

Facebook founder finds a way to profit from its members' private data  - kennyroo
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/4413483/Networking-site-cashes-in-on-friends.html

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mixmax
Let's play with some numbers to see whether this is a viable income model for
facebook.

Gartner, one of the largest marketing research companies in the world, had an
operating income of 133 million US$ in 2007 according to their annual report.
56% of their turnover comes from market research, the rest from consulting and
events. Assuming that all divisions have a similar operating income per 1000$
this puts the operating income of the market research division at $75 million.

Assuming a P/E ratio of 10 this values the marketing research division of
facebook at $750 million.

In other words: If facebook marketing research executes perfectly and becomes
the world leader in this field, which is very crowded with a lot of large
players that have been around for many years, it will be able to account for
5% of their current valuation of $15 billion.

Even if they did pull this off, which is unlikely, it would still be a drop in
the ocean.

~~~
byrneseyeview
I don't think Facebook's plan here is to be as good as Gartner. In fact, I
suspect that using the phrase "We could be as good as..." at Facebook is seen
as socially unacceptable.

I'm not sure any of Facebook's competitors have the number of users, or the
kind of brand loyalty, that Facebook can offer. It's also easier for Facebook
to be a social network that does market research (and more..?) than for
Gartner to be a market research company that does social networks. Social
networks are just a great foundation for a lot of other businesses.

~~~
mixmax
_Social networks are just a great foundation for a lot of other businesses._
\- I don't think so, nobody has come up with a good business model for social
networks yet. Ads don't work, and if you try to harness the information held
in profiles you get privacy problems. Beacon showed this clearly.

Also, I think that in reality there isn't as much brand loyalty as people
think. Three years ago pundits said the same thing about myspace.

My position is that facebook is vastly overvalued - Gartner was just an
example to show that even if they become the biggest in the field the income
would still not justify their evaluation.

In fact Gartner has a market capitalization of 1.3 billion US$, meaning that
facebook should be worth more than 12 times gartner. And Gartner has 4000
employees, 60.000 clients, and offices worldwide.

~~~
indiejade
Facebook is also easily disseminated. It doesn't really have a "core
competency" so to speak. Most things that can be found on facebook can be
found better elsewhere on the Internet. Companies that try to be everything to
everybody get in BIG trouble (Microsoft).

I think I've mentioned this before here, but (for example) Friendfeed is a
nice comparison: it lets people show exactly where and why and how it draws
links together. Facebook puts all of this information into the same facebook
bubble.

~~~
ensignavenger
Microsoft? What kind of 'big trouble' are they in? The last I checked, they
were still quite profitable?

~~~
wmeredith
I had the same question. They have a PR problem that's probably cutting into
their bottom line, but that's a long way from being unprofitable. If someone
wanted to know which company I wanted the keys to, it would be the one that's
make money hand over fist, not the one everyone thinks is really cool and is
in the red.

------
calambrac
Why is Facebook so hellbent on being an advertising and marketing company?
Nobody wants to see ads when they're reading up on their friends' lives, and
people will leave in droves if they feel like their private info is being
overly exploited, or if they're constantly bothered to participate in stupid
marketing surveys.

People spend money in social contexts, why not try to take a cut? Let event
planners set a price for events, and take a small cut. A group of friends
wants to go to a movie or a concert? Make it trivially easy to set up the time
and place and take a cut of the ticket sales. Someone's birthday coming up?
Let groups of their friends make a group purchase from their Amazon wish list
and take the sales commission (then gradually phase out Amazon). Where's
Facebook's version of Paypal, OpenTable, etc?

~~~
palish
I really like the "group purchases" idea. It could only work within a social
networking setting like Facebook. Also, it feels like Facebook's users are
more likely to participate in that than Myspace users.

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stevenjames
When I get birthday event invites (and for other activities) to various
restaurants and bars, and the event creator (or administrator) asks "where do
people want to go" I'd like to see some relevant ads here. Perhaps describing
the atmosphere, music, menu, prices, etc.

It seems like it'd be self-policing because it was local. It'd be a somewhat
efficient market. Just a thought

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aneesh
Umm, isn't this pretty much what Facebook Polls did before they pulled the
plug on it?

~~~
waleedka
Yes, it looks like it. Only, re-launched with a few more bells and whistles
and with a good marketing spin. Funny how the name of the product and how it's
presented makes such a big difference in how valuable it becomes.

------
iamdave
Is there an option to opt-out? If not, my resignation will be on Zuckerberg's
desk by Monday.

I realize the potential Facebook has with it's member base, given the inherent
nature of Metcalfe's Law _but_ I use Facebook to keep in touch with my friends
who aren't savvy or willing enough to use Twitter; a networking site that
doesn't expect it's users to sit by idly while companies poll and query us to
sell products otherwise we wouldn't even blink at.

~~~
FiReaNG3L
I don't know whether to laugh or cry at this - what did you expect? Giving a
company tons of details such as who you know, who you are, what you do, who
you live with, etc, for free, and you think they're not going to use it to
make money?

They're not a charity as far as I know.

Even if you 'resign', they still have your data.

~~~
jamesbritt
"Even if you 'resign', they still have your data."

Before you leave, poison your data.

~~~
alxv
This is futile, since they can keep previous versions of your data. In fact,
this is stated explicitly in Facebook's privacy policy:

"When you update information, we usually keep a backup copy of the prior
version for a reasonable period of time to enable reversion to the prior
version of that information."

~~~
jamesbritt
"This is futile, since they can keep previous versions of your data."

They could assume that any changes made to data just prior to canceling an
account are suspect. So wait. Or don't ever cancel, just stop using the
service.

------
matthias
Overall, I can't help but think that their time would be better spent working
on a premium consumer offering.

~~~
mchristoff
agree. there's enough people out there that live on facebook that i postulate
that more than a few would pay something for facebook++. i think they could
make a killer product around photos alone.

zuckerberg has said it many times that he thinks of facebook as a utility.
despite my reluctance for many years to use facebook all that much, more and
more it's becoming ad much a part of life as IM or email fot me. with so many
users a few dollars from a small percentage goes a long way.

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kragen
Let's hypothesize that hyperbolic discounting is a good model for how market
research people will value focus-group information: they will pay twice as
much if it takes half as much time to perform a focus group and digest the
results.

If it currently takes two weeks to do a focus group, and it takes 30 seconds
on Facebook, then not only does it become reasonable to ask questions that you
need only five minutes to digest the results of --- but you'll be willing to
pay 4000 times as much, say, per question. Or, more likely, ask questions that
are 4000 times less valuable, and pay the same amount.

That's not plausible --- there's probably some other limiting factor. But it
could easily be bigger than Gartner.

Doing a poll on this thing could have the same relationship to traditional
polling and focus groups that Google has to library research. I do maybe 100
Google searches a day, maybe 100× as many as I ever did card-catalog searches
in a library. Can you imagine marketing guys and politicians doing 100 opinion
polls a day?

~~~
kragen
Relevant is this snippet from <http://norvig.com/experiment-design.html>:

 _In my own work, we do a dozen or more experiments every day, and our typical
value is p=0.0000001% -- one in a billion or so. Sometimes we get a p of one
in a trillion. And even then we agonize over whether we should believe the
results of the experiment._

Don't you wish you could do a dozen or more experiments on human subjects each
day, with a _p_ of one in a billion?

------
jacquesm
As much as I like the fact that facebook provides a bunch of free services
this is simply bait and switch. Turn a social networking site into a marketing
panel.

Besides that, using facebook as a 'panel' seriously degrades the value of the
company as a whole, panels are commodities and are definitely not valued in
the 10's of billions, even the very large ones.

There are lots of players in that segment and most of them were put together
with the express purpose of being used as panels, it's quite easy to get
access to panels with large numbers of respondents in a given target
demographic.

That's especially hard when your demographic is working single moms from
Nebraska or something equally arcane, if your database isn't set up to record
such information right from day 1 then you're not going to add it afterwards
in an easy way.

And those respondents are usually paid for their work, fb will do the
opposite, nag you and charge you to opt-out.

Of course facebook will have to turn a buck but I highly doubt this is the way
to make it happen.

------
mattmaroon
This is just as theoretical as every other monetization scheme they've come up
with so far, all of which have failed. The problem is that people on social
networks just want to hang out and maybe play games. They don't click on ads
much, and when they do, they don't buy things at the places they land. You can
show them polls all day, but they'll mostly ignore it.

------
lasthemy1
Facebook is providing a platform for a huge number of businesses to make money
off Facebook Apps. I would look at building part of their business model off
that. Facebook Apps makes it virtually impossible for them to make money off
their own applications because there will always be incentives for new players
to make a competing app.

------
volida
This is an indication that they are going to blow it. Actually Beacon was an
indication. This is the confirmation.

~~~
dominik
I "closed" my account when Beacon happened in late 2007 (closed = deleted all
my friends and set my account to 'deactivated'; Facebook won't let you truly
delete your account). I had first joined in the early days, in March 2004.

I thought about returning to Facebook, as many friends are on it. But reading
this article has confirmed I was right to leave. Thanks :)

------
MisterMerkin
So Zuckerberg, under the auspices of world peace and progress, opens up it's
users' private data to multinational corporate businesspersons, who are also
there under the guise of world peace and progress. That's genius. Evil genius.

------
kennyroo
Anybody know how large the overall market research industry is at the moment?
Is this a big deal, or a drop in the bucket?

~~~
inerte
It's huge, but not $16b (lol at previous FB evaluation?) huge.

The thing is that maybe, it isn't huge enough precisely because current tools
aren't that good. Setting up a focus group is a PITA.

Letting _any_ business make questions to a big audience is awesome. If FB
restricts this kind of polling only to big companies, it will fail (for
varying degrees of fail, specially expectations on FB making lots of cash).
Because it's the big companies that have the money to gather this kind of data
currently.

Now, if any business could tap into the Facebook audience, that would be cool.
Google has proved that < $1 dollars transactions, in internet scale, can make
billions. Now if the mom and pop pizzeria on the corner of a NY street could
do their market research on FB... or if anyone looking to expand their
business can reasearch what's the average income on neighboor town, what kind
of sauce they prefer, what they drink...

Also, there's a huge PR opportunity there. This data could be free to the
government (and ngos). A few press releases here and there saying how you
helped to determine what citizens want would generate good karma for FB.

Do you remember when everyone was afraid of MS? If this FB stuff gets any kind
of traction, Google will release its own thing. You can't be better than
Google at data mining. Granted, there's not much personal data with Google
than FB has. But why do you think FB doesn't like the idea of cooperating with
Google on OpenSocial?

~~~
whatusername
<http://www.orkut.com/>

Google is not god.

