Monday, March 14, 2011

Brand Clarity, Profit, and Facebook

Amazon was founded to sell us books, and eventually expanded into selling us other things we didn't want to search through a store to get. It makes a ton of money. Google was founded to make search easier and better, and eventually expanded into providing other tools that make content gathering easier and better. It makes a ton of money. The two most successful Internet firms may now do lots of things, but the vast majority of their profits come from finding new places to apply the same basic template that has made them successful. (And, as an aside, when Google tries to do things like set up a social network, it hasn't been nearly so successful.)

Facebook was founded to connect college students to each other. (When I was in college, the "Face Book" was a picture book of the people in your class that everyone looked through to figure out who they wanted to, well...let's say meet.) It eventually expanded to let anyone use the service and connect to other people. And they have made some pretty good money doing this. Although they do it by selling ads that have a remarkably poor click-through rate, which has started making people wonder if that type of promotion is really worthwhile or just chasing buzz.

But Facebook has a problem: it is the most hyped company in the world right now, and is valued at many, many times its earnings. It has to figure out a way to turn 'social' into 'revenue' without turning off its users. If the ads don't really work, how do they do this? Well, they could try to give marketers more information about their users. That information is very valuable. But if they do that, a lot of people (who don't want Procter and Gamble sending them a toothpaste coupon if their status says they have coffee breath) will leave the site.

Another option is to sell other services through the site. To this end, they have developed a virtual currency called a Facebook Credit (which reminds me a bit of a SchruteBuck), which can be used to buy upgrades on games like Mafia Wars and Farmville, and now can also be used to rent movies through the site.

Then there is the option of snatching bits of other companies' business models and aggregating them in Facebook. After all, Facebook has a huge built in user base. Their first target, Groupon, which gives daily discounts off of local services like restaurants if you buy in advance. Facebook plans to expand its existing Deals program to get in on the action.

Here's the thing: none of these initiatives (with the possible exception of buying a new Tommy Gun on Mafia Wars) has anything to do with staying connected to friends. And in some cases, it may actually get in the way of that core mission. If your Facebook page starts filling up with Deals based on what you and your friends are doing and discussing, are you going to be happy, annoyed, or creeped out?

But the bigger issue is that the Facebook brand isn't about shopping, or renting movies. It's about sharing a bit of your life with people you know, and staying in touch with them in return. Groupon was designed to sell me stuff, and so I don't mind when it does. With Facebook, I'll mind. Modern Internet users have gotten very good at compartmentalizing the brands that they use for different online tasks, and it may just be Facebook's fate that it is the place to waste time and joke with friends, not the place to spend money.

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