Apr
21
rough draft
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Advertising on Facebook; the Future of Marketing
by Pete Todaro
April 16, 2008
ENGL 202 9:05
Dr. Kenneth Sherwood
Over the past year, the social networking site Facebook has evolved from a simple social utility open only to college students to the newest stage to advertise from. The site is currently estimated at $15 billion. The website has developed an entirely new method of advertising through social network relationships and personal user information compiled in a data base. The aggressive and intrusive advertising methods have begun to discourage facebook users from logging on. Some feel offended that a site originally made for people to communicate to their friends turned into a site suited for advertisers to communicate with consumers. At the same time, this type of advertising has not yet found a way to truly become profitable for the parties involved.
It was only about three years ago when I gave in and agreed to set up a facebook profile. I had been resisting the social network sites because I figured I was just a fad. So ahead I went filling in all my personal information devil may care. My friends and I had just started our first semester at IUP and we wanted to meet all the hot college chicks, so I put a lot of stuff that would make girls think I was cool. My interest column included my love of bullfighting as well as my devotion to rock-skipping. With so many details about my personal life to fill in on my profile page, I wondered why anyone would really care about it. It turns out I was contributing to building the next biggest advertising boom of the century.
Mark Zuckerberg gave birth to the social network site as a project at Harvard University; he later dropped out to manage his business. It moved from Harvard to every college across the nation. The exclusivity of the site was what made it different from its competitor, MySpace. After a short period of steady growth, the social network opened up to high schools, then businesses, then anybody who had an email address. I think this was about the time when Mark Zuckerberg realized the money making possibilities of his site.
On August 22, 2006 Facebook and Microsoft joined forces giving Microsoft rights to running banner ads and sponsored links. At the same time, Zuckerberg and co. were preparing to unveil “news feed” and “mini feed”, which published stories about what users were doing on the website. In Zuckerberg’s own words, “All the most interesting stuff that is going on is now presented to you. The analogy would be instead of an encyclopedia, it’s now news. We’re emphasizing what’s going on now (Shmidt).” The homepage was now filled with stories about who is in a relationship with whom, what somebody wrote on their friend’s wall and the like. As a result of this invasion of personal space, users quickly banded together in opposition to the changes. Groups with names like “Official petition against news feed” sprung up all over the network within 24 hours (Shmidt). Despite the initial reluctance to accept the new format of the website, naysayers soon quieted down and the news feed became a permanent addition to the site. I wonder if the new strategies of targeting advertisements would have come about had the news feed not been accepted.
Open APIs
The introduction of news feed was the first act of intrusiveness that would set the stage for later actions to target advertisements at people based on their personal information. In February of 2007 Facebook announced that it would be opening up their application program interface (API) to third party developers. The purpose of this move was to attract more users to the site with fun applications that give the user something more to do than browse profile pages. “In tech jargon, these are called API’s [application program interface], and they’re the software hooks used by developers to build new applications that can communicate glitch-free with existing programs (Karif).” People began adding applications to their profile as fast as third party developers could make them. With Facebook users busily playing with their new top friends or friend gifts applications they increased the amount of time spent on the site daily. More time on the site translates into more ads seen which equals more ad revenue for Microsoft and Facebook. Google, Microsoft’s rival, released their own open API’s for development of its social network site Opensocial. This is significant because Opensocial is now capable of diverting web traffic from Facebook and making profit. (Booth) This was a smart move for Opensocial because applications assist in attracting more users and increasing ad revenue because it makes the website more useful.
Project Beacon
In November of 2007, Facebook came out with Project Beacon as a way to tie all the third party developers together with third party advertisers and the news feed. With this new program, third parties give information about what a user buys in return for a back link to their site in the news feed. This was the first news that project beacon was building a data base of user purchasing information. Facebook wants to know about their users purchasing history so that it can deliver custom fit advertisements to users that are likely to buy the product. “There are at least two pieces to the network. One is getting more data in about what users do when they aren’t at Facebook, allowing for far more targeted advertising. The second is running those ads, perhaps even off the Facebook network itself.” (Arrington)
There are a lot of things about this program that the public is unhappy about. For one, people do not want a story in the news feed about them buying something embarrassing from the internet. I wouldn’t want people to know that I bought the Back Street Boys greatest hits album from amazon.com at 11:30 PM. Second of all, it just feels like an invasion of privacy when Facebook tells all of their 500 friends about what they are doing in their personal lives.
Some people are doing more than just getting angry, they’re filing lawsuits angry. Blockbuster is currently being sued by a Texas woman for its participation in project beacon. The woman filed the lawsuit on the grounds that it is a violation of the Video Privacy Protection act of 1998. The woman feels that Blockbuster should not be allowed to share her videotape rental history with facebook without getting her permission first. (Vijayan) Blockbuster could have seen this lawsuit coming when it signed on with Facebook to participate in project beacon. James Grimmelman, an associate professor in New York Law School, pointed out that the mere fact that Blockbuster passed on movie choice information to Facebook was a violation of the law regardless of whether or not that information was shared with others on the news feed. (Vijayan)
Keep in mind that not all Facebook users are in outrage against this program. With privacy controls users can make the decision to opt-in or opt-out of allowing this information to be published in the news feed. The problem when beacon was first released was that it was an opt-out system and if a user didn’t decline to share the information Facebook went ahead and shared it. The system was then changed to be opt-in. There are even new plug-ins that give users control to choose what cookies to delete. (Havenstein)
Business Deals
There is a lot of competition going on between Microsoft, Google, and Yahoo to invest in the internet advertising market of Facebook. Google owns the majority of internet advertising, while Microsoft owns the rights to advertise on Facebook in the United States. Microsoft recently outbid Google and paid $240 million to Facebook for rights to run banner ads outside of the United States. The relevance of this astronomical price tag for only a 1.6% stake in the company is that Microsoft fears it is going to lose out on the social network market to Google. It is becoming a personal feud for Microsoft to block Google’s plans at any cost. (Stone)
Advertising successes and failures
Despite all of the hype that social networking advertising is the best thing to invest in, some advertisers are struggling to turn a profit because of low user response. Mars Celebrate is a great example of a successful Facebook application. Mars Celebrate allows users to send their friends candy from their profile page. The user pays via a PayPal account and a message is sent to the friend. The friend enters their mobile phone number and an SMS barcode is sent to their phone so that they can redeem it at any local store. (Jay) The Mars Celebrate application is a modification on the earlier application, Facebook gifts, which allowed users to send virtual presents to friends’ profiles. The success of this application was most likely due to the personal friend aspect of it. They see the application not as just a way to sell candy bars, but as an easy way to do something nice for a friend which is important. However, just because sending gifts of candy is popular, it doesn’t mean that there is much of a future for this type of advertising.
The makers of Slide, producer of web application called widgets, are addressing the problem of internet advertising being too aggressive at times and scaring the public away. Widgets are mini slideshows that appear on web pages to show advertisements. Surveys indicate they reach a fifth of all internet users. In a new approach being used by Slide to get their widgets seen by more people, they are making it possible to download custom shows and add them to your profile. (Morrissey) It is likely that this personal approach to widget advertising will result in more people seeing and clicking on their widgets. “Its alternative offers users the option of downloading branded skins on their photo slide shows, displaying their affinity for movies and series like Discovery’s Last Man Standing. AT&T Wireless has also signed on to sponsor a slideshow that will play a ringtone when a user lands on the page.”(Morrissey) The key to being successful in this quickly evolving business of internet advertising is to constantly be trying new approaches. Slide cannot tap into the advertising market of MySpace because it is not open to third party developers yet. This is something that they should think about doing if they don’t want to become a thing of the past.
MySpace
There is some evidence emerging that suggests Google is losing money paying for the rights to run ads on MySpace. “The average amount of time each user spends on social networking sites has fallen by 14% over the last four months, according to market researcher ComScore”(Ante) The response rate for these ads is very low, making it hard to generate revenue. Some feel that the market for advertising on social network sites is never going to be really profitable and that they are overhyped. Others think that they just haven’t come up with the right ideas to make it profitable yet. Many business owners have stopped advertising on MySpace because of declining profits. The president of video game publisher, green screen, stopped advertising on MySpace last spring because of a 13-in-10,000 response rate. “It’s really hard to make money on that anemic click-through rate,” says Seremet.(Ante) There needs to be more innovation in order to really make profits in targeted advertising. The more aggressively the ads are targeted at the consumer the more the people become resistant to using social networking sites. Many people are leaving MySpace just because they are sick of how ridiculous the advertising is getting. The number of MySpace users has dropped from 72 million users in October of 2007 to 68.9 million in December. (Ante)
Works Cited
Morrissey, Brian. “Can Slide Balance User-Ad Seesaw?.” Adweek 48.29 (06 Aug. 2007): 11-11. Business Source Premier. EBSCO. Stapleton Library, Indiana, PA. 9 Apr.2008.
Jay, Rufus. “Real Facebook Shop in Virtual World Breathes Life Into Mars.” Marketing Week. 31.7 (21 Feb. 2008): 14-14. Business Source Premier. EBSCO. Stapleton Library, Indiana, PA. 27 Mar. 2008.
Ante, Spencer E., and Catherine Holahan “Generation MySpace is Getting Fed Up.” Business Week. (18 Feb 2008): 54-55. Business Source Premier. EBSCO. Stapleton Library, Indiana, PA. 27 Mar. 2008.
Karif, Olga. “Social Network Sites Open Up.” Business Week Online. (13 Feb. 2007): 10-10. Business Source Premier. EBSCO. Stapleton Library, Indiana, PA. 30 Mar. 2008.
Booth, Nick. “Google Coding Tools Open Alternatives to Facebook.” Computer Weekly. (13 Nov. 2007): 14-14 Business Source Premier. EBSCO Stapleton Library, Indiana, PA. 2 Apr 2008.
Stone, Brad. “Microsoft to Pay $240 Million for Stake in Facebook” The New York Times. 25 Oct. 2007. 2 Apr. 2008. <http://www.nytimes.com/2007/10/25/technology/24cnd-facebook.html?_r=1&oref=slogin>.
Arrington, Michael. “Ok Here’s At Least Part of what Facebook Is Announcing on Tuesday: Project Beacon” Online Posting. 2 Nov. 2007. TechCrunch. 3 Apr. 2008. <http://www.techcrunch.com/2007/11/02/ok-heres-at-least-part-of-what-facebook-is-announcing-on-tuesday/>.
Shmidt, Tracy S. “Inside the Backlash Against Facebook.” Time. 6 Sep. 2006. <http://www.time.com/time/nation/article/0,8599,1532225,00.html>.
Vijayan, Jaikumar. “Blockbuster Sued over Facebook Beacon Information Sharing.” 18 Apr. 2008 http://computerworld.com/action/article.do?command=viewArticleBasic&taxonomyName=standards_and_legal_issues&articleId=9078938&taxonomyId=146
Havenstein,Heather. “New plug-in gives Facebook users another way to dodge Beacon.” 11 Apr. 2008 <http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9077178>