Drive through many towns on the East Coast, and you'll see the same fossils of urban development: an old, blighted town center and a few miles away, a modern retail strip with ample parking, brightly-lit chain shops and, inevitably, a Starbucks [SBUX]. Take a look at new plans announced by Facebook on Monday, and its hard to escape the deja vu. Call it the Strip Mall Effect, and it's coming to the Internet.
The American retail model used to work something like this: you need something, so you choose a destination. Butcher, tailor, chandler, apothecary and so on, all probably within walking distance of each other.
In the new, suburban retail model, the destination chooses you; there are enough shops condensed in a given strip mall that you're more likely to use it as a one-stop destination, especially when one big store like Target [TGT] anchors the group. Major roadways have been tailored to service these malls, so they're isolated and inescapable. The specialty vendors downtown, mom-and-pops, curiosity shops – whatever you call them – don't stand a chance. Of course, we know why this happened: we developed a new tool, the automobile. It gave way to big retail spots, which in turn, redefined our landscape and behavior.
It's easy to forget that the almighty Internet is still in its incipience; the Web of 2008 is somewhat akin to the roadways of 1930. Right now, the Web is a way for us to get to our online destinations. Today's breakthrough tool, the social network, is poised to turn that relationship on its ear, just as the automobile did decades ago.
The world's largest social network, Facebook, has announced a new initiative it calls Facebook Connect. It's a single-ID sign on service that will allow Facebook users to use their Facebook ID and password to access partner sites like Hulu [GE,NWS], CBS [CBS], Digg, and the San Fransisco Chronicle. When you view a TV show on Hulu, or read something on the Chronicle, it can show up in your Facebook News Feed, alerting your friends as to what you're watching and reading. Then they can click on it, too.
We've seen single-sign-on initiatives before, like Google's [GOOG] OpenID, but Facebook Connect is different. It doesn't just allow other sites to accept Facebook login, but also creates a feedback loop between Facebook and the partner sites. A truly "open" ID allows smaller sites to gain more accessibility by hitching up with a big site, much the way small shops can boost business by accepting Visa [V] or MasterCard [MA]. But by pumping News Feed full of links – "Bobby just watched this episode of "Family Guy" and rated it 5 stars, click here to watch!" – Facebook is essentially creating a "closed" ID, a bubble of partner sites of which Facebook is the central hub. Does that sound like any retail model you know?
The Internet, of course, doesn't suffer the complexities of physical distance; it's just as easy to type in the Facebook URL as it is to type in the URL for a backwater hotspot like 4Chan. But the Strip-Mall Effect will eviscerate smaller sites in a different way: by dominating advertising.
Right now, a lot of small sites make their bread off advertising, even with small click-through rates. As of today, Facebook and MySpace are terrible environments for advertisers, with some of the most abysmal click-through rates among major online properties. But initiatives like Facebook Connect promise to give advertisers the most complete user profiles imaginable: not only their location, school, and vague interests, but eventually the shows they watch, the stories they Digg, the news they read, and so on. That's the difference between knowing someone is a softball player at USC, and knowing that they're a liberal-leaning Steelers fan who's seen every episode of House. That's not "targeted" advertising. That's super-targeting.
Super-targeted ads are bound to be effective, and because Facebook and MySpace together can serve up ads to hundreds of millions of users – many in that elusive 18-34 demographic – their ad services could come to play a dictatorial role in the world of online advertising. That could drive down the profitability of advertising for smaller sites who can't offer the same response to ads, or the same detailed data about their users. If those sites don't have the development resources to learn the Facebook API and become a part of environments like Facebook Connect, then they're screwed.
Of course, this is the natural way of things: commercialization, industrialization, incorporation. But it means that the next generation of Internet users will grow up with a different understanding of the Web. To them, it won't be the odd, wild, vital place it is today, but instead a smaller pool of big sites that reinforce each other's traffic and wield heavy influence in purchases and tastes. The next generation will be able to access most of what they need – news, entertainment, shopping, comedy – through the hub of their social network, or even hubs that pool all their social networks, like the new startup Power.com. That leaves them removed by several degrees from the go-anywhere Web of today. They'll have little reason to mosey up to the address bar and type in anything else.
There go the curiosity shops. We'll miss them.