How Much Are You Worth to Facebook?

Facebook and others have tapped into the power of viral loops to build massive audiences in record time. Now they're using these growth engines to create the future of online advertising.

Some of the most iconic companies of our time -- Facebook, MySpace, YouTube, Twitter -- attracted millions of users practically overnight, by unleashing what's known as a "viral-expansion loop." In plain English, they grew because each new user led to more users. The trick is that each of these businesses created something people really want and then made it easy for customers to happily spread their products for them to friends, family, and colleagues.

I started exploring the phenomenon 18 months ago, in a cover story for Fast Company about Ning and viral loops, and my research grew into a book, out this month, about how viral loops are at the core of fast-growing social-media phenomena. In addition to the compelling genesis stories of how these startups became media darlings, what intrigued me was this question: What does size matter if you can't figure out a way to make money off a massive audience? Simply layering in banner ads (or ads of other stripes) can alienate your user base and often doesn't even work -- a problem that continues to plague MySpace and YouTube despite any claims to the contrary. And if you start charging, your customers are but a click away from someone who doesn't. Of course, this marketing conundrum afflicts more than just viral-loop companies. It has been the undoing of online news and entertainment, neither of which has been able to conceive of a way to ratchet up revenue through advertising to a point of sustainability.

The culprit: the oft-tried-but-not-true clickable banner ad, whose click-through rates now hover around 1%. It's even worse on social networks, where the rate is a measly 0.02%, a far cry from when the Web was so new that 50% of users clicked simply because they'd never encountered banners before. (Hey, what does this button do?) Banner ads are victims of the modern cat-and-mouse game between marketers and consumers. (They barrage us with TV ads; we get DVRs. They create pop-up ads; we get pop-up blockers.) The more time people spend online, the more likely they are to become inoculated against the latest marketing technique.

There's a move afoot to go beyond the banner, and if successful, it would breathe new life into the ad-supported model that millions rely on -- and by which few are sustained. It could also end the push-pull between marketers and users. Some of the more intriguing innovations would measure both your implicit value to these social networks and the value of all your friends, your interactions with them, and your influence over them. Then it's not about click-throughs anymore. It's about you.

Death to the Banner

Today's conventional wisdom is that marketers can't reach the 1 billion users worldwide on social networks, dooming Facebook, MySpace, and the many other social networks out there. This moment in time is not unlike the one a decade ago when experts claimed that search was not a stand-alone product because there was no way to monetize it. In response, Yahoo and its competitors vied to become superportals where a user's every need was served on one megasite. Search, the thinking went, was good only for attracting users who would stay to sample a variety of other services like news, horoscopes, financial information, chat rooms, and so forth.

Then Google's founders flipped over the conventional wisdom. They introduced a new ad unit, keyword search, which revolutionized the search industry by inferring the intent in users' queries and catching them at the very moment they sought information. Google, by skimming nickels, dimes, and quarters off each click, rode it to a multibillion-dollar fortune.

If history is any guide, social networks won't fade out as a fad -- they just need to find their version of keyword search, the new ad unit that upends accepted orthodoxy. Realize there is power in numbers. If Facebook, which in July passed 250 million users worldwide, were to follow Craigslist's model and monetize a fraction of its site -- worth, say, on the order of $1 per month for each user -- that would yield $3 billion a year in revenue. Marc Andreessen, who sits on Facebook's board, claims that simply by placing ads on its home page, it could probably generate $1 billion a year. For his part, founder Mark Zuckerberg sees the answer in what has earned Facebook its stratospheric growth so far: the social graph that illustrates all the interconnections among people, groups, and organizations. "The message you get, in a lot of ways, is actually less important than whom you get it from," Zuckerberg says. "If you get it from someone you trust, you'll listen to it. Whereas if you get it from someone you don't trust, you might actually believe the opposite of what they said. I think that's the basis of the value that people get on the site."

It's in this insight that Zuckerberg and others seek to find the business opportunity in people's online interactions. Suddenly, the new ad unit isn't about clicks anymore.

Crowd Control

Consumers will tolerate a whole lot of advertising if it's disguised as entertainment, which is why marketers have responded to the DVR by making TV commercials more engaging -- the kind that make viewers stick around -- and integrating ads into shows. The same holds true for the Web, and as with keyword-search ads, the trick is to market to people in a way that doesn't make them feel like they're being marketed to. This is where Andy Monfried, CEO and founder of the social-media advertising and marketing firm Lotame, comes in.

For Monfried, an ad's success isn't based on how many people see the ad; it's all about how much time someone spends engaging with it. Armed with a person's age, gender, and zip code -- bare-bones data sometimes collected directly from social networks, but not personal information that could be used to find out a person's true identity -- Lotame dispatches cookies to users' machines and notes their online behavior. It's not what users say, though. It's what they do. "There are ways consumers use the platforms," Monfried says of social networks. "They email, they blog, they comment, they post, they share, they link, they upload, they friend, they stream, they write on a wall, they update a profile. There are 160 verbs that we currently track."

Monfried helps advertisers seek out influencers (or "connectors," in Malcolm Gladwell parlance), the people who affect the buying habits of others, then cross-references their actions with the bare-bones demographic data he's gathered. For example, Lotame recently helped a movie studio drum up interest for a new chick flick. Monfried was able to sell the advertiser access not to women in general, but specifically to 1 million American women between the ages of 14 and 24 who had uploaded, blogged, rated, shared, or commented on entertainment content in the previous 24 hours. This is a level of granularity never before seen in marketing.

The key is that Lotame isn't just selling access to a specific and highly motivated audience. It's selling time. The advertiser bought four minutes per user over a three-week period with the understanding that the clock would freeze whenever the user stopped interacting with the ad -- in this case, a trailer for the movie. After Lotame identified the influencers, it targeted them with the trailer. A few thousand of them embedded the video in their social-network profiles or blogs. Then Lotame tracked the visitors -- the legions of friends and acquaintances who swung by and viewed the trailer. Every person who fit the demographic profile was tallied and timed.

Most important, the video ad took advantage of a viral-expansion loop to fuel its spread. Lotame is engaging in a type of controlled virality that differs in two key ways from the strategies typically adopted by studios pushing hotly anticipated movies such as Where the Wild Things Are. It lets the studio -- or any advertiser, from cosmetics companies to consumer-electronics manufacturers -- make sure the right people see the ad. It also allows social networks to take a toll for facilitating its spread, all the while asking nothing of the audience but to do what it's been doing all along.

What Are You Worth to Facebook?

viral-loop-app

Facebook, of course, has spent the last couple of years on its own grand experiments trying to develop a new kind of ad unit. Beacon -- a controversial advertising scheme "to socially distribute information on Facebook," connecting businesses with users -- was a public-relations fiasco. The company has also toyed with another approach, called Social Ads, although it hasn't pursued this program aggressively while it's been focused on growth. If a user buys a book on Amazon, or watches a movie on Hulu, Facebook could figure out which of his friends would, based on their profiles and activities on the network, be most interested. Amazon would then pay Facebook for the right to send an ad across all the friends' news feeds.

But as signaled by Lotame's work with brands as varied as Liberty Mutual insurance, Crest toothpaste, and Skittles candy, users create value through their actions in social media and the time they spend doing what they enjoy. And that points to a better way to market to users -- cutting them in on the deal.

After all, each member of Facebook has to be worth something to the company. So it follows that the more active a person is and the more active his network of friends is, the more valuable he is. This led Vasanth Sridharan to suggest on the blog Business Insider that users receive a commission for acting as referral marketers -- on the order of 5% to 10% on any purchases their friends make.

That way, Facebook would be treating its users as partners by giving them a financial incentive to participate in any advertising model it creates, no matter the form of the ad unit. If it shared some of the bounty, users would gladly interact with the new ad. The battle between marketers and consumers would become moot. Instead it would be truly innovative and a worthy extension of the social graph.

That leads me to the premise of the viral-loop application I created. You can find it on Facebook, MySpace, and other social networks, and at viralloop.com; it acts as a proof of concept for my book, Viral Loop. The widget takes advantage of the interconnectedness of today's socially networked society. Think about it: Without the active participation of its hundreds of millions of members, Facebook wouldn't have achieved a multibillion-dollar valuation. So when the app is installed on Facebook (or any other social network), it assigns a viral quotient to the user, telling him how much he's worth, in dollars, to that social network. This is based on an algorithm that takes into account such variables as the company's current valuation and the user's level of activity, the level of activity of all his "friends," and his influence, expressed, in large part, by his ability to persuade others to download the widget.

By placing a dollar value on social-network activity, I am offering incentives to the user to raise his level of participation and spread the widget. A real-time leader board, published on FastCompany.com, will track the viral quotients and dollar values of Web celebrities and other luminaries so users can see how they measure up. We also list the top-20 users who deploy the widget and their corresponding viral-loop quotients and dollar values.

Once you find out what you're worth, feel free to ask Mark Zuckerberg for your fair share. After all, without you -- and all your friends -- there wouldn't be a Facebook. So if he wants to make money off you, maybe it's time you got in on the action.

Adapted from Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. Published by Hyperion. Copyright 2009 Adam L. Penenberg. All rights reserved.

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7 Comments

  • Jim Robertson

    Has Lotame published the list of the 160 verbs? Curious to see that list.

  • Tonda Kala

    I still dont get it why all these social networks like Facebook or Twitter are getting so many publicity and so many users. Is it really just because of the fact that we simply need this "human contact"?

    Tonda Kala
    OnLive forum

  • Paul Sanford

    Facebook, Myspace, Twitter and the like really are changing the world in terms of business, communication and helping people to reach other people. In fact, there seems to be a lot going on here. casino online

  • Aly-Khan Satchu

    Social Media Uber Platforms such as Facebook and Twitter are fulfilling the Basic Human need of Human Contact. We are social Animals. My other Half told she was checking her Friend's haircut and that Friend is in Tokyo. We are in Nairobi. It was a small thing but we have moved from Aerogrammes into the 24 hour Information World, very quickly indeed. We have never been knitted so close. Think of Lilliput and Gulliver. The Lilliputians were nothing until they had their Net and there is a major upending going on in the Political Dynamic as well. Citizens have indeed found a Net.

    When you are building Social Media circles, You are playing with Virology and exponential Growth Curves. Facebook and Twitter have been entirely cognisant of this and rightly have waited for the Tipping Point to have been crossed and it has now and how.

    To stuff Banner Ads into that basic Dynamic is plain Idiocy. Your Point about Targetted Search is surely the Point. Facebook and Twitter are not commercial in the c20th sense. They have to consistently behave like an Infomediary and not an Intermediary. They need to be adding value and therefore, the model is entirely commercial but disjunctive.

    The sheer scale of these Platforms surely means that a possible Revenue Stream is Micropayments. Amounts so small as to insignificant individually but collectively to be material as you have pointed out.

    Aly-Khan Satchu
    www.rich.co.ke
    Twitter alykhansatchu

  • dan redman

    Kevin and Jose,

    Your opinion is a common one. I mean that as a means of criticism and compliment.

    Marketing is not evil, neither is free enterprise. Display ad technology has been pushed to out pace the increasingly savvy web user. In other words, the person that has been conditioned to believe that marketing is bad and banners cause viruses will not click on on most banners. This doesn't insinuate, however that they aren't still spurred into some sort of relevant activity as a result of a banner. Looking beyond the click there is a world unrealized by most marketers. Searching within verticals, or for branded keywords not only means a more engage visitor once they are relocated through 'pull' as Adam identified above, but in many cases it ends up in increased revenue per visit (comscore). The goal is a simple one, appeal only to people that you care about (as an advertiser). In collecting anonymous data to do so, where is the harm. Users are now banner blind, and using ad-blockers, pilfering content that should be paid for....etc. Hyper-targeting ads a crucial level of relevance to an audience both for user experience improvement, and advertiser performance. The internet is not free my friends; if you truly enjoy reading high quality web content, experience the best social tech, connecting with friends, and all of the other seemingly free things that you do online, then simply click an ad that interests you. Most marketers are simply trying to make impressions to people that matter in a non-evasive way. It's horrifying for me to think that fellow marketers don't firmly stand by behavioral marketing. Sorry, it may be the Yom Kippur-Fast talking at this point. Please read my blog post for more thoughts on the state of display:

    http://bit.ly/hCOQV

  • Jose Guerra

    I agree with Kevin and I think that Lotame and others, as stated on a New York Times article titled “Share the Moment and Spread the Wealth”, are approaching it the wrong way and I don’t agree with their position for moral reasons. Human beings have personal relationships and professional relationships that many times overlap with each other, but there is alway one governing relationship when it comes to trust. If the solution to monetize social media is by muddling the waters and introducing money to relationships based on trust and friendship, I think we are evolving against core values of a healthy society. But, who am I to say that?. However, I think if that were to be the future or next evolution of social media and online social behavior we would face a world with closer and smaller networks built on trust and friendship, which will co-exist with in larger social networks. The tools exist today, Facebook has some if you want to tightly manage your social networks. The need exist today, it is just not massive yet. The question is then, what are we marketers going to do as we face tighter and tighter communities that find ways to protect themselves from marketing messages and advertising? I think the solutions must come from firms truly living their brands and their identity, where employees, customers, partners, suppliers, and other industry related groups pass the word, share the content.

    The key is that the content must fit within their social activities – not easy for certain companies. I think that the ability to constantly produce content innovation that is tied to brand values and that is real will help firms find and retain loyal customers/clients.

    You can read the entire post here bit.ly/3zDOjW

  • Kevin Lenard

    Adam, like the work you've done, especially the widget and what it does in terms of making another step towards ascribing a value metric on social network marketing value. I beg to differ a tad with what you and Lotame are using as a premise, however.

    The entire "above the line" advertising business model for the past 100 years has been 'push marketing' -- keep hammering away at the masses with the same message until they cannot forget it and they'll buy your stuff. Virtually THE INSTANT that consumers were given a voice via the internet they told us all loud and clear they did not want any more 'push marketing'. This brought about predictions that brands were about to be killed off and that marketing was soon to become extinct. Turns out that since the day that the chief of a cave-person tribe donned a rare shell necklace, humans have craved brands, however, so they'll never go away.

    What the latter suggests is merely that marketing has to evolve into a 'pull model' that consumers like better. To one of the points I keep banging my drum about, this means that, versus the complacent (and hugely egotistical, looking at Cannes) ad agency business model we had for almost 100 years (did I mention 'lucrative' -- up till 1995?), what were formerly called "ad agencies" must now evolve from paying lip service to being 'partners' to their clients, they actually have to now become "marketing agencies", inventing new business models for their clients' brands and insisting up on a revenue sharing model (I hear collective gasps from both sides of the fence).

    Perhaps the biggest casualty of all this evolutionary change has been what I call "the death of frequency"; NOT the death of reach, but a switch to micro/hyper-targeting; NOT the death of 'reminder' brand messages, but the death of stultifying repetition. Nor is it the death of the tried and proven marketing model of "you can watch something fun/interesting/entertaining if you're willing to watch my brand's message". People are more than happy to make that trade, whether the channel is TV, online or their mobile phone, as long as the ads are pertinent to them and don't get repeated endlessly (think "Mac vs. PC guys").

    But what do we do with tens of thousands of ATL media people around the globe who have never worked with anything but GRP's (reach times frequency)? Right now most everything that Andy Monfried, and yourself, Adam, are doing, along with anyone else who is getting any 'ear-time' from the big media influencers, smacks of GRP calculation and 'push marketing' thinking. Naturally, it has to, as the media people have no other familiar measure to work with yet and we have to continue to use language they're familiar with. That doesn't mean that turning individual 'influencers' into 'measured media' is going to be the marketing metric of the future.

    Sometimes I think my teachers were all wrong back in school and that I really am just stupid, not a 'creative thinker', but the only natural solution that will work for the future of 'pull marketing' is something we're close to, but no one has 'thrown the switch on' yet. It is the 'Holy Grail' of marketing, first really seriously bandied about in the early 90's when the Psion and Palm became ubiquitous: fully addressable advertising. (No, NOT LBS coupons for coffees, but having ads played to you that you really DO want to see.) Someone could do it tomorrow with teens via their cellphones (teens have low 'privacy panic' thresholds), but as all the decision-makers are old farts well-versed/immersed in 'privacy panic', they haven't seen the light, yet...

    Once you have fully addressable advertising, tested with youth and filtering up into the older demographics, you have no need to pay people 5-10% commission on what their friends buy, as Vasanth Sridharan has suggested because people will all watch ads for free and, also for free, will influence their friends. What we're all doing by trying to monetize socializing (there's a reason I'm using this parlance) and measure influencers' value, then pay them for leveraging it ('people as a medium' in the words of Aidan Tracey from Mosaic XM) is killing our credibility all over again as marketers.

    Anything that is labeled "social" is NOT an advertising-appropriate medium. Period. It is people SOCIALIZING -- marketing, an activity that inherently involves making payments to help push products, has no place in social discourse. The MOMENT we inject financial incentives into social discourse the 'influencer' loses all credibility. For example, 'socializing' happens in a market square, but there's a clear and distinct line between a chatty tomato farmer and a transaction they make. Yes, being chatty (social) helps make a sale, but the consumer has gone there to buy stuff. This is only the case in 'social media' when I have announced my willingness to buy by logging onto Crest's Facebook fan page (a cute experiment that is likely to go away over time).

    What Lotame is doing is highly suspect over the long-term (although I'm sure they'll evolve/morph along with how people use emerging media), as is your attempt to evaluate and ascribe a value to social network members. Anyone who gets financial compensation for endorsing something is automatically judged non-credible. Yes, there's tremendous value in better understanding how it's all going to work as these new media emerge, but paying people to endorse or 'chat-up' products is not a viable marketing tactic any more than paying bloggers was. Successful marketing efforts will continue to happen outside people and groups' social interactions, but they'll continue to 'talk about our efforts around the water cooler' like they always have. Social media's real value is in LISTENING to how well our marketing activities are doing, not in injecting our message into people's conversation.

    As I've blogged before, just because the masses socialize via emerging media, doesn't mean we've got new mass media.

    http://advertisingbusinessmode...