Sunday, December 09, 2007

Facebook Beacon attracts disdain, not dollars

I have been watching the uproar over Facebook Beacon over the last couple weeks with some amusement.

The system was intended to aggregate purchase histories from some online retailers, a poorly thought out attempt to deal with the lack of purchase intent that makes it difficult for Facebook to generate much revenue from advertising.

Om Malik calls ([1] [2] [3]) Facebook Beacon a "privacy nightmare", a "fiasco", and a "major PR disaster". He goes on to write that, even after the latest changes, "I don't think it's easy to trust Facebook to do the right thing."

Dare Obasanjo says "Facebook Beacon is unfixable" because "affiliate sites are pretty much dumping their entire customer database into Facebook ... without their customers permission" and accuses Facebook of "violations of user privacy to make a quick buck."

Eric Eldon at VentureBeat writes that Facebook is dealing with "a revolt against the feature, because it sends messages to your friends about your purchase and other online behavior .... whether or not you are logged in to Facebook and whether or not you have approved any data sharing."

The NYT quotes one Facebook user as saying, "Just because I belong to Facebook, do I now have to be careful about everything else I do on the Internet?" and quotes another as saying, "I feel like my trust in Facebook has been violated."

Facebook faces a hard challenge here. Facebook users are not coming to Facebook thinking of buying things. Because of this lack of commercial intent, most advertisements are likely to be perceived as irrelevant and useless to Facebook users. That will lead to low value to advertisers and low revenues for Facebook.

So, Facebook will struggle desperately to get the revenues promised by their $15B valuation, doing things that almost certainly will annoy and anger their users.

However, Facebook's success largely is due to benefiting from a fad. People flock to whatever social networking site all their friends are using. It wasn't always Facebook. MySpace was once considered by some crowds to be the place to be.

I wonder if all the annoying things that Facebook starts to do with its advertising will be what makes Facebook become uncool. It may be what makes Facebook's fickle audience want to find some new place to hang, somewhere that doesn't suck, and makes Facebook become yesterday's news.


Anonymous said...

The problem is perhaps not that Facebook widgets send the navigation to Facebook when you visit a website without being logged on facebook. Why? Because when you log off, the Facebook cookie expires, therefore all the navigation they get is without your ID. They don't know who you are at that moment.

-Stephane Rodriguez

Anonymous said...

News flash:

Facebook is for KIDS.

Adults are going to want to use something else, especially as inane widgets begin to merge with Beacon into a giant wad of ecch.

Andrej Gregov said...

Personally, I think the Facebook user base will start to fracture over the next several years. Sure the Beacon flap was mess. But I'd guess most users don't care. The digerati are the only ones complaining about Beacon at this point--it's hardly used yet.

What I think will happen over the next several years is millions of existing (and yet to be) Facebook users will flock to boutique social networking sites. For example, if you're a college student today, who in their right mind would want to be on the same network as their parents? There will be new college sites springing up soon which will become the "cool" place to become networked. The same will happen for other subgroups in Facebook.

All that said, I don't think people will kill their Facebook accounts. They'll just stop using them as happened with other social networking sites like Orkut and Friendster.

Funny, I wonder if the one social network with the most long term growth prospects might be (the not so sexy) LinkedIn? After college, do you really want to stay connected to everyone you meet? Every college based social network is bound to lose all its active users. But from a business perspective, I love being able to keep in loose contact with all my previous business relationships. Given people work for 30-40 years after college, that could make LinkedIn hugely valuable over time.

Thanks for the post.

Toby DiPasquale said...

Greg, since I know you've worked in software companies before, I'm surprised you would repeat the useless $15B meme. They are not worth $15B. Being worth $15B would require revenues they do not have. They do not have a $15B valuation. Having a $15B valuation would have required multiple funding rounds to bring them to that round, which did not happen in the case of Microsoft injecting cash. It is in both Facebook's and Microsoft's interests for people to keep repeating this meme, but it is nonetheless false and ridiculous. Shades of the bubble, I say.

Greg Linden said...

Hi, Codeslinger. TechDirt has a good post on the $15B valuation, writing, "Microsoft's Facebook Deal Might Make Sense If It's An Ad Subsidy... But What About The Hedge Funds?"

It goes on to discuss a rumor that two hedge funds went in at the $15B valuation as well, making it seem like at least a few more parties think it is somehow justifiable.

That being said, of course I agree with you that there is no way they are worth $15B.

Anonymous said...

I wonder how true that rumour about hedge funds buying into Facebook is. Can we verify that? I've also been wondering...who came up with that $15B valuation and on what basis?
As the Hedge Fund Implode-O-Meter shows, just because a hedge fund bought into something doesn't mean the price tag is justifiable.
Just wondering when the bubble will burst like the US housing market has...