Facebook doesn’t have privacy problems. It has positioning risks.
The recent brouhaha around Facebook’s privacy policies — the complications, the simplifications, the push, and the push-back — is a side-story. The real issue is positioning. And the real cost will be felt if and when a meaningful percentage of Facebook’s users come to see it as a place to share and consume media rather than as a place to communicate with family and friends.
The revenue models associated with consumption of content are very attractive, especially when combined with an already massive audience like Facebook’s. But any re-positioning of the service as a “news and entertainment portal” — even partially — will muddy Facebook’s most important asset: its inherently viral nature.
* * *
All Internet products can be placed on a spectrum that stretches from pure Communications on one side to pure Content on the other.
A pure Communication product is one that a person uses just to communicate with another known person (like the simplest instant messaging client). A pure Content product is one where a person creates some media that any user can passively consume on an anonymous basis (like the simplest news website or printed publication). These are idealized extremes; just about everything is actually somewhere in between.
The core of a Communications product is connecting with the people you know — and doing so actively rather than passively. That’s what gives Communication products their viral power, but it’s also the cause of their revenue limitations.
As long as the service offers a valuable way to communicate, its users will actively convince some number of their friends and colleagues to use it, and those people will in turn convince folks they know, and so on. Successful Communication products are inherently viral. But, in this idealized context, users value private communication. Messages from other sources are inherently invasive. Thanks, but no thanks, marketers.
This is why investors avoid funding pure Communication products. As attracted as they are to the viral growth, they fear that they will never be able to convince the service’s users to tolerate a marketer’s butting into their private conversations. As tempted as investors are to analyze those private conversations for insights on how to offer users genuinely helpful offers, they worry that users will find it frightening. And as convinced as they are that some small percentage of users will pay more for premium services, like storage, they know that a competing service will always try to grow faster by giving away that premium service for free.
In short, the Communications side of the spectrum represents viral growth without matching revenue.
All the way across the spectrum on the Content, we face the opposite issues.
The core of a Content service is consuming media from a trusted source — and doing so passively rather than actively. That’s what gives Content products their marketing power, but it’s also the cause of their growth limitations.
Unlike a Communications service, a user can have a successful Content experience without ever involving anyone else. The user might choose to share some of the media with their friends or colleagues or to discuss it with them later, but that’s only a small percentage of the time.
And this is why investors avoid funding pure Content concepts. Despite the well-known problems of banner ads, they are well aware that marketers will pay handsomely for the right to appear next to popular media and even more to be endorsed by it. They know that the content itself can be efficiently analyzed without any privacy problems to ensure that the ads will helpfully match the content. But investors also realize that the number of trusted sources from which most users want to passively consume content is limited, which makes it very expensive to compete as one of those sources. And there’s no inherent virality: you have to grow the audience one user at a time.
Of course, most Internet businesses are actually somewhere between these two extremes. In fact, developers can add features to their services to deliberately shift their products more toward user growth or more toward the revenue-generating characteristics of the business.
* * *
So how would a brilliant entrepreneur take advantage of these dynamics to create a massive and lucrative web property?
Step 1: Discover a unique and valuable way for people to communicate with the people they already know.
Step 2: Invest in the product so that it can handle the viral tidal wave that results.
Step 3: Add features that encourage users to share and consume content.
Step 4: Sell advertising around the socialized content both on and off your site.
Sounds familiar, right? Yes, that’s what Facebook is doing now.
Mark Zuckerberg is aggressively pushing his service from pure Communications to the middle of the spectrum toward Content, repositioning the platform to be more conducive to marketers. He’s been doing this for a while.
So, based on the spectrum thesis, will Facebook’s strategy work?
Yes and no.
Yes, he will create a user experience that is more about consuming, creating, and sharing content. Yes, this will open up richer opportunities for non-invasive and targeted advertising and e-commerce. Yes, this will generate more money per user than a more Communications-oriented platform. Yes, it should be one of the biggest IPOs of all time.
But, no, there’s a limit to how far he can push the service toward Content before users seek out a Communications platform that is focused on enabling private interactions with friends. The closer Facebook gets to a media experience, the more its viral growth will slow and the more it will shed longtime users. When you hear someone talking about how they go on Facebook to read the news or watch a TV show — and you certainly will — that’s more bad than good for Facebook’s user growth rate.
This is the trade-off. The challenge isn’t privacy; it’s positioning.
So I guess the next question then is whether Mark’s pushing this transition too hard.
What’s your take?
Great post, and excited to have your voice in the official record.
Ethan Stillman
June 15, 2010 at 9:05 pm
Hey, Ethan:
I think it’s very difficult to evaluate this shift (or, to use the probably better term used by a commenter below, ‘expansion’) without the data Facebook is seeing. My instinct is that the core user still understands Facebook primarily as a way to keep up with friends and family. And I don’t see any impact on their growth. But, strictly from the perspective of virality, I’m not sure it’s entirely helpful for the Facebook brand to be so associated with lists of articles on news sites. Facebook = news = slower growth. That said, I very much doubt there’s much I’ve said here that Facebook hasn’t considered carefully.
One thing I would do if I was Facebook is to balance the expansion towards Content with a even more powerful push towards Communications. And they are doing this, allegedly, with their email project. But they can probably do more: I’d suggest a Facebook phone.
edgeideas
June 17, 2010 at 3:15 pm
Effing genius. Please blog more.
matt harris
June 15, 2010 at 9:11 pm
Great post, thanks for stressing the fact that Communication services have no value if the user is alone. The user base is the value, while a Content service has a value even if you’re alone, the user base just enhance this value (Flickr is a good example i think). With this criteria you’re right, you can map every services :)
Olivier
June 15, 2010 at 10:05 pm
Excellent post, only thing I rather disagree with is this:
“They know that the content itself can be efficiently analyzed without any privacy problems to ensure that the ads will helpfully match the content.”
In the sense that this just hasn’t been happening, outside of MAYBE Adsense ads: The matching of content to ad/offer is still extremely poor across the board, because both advertisers and ad/content networks steadfastly refuse to do the only logical thing, which is to offer people something that makes sense in the context of what they were already doing:
http://businessmindhacks.com/post/is-advertising-failing-on-the-internet
Alex Schleber
June 15, 2010 at 10:37 pm
That’s a great point, Alex. And you’re right — just because Content is easier to monetize than Communications doesn’t mean we’re doing it particularly well outside of search. I think solving that problem depends on pioneering new content formats that are easier to consume than the legacy article and allow a more relevant role to advertising content.
edgeideas
June 17, 2010 at 3:19 pm
Good post! As I read I could easily imagine a new service beat Facebook by promising a clean, private and simple way to connect with close friends…(and not companies or products!)..
Agustin
June 15, 2010 at 11:56 pm
That’s absolutely the risk. Could Apple do it? Would they?
edgeideas
June 17, 2010 at 3:20 pm
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Facebook Doesn’t Have Privacy Problems. It Has Positioning Risks. | Jonathan Glick | Voices | AllThingsD
June 16, 2010 at 7:03 am
Great post, but I wonder how your argument on..
“Communications side of the spectrum represents viral growth without matching revenue”
..fairs when you think about services like WebEx?
Dan Reich
June 16, 2010 at 2:29 pm
Quite right, Dan. There is a pay model (of course) for B2B communications services, which are also by nature less viral and have a smaller market size. Even here though, there is always the tendency for small businesses to use the free consumer versions. My company uses Skype for conference calls, for free.
edgeideas
June 17, 2010 at 3:22 pm
The spectrum framework assumes that Content and Communication are polar opposites, and moving toward one is moving away from the other. Not sure that’s true, and I’m wondering why Facebook (or Twitter, for that matter) is confined to a single point on the spectrum. I can see it sitting comfortably across the entire comms/content spectrum. You get your private messaging there (which advertisors can’t touch), and you consume content (which advertisors can buy into).
To the extent that your spectrum is accurate, I don’t think Facebook is “shifting” its positioning as much as “expanding” its positioning.
Kyle Monson
June 16, 2010 at 2:46 pm
It’s a framework, but I think it’s helpful. Users strongly differentiate connecting with folks they know/love from consuming expert content. This distinction may be blurrier for people who have a lot of friends who create professional content, but I don’t think that’s typical.
But I like your second point, and refer to it above. Facebook is expanding its services by becoming more content-centric. After all, it’s not shutting down it’s communications offerings! So, good point.
But what expanding its services does — trying to ‘sit comfortably across the entire comms/content spectrum’ — is make the Facebook service more difficult to explain. This is what I mean by a positioning risk. On the Web, the best way to understand positioning, is the short sentence one user would say to another in order to suggest they try out a service. “You should try XXX, it’s the best way to do YYY.” As Facebook expands towards content, the center of gravity of that positioning drifts away from the clean answer: “You should try Facebook, it’s the best way to keep in touch with family and friends.”
edgeideas
June 17, 2010 at 3:30 pm
Great points (and very applicable to Twitter, Apple TV, Foursquare, etc)
Kyle Monson
June 17, 2010 at 3:48 pm
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BookBlog » Blog Archive » Information vs. conversation? - Adina Levin's weblog. For conversation about books I've been reading, social software, and other stuff too.
June 22, 2010 at 4:00 pm