Zuckerberg’s ‘social mission’ will clash with advertisers and investors looking for ever higher returns on their investment.
Facebook’s initial public offering (IPO) eventually raised £16bn, making the great Zuckerberg sell-off even more lucrative than Google’s initial share offering in 2004. It is easy to get starry eyed over Facebook’s big numbers – 900 million monthly users, 2.7 billion likes and comments a day and 425m mobile users. All very impressive. Facebook’s IPO submission contained a letter from Mark Zuckerberg, outlining the company’s ethos and values. He said: ‘Facebook was not originally founded to be a company. We’ve always cared primarily about our social mission, the services we’re building and the people who use them. This is a different approach for a public company to take….’.
All very laudable, however, I am not sure that the mission he sets out for Facebook will necessarily convince hard-nosed investors looking for short-term profit or long-term dividends. Zuckerberg plans to retain personal “control [over] all matters submitted to stockholders for vote, as well as the overall management and direction of our company.” In essence, investors – shareholders – will have little say in the running of the company.
Tucked away on page 95 there is a list of all directors and executive officers of the company. At age 27, Zuckerberg is by far the youngest of the team and his letter to prospective shareholders belies some of the naïveté one might expect from someone so young. It will be interesting to see how Zuckerberg and his (older) executive team deal with pressure from investors if and when the share price falls or dividends do not quite match shareholder expectations.
Ultimately Facebook is trying to make money from people giving away their personal information. Despite various controversies over privacy settings, people have so far been happy to share intimate details of their lives on Facebook. In spite of its size, Facebook retained the perception that it was a harmless not-for-profit college project started in someone’s dorm room. It was a community of friends, rather than a company trying to make money (even though Facebook’s revenues are already very lucrative).
Predictive vs reactive
So far, Google has been the most successful in securing advertising revenues. Google’s model is predictive rather than reactive. For example, someone who types in ‘Lexus GS450 review’ may well be in the market for a Lexus, or another luxury car brand, or a hybrid. It would be a fairly safe bet to predict that someone searching for that item may respond to advertising that offers the best price for that product or an alternative brand.
Facebook’s model is completely different. If someone posts holiday photos on their wall, would they be immediately in the market for another holiday? Probably not. Advertising on Facebook will always be reactive to the content that people post. So advertisers only benefit if Facebook, over a period of months and years, analyses the information people share with their friends. Data about users’ activities, likes and other information is split by gender, age, geographical location and other differentials. Advertisers use this data to place promotions in front of Facebookers who fit their customer profiles. However, this is still not as effective as individually targeted predictive advertising.
Will people be happy to let Facebook – like Big Brother – watch and analyse their every move in order to target advertising towards them individually? Will predictive advertising on Facebook mean that, for example, users receive a stream of advertisements to buy birthday cards timed to coincide with each of their friends birthdays? Will this in turn create social pressure on them to buy e-cards and presents online, via Facebook, in order to avoid the perception that they are mean or uncaring if they do not conform?
No matter how much Zuckerberg tries to stick to his ‘social mission’ (and I do not doubt his personal integrity), the reality of Facebook being a public company is bound to change the dynamics of how it operates. In order to satisfy its shareholders Facebook will need to generate increasing profits year on year from advertising. Advertisers will want proof that the advertising dollars they direct towards Facebook are indeed generating greater sales. They may demand that the discreet advertisements that currently appear on Facebook get bigger, that video ads play automatically and cannot be skipped, and that they appear more prominently on the page, maybe even as pop-ups.
Certainly Facebook offers a great platform through which brands can engage with existing or potential customers. It allows companies to build customer loyalty and encourage peer-to-peer product recommendations. But ultimately, Facebook’s success will depend on whether its users tolerate having their personal data analysed and contextualised for the benefit of advertisers. There are plenty of challengers to Facebook’s crown. Google Plus is the most high profile, but there are others around the world – Qzone (450m Chinese users), MySpace, Orkut, Bebo, Habbo and hi5 to name a few. Other platforms like YouTube, Twitter, Linkedin, Digg and Foursquare would also like a bigger slice of the advertising pie if they can get it.
So Facebook has a dilemma. As a brand, it relies on the long-term loyalty and trust of its users who use it to chat with friends. This could be in jeopardy if people feel that their personal lives are being minutely scrutinised by hungry advertisers simply waiting to target them with product promotions. However, Zuckerberg will only please his shareholders and advertisers by doing precisely that. It will be interesting to see if Facebook manages to reconcile its social mission with the expectations and demands of its new shareholders and global markets.