“If the product is free, you are the product.”
At first glance that little maxim might seem cryptic, but it’s an apt description of the nature of Facebook’s service, and a needed heads-up for anyone who uses it. Although Facebook is a free service, the social networking site acts as a mechanism for capturing highly personal user information–Facebook’s real product. That’s your information. You are the product.
All of the discussion and speculation surrounding the Facebook IPO over the past month has served as an introduction to the new “personal data economy” for many people. Facebook–and a thousand other smaller companies like it–are in the business of collecting and monetizing personally identifiable information (aka PII).
Facebook is already doing good business in taking advantage of this data to target ads on its own site. If you mention the Dallas Cowboys in one of your updates, for instance, you may see an ad for the team’s paraphernalia.
A couple of months from now, however, when the glow of the IPO has faded, Facebook’s shareholders will be asking Facebook what it can do to increase revenues from existing businesses, and how it can develop new revenue streams.
I’m not blowing the horns of doom here. In fact, despite a number of unexpected moves to make more user data “public,” Facebook has kept its promise not to sell or license large chunks of its social graph to marketers and advertisers. It has also made a number of changes to its service that give users more control over privacy, such as the ability to determine who (friends, friends of friends, or everyone) sees each and every piece of content.
But Facebook has also continued to make moves that make you wonder where the company really stands on privacy. It has been slowly rolling out facial recognition technology that could identify users and automatically attach their names to photos in which they appear–without their knowledge or consent. The addition of the millions of photos Facebook bought in its acquisition of Instagram only adds to the worry over facial recognition.
Pursuing New Revenue Streams
Going public can have a dual effect on companies. Admittedly, they do become more accountable and transparent because of the filings they must make with the SEC. But those filings can also offer investors more information on revenue streams that are not in current development, giving the investors more fodder to put pressure on the company’s board to start development, pronto.
For example, in recent weeks Facebook has reported in a series of SEC filings how it has largely failed to make money from its mobile app, which nearly half of the company’s user base enjoys. Investors, of course, will view this as money left on the table (money lost), and will demand action to develop that stream. Development could come in the form of mobile ads or “paid updates” on the mobile newsfeed. Such an effort would annoy users and cost them a bit of their time, but it would probably not cost them their privacy.
That’s just one example, though. The pressure to make more direct use of the personally identifiable data in Facebook’s servers will be considerable over the next few months and years, especially if Facebook’s existing revenue streams hit hard times, or if the price of the stock falls off. Make no mistake: Marketers and advertisers would love to get their hands on the ad-targeting data that Facebook has amassed.
Facebook’s immediate strategies for pumping up revenues will likely include selling ads (in various forms) on Facebook Mobile, and placing ads for clients on other sites outside of Facebook.
The latter strategy will transform Facebook into a large ad network. A company such as Ford, for instance, might approach Facebook and buy an audience of Facebook users who have either discussed new cars on Facebook or visited car sites around the Web. Facebook would know who those users are, because the cookie it drops in users’ browsers would report that information back. Facebook would then design a highly targeted ad campaign in which it places Ford ads on Facebook and at partner sites around the Web where it knows potential car buyers may visit.
But that strategy might not be enough. Facebook will soon reach a billion monthly users, a staggering number, but its growth is expected to slow way down soon. In most of the industrialized world, everybody already knows about Facebook, and anyone inclined to sign up has already done so. Much of Facebook’s current growth is coming from poorer countries around the world, and soon even those new markets will be tapped.
Today Facebook makes about $5 from each of its users, while Google makes $30. It’s unlikely that Facebook will push that $5 number up on the strength of its existing business. Investors will look to Facebook to make more from the users it already has.
Holding Facebook Accountable
We consumers have to keep an eye on Facebook as it announces new businesses. (See “Protect Our Data! A Digital Consumer Bill of Rights” and “A Bill of Rights for Facebook Users” for related discussion.) The temptation to exploit user data in ways that erode privacy will always be present. Just by joining Facebook, we tacitly approve of the company’s leveraging of some of our information–name, interests, friends, and so on–but we need to make sure that the other information or media we keep at the site remains off-limits if we have marked it as private.
Facebook will continue to push people to become more social, to share more personal data. The company believes that a cultural shift away from the expectation of online privacy is taking place, and it wants to do everything it can to evangelize for that.
I’m not sure people are buying it, though. Consumers are already ill at ease with Facebook and its business. Only 51 percent of people surveyed in a recent AP/CNBC poll expressed a positive opinion of the company, while 71 percent had a favorable opinion of Google.