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Facebook founder finds a way to profit from its members' private data

39 points by kennyroo 18y ago

kennyroo 18y ago
Anybody know how large the overall market research industry is at the moment? Is this a big deal, or a drop in the bucket?
- seano 18y ago
  It's a huge market but how much they will be able to tap into it remains to be seen.
- inerte 18y ago
  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 18y ago
    http://www.orkut.com/ http://www.orkut.com/ Google is not god.
aneesh 18y ago
Umm, isn't this pretty much what Facebook Polls did before they pulled the plug on it?
- waleedka 18y ago
  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.
- coglethorpe 18y ago
  Probably, and this is exactly the data that those "social ads" in the sidebar are able to use to target you right now. Age, gender, preference, location, even keywords you put in your profile. That data can be pretty darn effective when combined with the right offer. The problem for advertisers is getting someone to pay for a service they found while browsing a social networking site.
deleted 18y ago
[deleted]
iamdave 18y ago
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 18y ago
  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 18y ago
    "Even if you 'resign', they still have your data." Before you leave, poison your data.
    - alxv 18y ago
      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 18y ago
        "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.
      - juanpablo 18y ago
mixmax 18y ago
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 $15 billion. Even if they did pull this off, which is unlikely, it would still be a drop in the ocean.
- byrneseyeview 18y ago
  I don't think Facebook's plan here is to be as good as Gartner. In fact, I suspect that using the phrase "We could be as good as..." at Facebook is seen as socially unacceptable. I'm not sure any of Facebook's competitors have the number of users, or the kind of brand loyalty, that Facebook can offer. It's also easier for Facebook to be a social network that does market research (and more..?) than for Gartner to be a market research company that does social networks. Social networks are just a great foundation for a lot of other businesses.
  - mixmax 18y ago
    Social networks are just a great foundation for a lot of other businesses. - I don't think so, nobody has come up with a good business model for social networks yet. Ads don't work, and if you try to harness the information held in profiles you get privacy problems. Beacon showed this clearly. Also, I think that in reality there isn't as much brand loyalty as people think. Three years ago pundits said the same thing about myspace. My position is that facebook is vastly overvalued - Gartner was just an example to show that even if they become the biggest in the field the income would still not justify their evaluation. In fact Gartner has a market capitalization of 1.3 billion US$, meaning that facebook should be worth more than 12 times gartner. And Gartner has 4000 employees, 60.000 clients, and offices worldwide.
stevenjames 18y ago
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
MisterMerkin 18y ago
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.
jacquesm 18y ago
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.
calambrac 18y ago
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 18y ago
  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.
- craigbellot 18y ago
  Because Google did it.
kragen 18y ago
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 18y ago
  Relevant is this snippet from http://norvig.com/experiment-design.html 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?
volida 18y ago
This is an indication that they are going to blow it. Actually Beacon was an indication. This is the confirmation.
- dominik 18y ago
  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 :)
matthias 18y ago
Overall, I can't help but think that their time would be better spent working on a premium consumer offering.
- mchristoff 18y ago
  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.
lasthemy1 18y ago
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.
mattmaroon 18y ago
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.
wernerv0nbraun 18y ago
zuck will end up back at harvard...as an mba school case study..."most popular product in history to ever go broke". the mideast bankers won't front them money, that tin-can-banging trip was a wash the VCs keep pouring money onto the fire...i guess you gotta keep hope alive fb only has one option: charge users $10/month if they want any features whatsoever. for free, all you will get is a single pic, one-time status message, and the ability to make friends (this is to keep the social graph from imploding)

39 points by kennyroo 18y ago

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

seano 18y ago
It's a huge market but how much they will be able to tap into it remains to be seen.
inerte 18y ago
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 18y ago
  http://www.orkut.com/ http://www.orkut.com/ Google is not god.

aneesh 18y ago

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

waleedka 18y ago
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.
coglethorpe 18y ago
Probably, and this is exactly the data that those "social ads" in the sidebar are able to use to target you right now. Age, gender, preference, location, even keywords you put in your profile. That data can be pretty darn effective when combined with the right offer. The problem for advertisers is getting someone to pay for a service they found while browsing a social networking site.

deleted 18y ago

[deleted]

iamdave 18y ago

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 18y ago
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 18y ago
  "Even if you 'resign', they still have your data." Before you leave, poison your data.
  - alxv 18y ago
    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 18y ago
      "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.
    - juanpablo 18y ago

mixmax 18y ago

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 18y ago
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 18y ago
  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.

stevenjames 18y ago

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

MisterMerkin 18y ago

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.

jacquesm 18y ago

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.

calambrac 18y ago

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 18y ago
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.
craigbellot 18y ago
Because Google did it.

kragen 18y ago

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 18y ago
Relevant is this snippet from http://norvig.com/experiment-design.html 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?

volida 18y ago

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

dominik 18y ago
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 :)

matthias 18y ago

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

mchristoff 18y ago
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.

lasthemy1 18y ago

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.

mattmaroon 18y ago

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.

wernerv0nbraun 18y ago

zuck will end up back at harvard...as an mba school case study..."most popular product in history to ever go broke". the mideast bankers won't front them money, that tin-can-banging trip was a wash the VCs keep pouring money onto the fire...i guess you gotta keep hope alive fb only has one option: charge users $10/month if they want any features whatsoever. for free, all you will get is a single pic, one-time status message, and the ability to make friends (this is to keep the social graph from imploding)