Greed in the Social Networking Space

It took the advertising industry about 150 years to get to the point of putting ads on the inside of bathroom doors. It took considerably less for the commercial vultures to zero in on the social network phenomenon. Except this time, it’s an inside job.

First, MySpace. In July of this year, Rupert Murdoch’s News Corporation bought MySpace, making a few more mega-zillionaires out of kids who were in it for kicks.  Murdoch knew better, and immediately set about “monetizing” his investment.

How’s it going for his target audience?

In the words of a college freshman, Marshall Green:

MySpace is going to end up just like Friendster.  Except for bands, some high school kids I know still use it but the trend has shifted to Facebook.

I think the main reason is the site design. MySpace just has a terrible interface that continues to deteriorate as the developers tack on extra features that Facebook integrates better.

The thing that Facebook does well, finding other people you know and connecting with them, are more of an afterthought on MySpace.

Instead of using AJAX and web 2.0 technology to update the page without reloading the whole thing or taking you to a new page, MySpace makes you jump through a bunch of screens to do simple things like leave comments. This is basic stuff that MySpace has neglected to do because they are lazy!

What’s worse is the amount of ads. Most ads on MySpace are sketchy, and in the past have linked to adware and spammers. Half the time when you visit their front page, the entire background is a giant ad for a Fox TV show or movie. It’s obtrusive and detracts from the experience.

It all gives you the sense that the company doesn’t care about delivering a good experience, they just want to make a lot of money with as little work as possible. The interface was never spectacular, but I noticed more ads and a slowdown in new features following the Fox takeover.

(Full disclosure: I am related to young Mr. Green by marriage; his mom’s to me).

That was several weeks ago. On November 6, the “good guys” in this space—Facebook—announced their new approach to incorporating advertising into that ostensibly wholesome society.

The gist of Facebook’s idea is to allow Big Advertisers in to make “friends” of existing users, and to build their reputation by demonstrating the “trust” that one’s “friends” have in the product being advertised.

As one wag put it, “so it’s like spamming your friends?”

You know you’re in for it when language gets reinvented, a la doubletalk like this from Mark Zuckerberg, Facebook’s CEO and new gazillionaire:

Q: “Are you worried this will make Facebook too commercial?”
Z: “Actually I think this will make it less commercial because the ads now are [more generic].”

For a deliciously cynical take on this, see Nicholas Carr’s blog .

Marshall’s view?

If I start seeing notifications and friend requests everywhere from Coca Cola and Exxon Mobil, then Facebook will be on the way out for me. There are already some sneaky ads that masquerade as friend notifications. They trick you and I’ve nearly clicked on them several times before realizing they were ads.

If it gets as bad as MySpace people will find something better. There will obviously be another new trend in social networking sites in the future anyhow.

It’s been clear for centuries that you can always find success by going more down-market in taste than the last guy; more negative in political advertising than the other guy; and more overtly commercial than your competitor.

The question is: where’s the bottom?

When trust is just a tactic, “friends” are not what they seem, and social networks are flipped into cynical mouthpieces for corporate America, it feels like we’re pretty low.

Maybe Marshall’s right in thinking his generation will reject the hype.

But as H. L. Mencken said, “Nobody ever went broke underestimating the taste of the American public.”

I wouldn’t short Murdoch and Zuckerberg just yet.

16 replies
  1. Gab, the Facebook lover
    Gab, the Facebook lover says:

    Funny, I just saw that quote again soon after hearing it here for the first time.

    IMHO, the Facebook advertising platform is incredibly innovative and will probably be a success for advertisers. It seems they’ve solved the CTR issue and the pricing issue. The bids were at $10B for it recently, based on somewhat sketchy valuation mechanisms. Look for it to be valued at slightly under that based on proper valuation by early 2009 (less because they’re overvalued and because internet advertising is going to hit a recession due to the excessive supply, imho).

    Reply
  2. Shaula Evans
    Shaula Evans says:

    Have you caught the news that MoveOn.org has launched a campaign pressuring Facebook to stop violating people’s privacy by revealing what they bought online?

    "A new Facebook feature called Beacon automatically shares books, movies, or gifts that Facebook users buy on web sites across the Internet. Without authorization, Facebook shares these information with a person’s Facebook ‘friends’ which can number in the hundreds or thousands. MoveOn’s campaign includes an online petition addressed to Facebook, a protest group within Facebook, and paid ads on Facebook"

    From the perspective of trust-building and reputation management…this is looking like short-term cash grab for Facebook with the potential for some serious blowback. 

    I’m with Marshall on this one.

    Reply
  3. Charlie (Green)
    Charlie (Green) says:

    Now this is cool.  I urge all interested in the Facebook/ advertising issue to check out Gabriel Goldenberg’s site at  http://seoroi.com/facebook

    He knows whereof he speaks.

    Then again, Shaula is an astute observer of things social, and Marshall–well, he’s a prime customer.

    So I smell a long-term bet.

    I take Gabriel to be saying he’d be willing to bet on an $8 billion market cap by, say, March 15 2009?  On the face of it, a safe bet, since numbers of $15B were recently mentioned.

    But if Marshall and Shaula and MoveOn.org are more right, then the number ought to be considerably more AOL-like.

    So: Gabriel vs. Shaula/Marshall–even odds, above and below $8B, March 15 (a Tuesday) close of market at 4PM EST.  The governing value shall be:

    a. if acquired prior to March 15, the acquiring price as quoted in the Wall Street Journal;

    b. if public prior to March 15, the closing bid price that day at 4PM;

    c. If a deal is still vaporware, the number first mentioned in a headline when you Google "facebook valuation."

    And now, the stakes: ah, money’s no fun.  There is no power here.  I know, let’s go for fame.

    The loser (either Gabriel, or Shaula and Marshall) shall be featured in a special blog posting  on Trust Matters, saying, "Well, I guess I was wrong and [winner] was right." 

    In other words, humble pie.

    What saith thou?  Gabriel?  Marshall?  Shaula?

    Reply
  4. Shaula Evans
    Shaula Evans says:

    Oh, I’m always happy to eat humble pie as needed.

    At the same time, I’m not disagreeing with Gabriel.

    This move should make a lot of (short term) money for Facebook, and get a lot of (short term) exposure for their advertisers.

    Will the valuation on Facebook stay high?  Quite probably.

    But in the meantime, they are also alienating their user base, and undoubtedly jumping the shark.

    Note that the people calculating the valuation…um…are different demographics than Facebook’s user base, with decidedly different priorities.

    And while Facebook makes the suits happy by annoying their users, someone else will be busy building The Next Big Thing.

    Reply
  5. Charlie (Green)
    Charlie (Green) says:

    Shaula,  if Facebook alienates their user base, annoys their current users, and someone else starts to build the Next Big Thing, I have no doubt that Wall Street will notice and adjust the valuation appropriately.   

    How’s MySpace’s valuation doing lately?

    Reply
  6. John W. Furst
    John W. Furst says:

    I enjoyed your article very much. For a small business it is rather time/labor consuming to be active in social networks.Paid advertising might be a more cost effective way to reach those users. Of course it depends on how the hole thing is handled and it is important that those users are not annoyed.

    Reply
  7. Shaula Evans
    Shaula Evans says:

    Charlie, I’ve been following online coverage of Facebook’s slow-mo trainwreck for a few weeks.

    I suspect that you’ve heard that they shut down their obnoxious "Beacon" system, that alerted your page viewers to your online purchases unless you worked through an unwieldy opt-out process, merchant by merchant.

    The newest development, which I thought might interest you, is that according to New York Law School Assistant Prof James Grimmelmann, Facebook and Blockbuster should both hunker down and prepare for lawsuits because their partnership may have violated the Video Privacy Protection Act of 1988.

    He writes: "The VPPA provides damages of $2,500 per violation, plus punitive damages and attorneys’ fees. I have no idea how many movies wound up in people’s news feeds, but it doesn’t have to be too many for the total to hurt. Class action lawyers, start your engines."

    Ouch.

    How’s that market valuation doing again?

    Reply
  8. Gab Goldenberg
    Gab Goldenberg says:

    Hey Charlie,

    Thanks for the kind words. IMHO, Facebook will figure out how to make their ads more targeted to users, especially if they follow the Naver approach and create a walled garden of content, exclusively searchable within Facebook. (The idea comes from the brilliant Lucas Ng, in a post at SEOmoz.) If/when they get that done, they’re going to make a killing. Otherwise, they better hurry up and profit before Bubble 2.0 pops and that 15B valuation turns into a more realistic 1.5B…

    Reply
  9. Shaula Evans
    Shaula Evans says:

    Chris Williams just raised an interesting point about Facebook’s $15bn valuation in an article on "Facebook Fatigue" at The Register:

    "…it’s worth reminding ourselves for perspective that Ford – y’know, the massive international automotive conglomerate with massive physical assets, customers who stay loyal over decades and truly global reach – is valued at less than $15bn on Wall Street. "

    Reply
  10. Charles H. Green
    Charles H. Green says:

    It is interesting, ain’t it!  Pretty amazing.

    Well, one good perspective deserves another.   Asked why he was paid more than the President of the United States, Babe Ruth replied, "I had a better year than he did."

    Reply
  11. Shaula Evans
    Shaula Evans says:

    A reference to Facebook just came up in Jakob Neilsen’s Alertbox Newsletter:

    FACEBOOK AND METCALFE’S LAW

    We are getting close to the bursting of Bubble 2.0, so it’s a good idea to
    review some of the precursors of Bubble 1.0.

    In 1999, I wrote an article "Metcalfe’s Law in Reverse" about the problems
    of so-called walled gardens, where a service cuts itself off from the
    Internet and tries to add value by being closed.

     > http://www.useit.com/alertbox/990725.html

    Facebook and the current generation of social networks are trying to
    replicate the walled garden strategy that failed ten years ago. It’ll fail
    again.

    . . .

    I don’t know if you’ve come across Metcalfe’s Law before, Charlie — it was new to me — but it struck me as very congruent with your work.

    Reply
  12. Shaula Evans
    Shaula Evans says:

    Oops.  To clarify the formatting above (in response to a question by email from Charlie), everything between the colon (:) and the elipsis (. . . ) is quoted from  Jakob Neilsen’s newsletter.

    Neilsen put out the article in his newsletter last month (March 2008), discussing contemporary issues like Facebook and the imminent burst of the web2.0 bubble in reference to his earlier article on Metcalfe’s law in reverse which he originally published in 1999.

    (I wish you had either a blockquote function or else access to html formatting for commenters on your blog!)

     

    Reply

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