I've been pondering the implications of Facebook's SocialAds announcement and it has created some interesting lines of thought. The moment the pin dropped was when Dave Winer linked to one of his old posts that contains the following money quote
that's when the whole idea of advertising will go poof, will disappear. If it's perfectly targeted, it isn't advertising, it's information. Information is welcome, advertising is offensive.
If you think about it, the reason Google makes so much money from search advertising is because the ads are particularly relevant when a user is seeking information or a trusted opinion as part of the process to make a commercial decision. If I'm searching for "iPod" or "car insurance" then it is quite likely that ads selling me these products are relevant to my search and are actually considered to be information instead of intrusive advertising.
Where Google's model breaks down is that a large amount of the advertising out there is intended to make you want to buy crap that you weren't even interested in until you saw the ads. In addition, trusted recommendations are a powerful way to convince customers to make purchases they were otherwise not considering. Former Amazon employee Greg Linden has written blog posts that indicate that 20% - 35% of Amazon's sales comes from recommendations like "people who like 50 Cent also like G-Unit". Given that Amazon made over 10 billion dollars in revenue last year (see financials), this means that $2 billion to $3.5 billion of that revenue is based on what Facebook is calling "social" ads.
So what does all this have to do with the title of my blog post? Glad you asked. Recently Yaron and I were chatting about the virtues of the Facebook platform. He argued that the fact that applications are encouraged to keep their data within their own silos (e.g. Flixster isn't supposed to be mucking with my iLike data and vice versa) prevents everyone [including Facebook] from benefiting from all this profile data being created from alternate sources. I argued that seeing the complexities introduced by having multiple applications being able to write to the same data store (e.g. the Windows registry) it's a lot better for users and app developers if they don't have to worry that some half baked app written by some drunken college kid is going to hose their Scrabulous scores or corrupt all their movie ratings.
However what this means is that some of the juiciest data to serve "social" ads against within Facebook (i.e. movies and music) is not in Facebook's databases but in the databases of the developers of Facebook applications like Slide, iLike and Flixster. Considering the following entry that shows up in my friends news feeds after I performed an action in iLike ,
This entry could be improved with "social" ads in a way that is informative and valuable to my friends while also providing financial value to the application developer. For instance, would you consider the following changes to that entry to be advertising or information?
Flixster does an even worse job than iLike in making the actions they show in my news feed to be both useful and monetizable. Here's the kind of stuff that shows up in my news feed from Flixster
I don't know about you but I consider this spam. In fact, it is also misleading since what it really means is that someone on my friends list (Steve Gordon) has also installed the Flixster application on their profile. However what if the application actually published some of my movie ratings into the news feed with more context such as
People keep asking how Facebook application developers will make money. From where I'm sitting, this looks like a freaking gold mine. The problem seems to be that these applications either haven't yet figured out how lucrative a position they're in or are still in the audience acquisition phase until they flip to the highest bidder.
If Mark Zuckerburg has any strategic bone in his body, he'd snap up these companies before a hostile competitor like Google or Fox Interactive Media does. I'd put money on it that people are slowly realizing this all over Silicon Valley.
What do you think?