Friday, May 14, 2010

The Battle for Conversations over Facebook 'Like'

A version of this post first appeared in VentureBeat

Facebook's recent announcements over its open graph and the manner in which it impacts privacy has been the point of debate for the past few weeks. The developments are certainly a cause for concern from a end-user perspective (see VentureBeat writer Kim-Mai Cutler's analysis on how facebook and Google have the ability to build highly accurate social composite of you, the Facebook user), although I would view them as a key stepping stone in Internet players' attempts to weave a social web. Open Graph is Facebook's bold attempt to try and structure the web by organizing content and behavior around the web. Facebook's move to create such a massive social graph, with interconnected discrete data points, on the face of it, is indeed a welcome move. It tries to bring a sense of order to the chaotic manner in which the web has expanded. However, if privacy issues are a cause for concern for consumers, the other major stakeholder in this graph, the publishers, are not without their share of risk too. For these players who are already grappling with a decline in their traditional business and the slowdown in online advertising, the lure of becoming Facebook-friendly is indeed high. But, does that mean publishers have no other option but to welcome Facebook with open arms? Are they in danger of becoming commoditized in a situation where Facebook builds a much stronger and larger advertising-supported ecosystem than their traditional enemy, Google? These and many more questions are on top of the mind for publishers. While the questions are pretty clear, the answers are significantly more complicated.

Traditional publishers have been under significant pressure for a while, given the declining state of print. Consequently, most have been attempting to build a strong online presence that encourages engagement and virality. In this context, it is probably right to take a step back and look at some of the efforts that publishers have taken to drive their online businesses vis-à-vis the evolution of online advertising, which to-date has remained the primary means of making money for most publishers on the web.

Advertising on the web has evolved from display advertising in the initial days of the web when content was mostly static. With websites starting to become interactive, focus began to move to content that users were actively looking out for, and thus evolved search advertising. Going forward, as players such as Facebook and Google will increasingly attempt, advertising is set to shift to a new paradigm yet again. This next big opportunity is around conversations, where social connections play a big role in driving uptake of both content (think story recommendations) and commerce (think product recommendations). A real world example, albeit currently under a cloud, is that of Blippy or the more recently launched Swipely, the social network where members share all of the purchases on their credit cards and then build conversations on top of these transactional details. And it is precisely conversations that Facebook has in its crosshairs. The opportunity to build a strong database of real human interactions around third-party generated content is what Facebook is looking at. And in doing so, it is relying on users to provide the data and publishers to provide the content.

To be fair to publishers, most of them had begun to realize the importance of a social web around their content quite early and have over the years tried to add social elements provided by third-parties. For example, they have started off with enabling commenting and emailing on their content, then progressively adding sharing features and then warming up to Facebook/Twitter when it came to using authentication systems that lowered entry barriers for new visitors. Some content players such as BusinessWeek and The New York Times have gone one step ahead and even attempted to create a complete social service (Business Exchange & Times People) on top of their content.

So where does Facebook's recent moves leave these publishers? A quick look at the pros and cons of enabling social plugins for publishers should help:
The Pros:

· Traffic is one of the most obvious benefits. Facebook's 400 Mn, and growing, network provides an audience that is ready to consume, share, and (hopefully) pay for content. (Of course, Facebook currently does not have any payment solutions for third-party content, but the potential for using Facebook credits for micropayments on publisher websites cannot be ruled out) For smaller publishers, there probably exist more incentives around traffic and engagement than for the larger players. For these players, they now have in their hands a highly cost-effective way of tapping into the social web. For the larger players, though, the challenge around effectively monetizing online audiences remains.

· There exists future potential for publishers to be part of Facebook's chosen 'partners' if, and when, they come up with an advertising solution. I must say though, the signs sure point to a Facebook-controlled ad network that will allow both self-service and premium brand advertising based on the treasure trove of behavioral data that Facebook is beginning to accumulate

· The potential to add 'value' to the publisher's audience. Readers wound undoubtedly benefit from the knowledge that comes with seeing popularity of content amongst their social network. Indeed, the sheer momentum of hundreds of millions of users is enough to give the perception of value to the end user!

The Cons:

· In my view, Facebook's "Like" effectively dis-intermediates the reader-content producer chain by propping up as an intermediary. By telling the reader what stories she's supposed to be reading, Facebook takes up the role of an intelligent recommendation engine. True, Google and other aggregators have been doing similar recommendations where they list the most popular stories on their sites. However, by adding a social layer to it, overnight, Facebook recommendations make tremendous sense where the real life social network of a user determines their online content consumption trends.While this is great from a end-user perspective, sadly, one cannot say the same when it comes to the publisher. By encouraging publishers to install the social plugins on their site, Facebook takes a vantage position in terms of gaining access to publisher clickstreams. For any business, a key to success remains how close they are to the customer in the value chain. For publishers who are going through a particularly trying time, the challenge is all the more pronounced. Sure Facebook adds value to their content, but then, by diverting conversations back to its site, Facebook is encouraging fundamental changes in user behavior where conversations, irrespective of whether they are on content/product/service/friends, are kept inside Facebook, effectively making the subject of the conversation a commodity.

· For their participation in the Facebook open graph, publishers get access to profile data that they could use to target ads on their sites. However, user behavior on other sites, for example competitors, or even on Facebook, is not available to publishers. That data resides with Facebook. While usage patterns of their website will no doubt be of value to publishers, however, Facebook effectively limits publisher understanding of the overall user behavioral trends by limiting access to usage. Such overall trends can be critical when publishers look to venture beyond their core business and want to understand their user-base in greater detail. Ofcourse, all of this does not rule out the possibility of Facebook launching a highly targeted behavioral ad network, building on top of data that publishers themselves volunteered!

· Despite all the positives from the Facebook initiative, the fact is that it is a diversion from their day-to-day business and probably marks a shift in focus. Publishers now need to spend significant time with developers in trying to understand the various ways that they can wrench value out of the whole social ecosystem. The system surely has benefits, but, they are more likely long-term.

· The impact of Facebook's initiatives, particularly when a significant number of publishers are considering erecting paywalls is highly debatable. Monetization of online audiences has been a tricky proposition for publishers, and they are increasingly trying out multiple experiments to figure out the best possible solution. In such a situation, having social plugins that share the content 'likes' of a pay user with their non-pay friends is likely to result in an array of links that will likely work against the brand of the publisher, given user limitations at getting past the paywall. Of course, Facebook could potentially come up with a solution similar to Google's first-click-free program.

· Lastly, the risk of relying on a single all-encompassing platform hold true even in case of Facebook. The recent outage of the open graph search API for an extended duration highlights such risks. Of course, the recent outage could have been a teething issue, but that doesn't take away from the vulnerability of a system where all nodes feed into a central network.

Facebook's initiatives have been compared with Google. Indeed, many believe that "like" can potentially replace Google's famed PageRank methodology of determining the best search result. While that might be a stretch, I do believe Facebook has learnt significant lessons from Google's experience with publishers, and accordingly is expanding its reach. While Google first built out the tools and offered it to consumers, and consequently is facing significant heat from publishers, Facebook is taking the smart way out. By making publishers a core component of their initiative right from the word go( large publishers including CNN and The New York Times are some of the select partners that Facebook is working with) Facebook appears to be positioning itself as a friend-of-publishers. The fact that it has taken just over a week for over 50,000 websites to sign up for the plugins is ample proof of the fact that its approach towards publishers appears to be yielding results.

All said and done, Facebook's initiative towards organizing the web, as it deems fit, appears to be a move that is fraught with multiple long-term implications for all stakeholders involved, be they users or publishers. As I noted at the beginning of this post, there appears to be no clear-cut answer to the question of if publishers should warm up to Facebook and offer their clickstream data on a platter. But if they do decide to go ahead and partner, it seems judicious that they take a clear view of the pros and cons before jumpting headlong into this global social media party, where the host and guest both are Facebook, and everyone else and their conversations are purely incidental, or more scarily, collateral.
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