monetization is weak, was exploding, exposing another hole in the company’s revenue model.
In other words, what my industry sources suspected might have been true – that insiders knew something, and decided to get out when the getting was good – may have been what really happened. True or not, such a story taints the offering considerably.
Predictably, those allegations have spawned calls for investigations by regulatory authorities and lawsuits or subpoenas by individual investors as well as the state of Massachusetts. On Tuesday, the stock sank again, closing at near $31, $7 off its opening price and more than $10 off its high point on opening day.
Not exactly a honeymoon for new public company CEO Mark Zuckerberg, who got married last Sunday to his college sweetheart. Today’s early trading must provide at least some comfort – Facebook is trading a bit up, in the $32 range, a price that many financial news outlets reported as the number most sophisticated investors felt was correct in the first place.
Is the worst of it over for Facebook’s IPO? I have no idea. But the core of the issue is what’s most interesting to me.
Stepping Back: What’s This Really All About?
Facebook is a very large, very profitable company and I am sure it will find its feet. I’m not a stock analyst, and I’m not going to try to predict whether or not the company is properly valued at any price.
But I do have a few thoughts about the underlying questions that are driving this whole fracas – Facebook’s revenue model.
Facebook makes 82% of its money by selling targeted display advertising – boxes on the top and right side of the site (it’s recently added ads at logout, and in newsfeeds). Not a particularly unique model on its face, but certainly unique underneath: Because Facebook knows so much about each person on its service, it can target in ways Google and others can only dream about. Over the years, Facebook has added new advertising products based on the unique identity, interest, and relationship data it owns: Advertisers can incorporate the fact that a friend of a friend “likes” a product, for example. Or they can incorporate their own marketing content into their ads, a practice known as “conversational marketing” that I’ve been on about for seven or so years (for more on that, see my post Conversational Marketing Is Hot – Again. Thanks Facebook!).
But as many have pointed out, Facebook’s approach to advertising has a problem: People don’t (yet) come to Facebook with the intention of consuming quality content (as they do with media sites), or finding an answer to a question (as they do at Google search). Yet Facebook’s ad system combines both those models – it employs a display ad unit (the foundation of brand-driven media sites) as well as a sophisticated ad-buying platform that’d be familiar to anyone who’s ever used Google AdWords.
I’m not sure how many advertisers use Facebook, but it’s probably a fair guess to say the number approaches or crosses the hundreds of thousands. That’s about how many used Overture and Google a decade ago. The big question is simply this: Do those Facebook ads work as well or better than other approaches? If the answer is yes, the question of valuation is rather moot. If the answer is no…Facebook’s got some work to do.
No such question hung over Google upon its stock debut. AdWords worked. People came to search with clear intent, and if you, as an advertiser, could match your product or service to that intent, you won. You’d put as much money as you could into the Google machine, because profit came out the other side. It was an entirely new model for advertising.
I think it’s fair to say the same is not yet true for Facebook’s native advertising solution. And that’s really what Facebook Ads are: the biggest example of a platform-specific “native advertising” play since Google AdWords broke out ten years ago.
But it’s not clear that Facebook’s ad platform works better than any number of other alternatives. For brand advertisers, those large “rising star” units, replete with video capabilities and rich contextual placements, are a damn good option, and increasingly affordable. And if an advertiser wants to message at the point of intent, well, that’s what Google (and Bing) are for.
It’s astonishing how quickly Facebook has gotten to $4billion in revenue – but at the end of the day, marketers must justify their spend. Sure, it makes sense to engage on a platform where nearly a billion people spend hours each month. But the question remains – how do you engage, and who do you pay for that engagement? Facebook is huge, and terribly successful at engaging its users. But what GM seems to have realized is that it can engage all day long on Facebook, without having to pay Facebook for the privilege of doing so. Perhaps the question can be rephrased this way: Has Facebook figured out how to deliver marketers long-term value creation? The jury seems out on that one.
Now that Facebook is public, it will face relentless pressure to convince that jury, which now demonstrates its vote via a real time stock price. That pressure could force potentially new and more intrusive ad units, and/or new approaches to monetization we’ve yet to see, including, as I predicted in January, a web-wide display network driven by Facebook data.
As Chris Dixon wrote earlier in the month:
The key question when trying to value Facebook’s stock is: can they find another business model that generates significantly more revenue per user without hurting the user experience?
A good question, and one I can only imagine folks at Facebook are pondering at the moment. Currently, Facebook’s ads are, in the majority, stuck in a model that doesn’t feel truly native to how people actually use the service. Can Facebook come up with a better solution? Integration of ad units into newsfeeds is one approach that bears watching (it reminds me of Twitter’s approach, for example), but I’m not sure that’s enough to feed a $4billion beast.
These questions are fascinating to consider – in particular in light of the “native monetization” craze sweeping other platforms like Tumblr, Twitter, Pinterest, and others. As I’ve argued elsewhere, unique approaches to marketing work only if they prove a return on total investment, including the cost of creating, optimizing, and supporting those native ad units when compared to other marketing approaches. Facebook clearly has the heft, and now the cash, to spend considerable resources to prove its approach. I can’t wait to see what happens next.