Dec 9, 2012

Facebook's present success and uncertain future

Facebook began as a social networking project for Ivy League students and has become a phenomenon in marketing that has transformed digital advertising and marketing. The social network has already surpassed 1 billion total users. Today, the average American spends 6.75 hours on Facebook per month, more than they spend on its closest competitors combined.

Samsung managed to launch a successful three week marketing campaign on Facebook for its Galaxy S III which generated an ROI of nearly 1200%. According to Carolyn Everson, Vice President at Facebook’s Global Marketing Solutions, the $10 million campaign generated $129 million in sales. Samsung was able to use Facebook to specifically target smartphone owners with their ads during the three weeks that Apple was releasing the iPhone 5. Successful campaigns like Samsung’s are made possible due to Facebook’s massive reach. According to Everson, the social media giant reaches three times the Super Bowl audience every day.

One of the advantages of advertising on Facebook is that it allows you to target a specific group or demographic with ease. Most Facebook users have filled out their profile and this includes information that can reveal their age, gender, location, languages, religion, or level of education. This information can be used to reach your target market with your advertisements. Advertisers can also use Facebook to target their ads towards users based on their searches or web browsing history. This is made possible by Facebook’s advertising platforms, which allow ads to be targeted based on many aspects of a person’s life such as the places a person visits. This allows advertising to reach a more specific audience than ever before.

Bradley Horowitz, Vice President of Social Products at Google, believes that Facebook has gotten the concept of advertising all wrong and accused his competitor of being a “social network of the past.” Horowitz feels that social media should be a space for people to socialize. He says that it would be rude to interrupt a conversation between two people to tell them to buy a sandwich from you.

“When you and I are having a conversation, the least opportune thing you could do is have a guy with a sandwich board run between us and try to sell me a sandwich. I’m trying to connect with someone. I’m trying to communicate in that sacred space of social connection. It doesn’t matter if I ‘like’ the sandwich. It doesn’t matter if it’s personalized with my favorite mustard. That is the wrong moment to try to dangle a sandwich in front of me.”

When Business Insider asked about his plans for Google+, Horowitz explained that he wants to create an integrated experience for users with Google+ as the foundation. His plans are to create a social network that encompasses everything you use on the internet, like in Google’s case, a search engine, Google Chrome, G-Mail, YouTube, et cetera, with Google+ as the foundation that links everything and personalizes the user’s internet experience. Horowitz feels that this is how social networking should happen in the future.

He also says that the way we look at advertising online must change. Rather than fill a person’s newsfeed with advertisements for products they like, social media must “fulfill a need that the user has when it’s useful to them.” In other words, Horowitz believes that successful social media marketing must move away from ads and focus on recommendations from friends during searches. If someone decides to browse for a place to eat lunch and they were to see that a friend of their recommends a restaurant, this would have a much more significant impact on the person’s decision than a sandwich ad that popped up in their newsfeed. Google is already working on this concept. As far as public knowledge is concerned, Facebook is not working on any such thing.

However, Facebook is developing new ideas that could help them move into the future. This year, Facebook tested a new feature that it is expected to introduce to its users in 2013. The new “want” button was tried out by Pottery Barn, Wayfair, Victoria’s Secret, Michael Kors, Neiman Marcus, Smith Optics, and This new feature allows a page’s followers to “want” a product by simply clicking on the “want” button on a photo of a product. The feature works just like the “like” or “recommend” features. If you “want” a product you can “unwant” it later on. You can also let your friends know why you “want” the product. Gene Munster, Managing Director and Senior Research Analyst at Piper Jaffray, predicts that Facebook will reach $10 billion in commerce-related revenue by 2015 if it launches the new feature in 2013. He also added that commerce-related revenue will become 30 to 40 percent of Facebook’s business in the long term.

One concern that seems to persist in the minds of Facebook users is privacy. Facebook’s management of the issue has not helped. Users complain of frequent changes to the privacy policy that sometimes go into effect with little warning. Facebook has developed a reputation among the press of simply selling their users’ privacy to advertisers. Regardless of how accurate this depiction of Facebook is, the company is in a precarious position regarding this issue.

One of Facebook’s more controversial applications is the Photo Sync option it offers to its smartphone users. The app automatically synchronizes photos taken with the phone to a private photo album on Facebook. The idea is to provide users with a back-up of their photos in case they ever lose their phone. However, many have raised concerns over privacy and feel that the application goes too far. Facebook can use the photo’s geolocation data to track you and know who you are posing with in the photo.

A similar application for Apple devices has already caused harm in Anderson, Indiana in October. The application copies every photo to every Apple device that the user has access to. A middle-school teacher who authorized a group of students to use her school-issued iPad was surprised when the students found a photo of herself “from the neck down, with partial exposure,” according to the Anderson police department. The teacher was not penalized because the photo was not nude and because the students accessed an application, iPhotos, which they were not authorized to use but nonetheless, this is an example of how far these kinds of applications can go in infringing the user’s privacy.

Facebook faces a dilemma. The company’s business model depends on the information they can gather about their users and sell it to advertisers but social network’s users have a strong need for privacy. If Facebook gives in to demands for more privacy it risks losing advertisers, their primary source of revenue. Generally, Facebook users have been somewhat tolerant of the lack of privacy in Facebook’s business model but this is an issue that is beginning to bleed the company.

Facebook is currently facing a class-action lawsuit in the United States, where it is charged with violating privacy rights by publicizing users' "likes" without giving them an “opt out” option. A judge has given his approval to a second attempt to settle the case by paying each user involved in the lawsuit up to $10 each out of a settlement fund of $20 million. Facebook has many more cases like this one. The privacy campaign group Europe-v-facebook has filed a list of 22 complaints against the company in the European Union and plans on taking Facebook to court. If these settlements and lawsuits begin to pile up, Facebook may become bogged down financially due to the legal costs. This is the dilemma facing their model. If they give in to privacy demands, their performance will suffer, but if they appear to move in the other direction, they will strain their users’ trust, which will also affect their performance as a company.

Facebook’s strategy has worked until now, but it can backfire at any moment because of the delicate balance it requires the company to keep between users and advertisers in order to remain profitable. Bradley Horowitz understands this strategy’s flaw and that is why he is avoiding this business model with Google+. Facebook can learn from this project. Facebook should keep in mind that past success does not guarantee future success.

Facebook is likely here to stay. However nothing guarantees that they will continue to hold the largest market share in the social media market. The experience of using Facebook is also likely to change for its users. Facebook must innovate new ways to become profitable other than just using its users’ information to bombard them with advertising. We will likely see more changes to Facebook than just the new “want” button. But Facebook will continue to face competition from Twitter and Google+. It’s hard to tell who will be the leader in social networking a few years from now but it depends on Facebook’s ability to innovate and think more outside the box than they’re doing right now.