Wednesday, February 1, 2012

Facebook Ain't It

Facebook's going IPO, and we'll all soon be able to invest. I believe it's a sucker's bet, and here's why.

Facebook's valuation is so ginormous that they've got to grow their advertising market by something like 30% over each of the next ten years. That's just to break even with expectations. To actually make profit for investors, results must exceed even that!

Such a future might, in fact, be imaginable if this were the Ultimate Web Phenom everyone's been waiting for. Netscape wasn't it. Yahoo wasn't it. AOL wasn't it, nor was MySpace. A number of increasingly large companies have been anointed Ultimate Web Phenom, only to be swept aside in turn. Facebook seems different because of its immense userbase, cultural ubiquity, and thriving revenue (something none of those other companies enjoyed). But it will be another transitional player, because it's still not the optimal model for matching viewers and ads.

Facebook makes its money by selling eyeballs to advertisers in highly specific bundles (teenaged dance enthusiasts, 40-ish female tennis players, etc). Marketers love this specificity, and pay through the wazoo for it. But while Facebook, and its vaunted data, allows much smarter advertising than the old gambit of sticking big banner ads in front of everyone en masse, it's still not optimal. In fact, it's pretty damned primitive, and may never mature within Facebook's framework.

Facebook categorizes us via our stated interests. But we state as our interests those areas in which we're already experienced - the realms we're so deeply into that they define us, and are therefore labels we publicly don. For example, several of my stated interests are yoga-ish, so I get flooded with ads for yoga sticky mats and hatha yoga books. But I'm already into yoga, so I don't need Facebook to tell me where to buy sticky mats and asana books. I'm the guy other people ask for tips on that. I never click on yoga ads, just like you never click on ads for things you know lots about. Facebook knows what we're knowledgable about, but knowledgeable people don't click random topical little ads. They're for saps and neophytes.

The areas where I'm more receptive to ads are ones where I'm a sappish neophyte. For example, I'm considering taking up Chinese cookery. So I'm open to ads for woks, stir frying classes, etc. If I were a seasoned enthusiast, I'd already be tapped into all that, and spurn such ads.

The problem is that we don't list our new and passing interests in our Facebook profiles. And while Facebook may eventually encourage us to do so, none of us would keep that up religiously. I put care into listing interests which define me. They're solid and static; in fact, they're the things that solidify me. But I really have to think to come up with a list of things I'm toying with being interested in at any given moment. That stuff's dynamic, semi-conscious, and volatile - not the sort of thing we proudly broadcast in a static profile.

Facebook will likely never be the vehicle for tallying fresher, more impressionable interests. It's just not what it's built to be. So I will continue to smirk at its ads for yoga, trombone, beer, travel, and art, knowing none will hit the vanishingly small sweet spot of interest for a devotee like me.

So, unless Zuckerberg has something remarkable up his sleeve (not that it's easy for monstrously huge public corporations to make dramatic shifts), Facebook's not the final word.

(Obviously, not every Facebook user is a deep expert in every listed interest. And, obviously, lots of ads are being clicked on, hence Facebook's $2B annual ad revenue. But my point stands. The ability to advertise to groups via "interests" is heady and new for marketers, but Facebook's deeply dug in to the wrong end of that continuum. Yes, people are clicking - more than they ever did on mass banner ads - but they could click a lot more. So, like Netscape, Yahoo, AOL, and MySpace before it, Facebook may be bigger and better than what's come before, but it ain't the final word, either.)

(Also: I do realize that, ideally, Facebook would sell demographics, rather than individual interests. But most people don't tell Facebook their age, their job, their income, their religion, their race, etc. The demographic info is actually quite weak. The data hinges on interests, which is why, for all their prowess and advancement, I'm still seeing slews of frigging sticky mat ads whenever I surf in, even though I have never ever clicked a single one of them - so much for the vaunted narrow segmentation!

No comments:

Blog Archive