Facebook and the Open Graph API

I’ve wanted to write out my thoughts on the new announcements that Facebook made at their F8 conference; specifically the Open Graph API and how this will affect everyone involved with the platform.   I’ve been waiting to write this until I felt comfortable with the changes, and had the opportunity to build a few social media plans with them in mind.  I haven’t read many other people’s thoughts on this yet so, the following is the closest I can get to my unfiltered comments.

To me (and I think everyone), the most  important change that Facebook has made is to its social plug-ins (you can check them out here to be clear on what they are).  Some of these are new,  some of them are not new but are easier to install on an off-Facebook site (in this post I’m really just talking about the new “Like” feature).  These are all part of the Open Graph API that Facebook is pitching, under the presumption that people really want to connect and discuss the content that they are consuming in other places on the web. I don’t believe that position is far from the truth,  but I do think that there’s a limit to the amount of information that people really want to share with everyone all of the time.

What is undeniable is that this is a big strategic move on the part of Facebook, which continues to evolve into something less like a standalone world, and more like a collection of tubes that are ubiquitous across the web.  Here’s my breakdown of how this change affects major stakeholders:

Non-Facebook Publishers: I think this is mostly a good thing for most publishers. The “Recommend” feature that’s on cnn.com improves the experience on the site.  The “Like” feature can drive Facebook users back to consume on-site content that a reader’s friends “Like”.  These are good things for publishers who drive revenue by selling display advertising.  Are there risks?  I suppose this can take over other forms of sharing, and can become limiting to publishers who would prefer to have direct contact with their readers through actions like email sharing.  Also, any reader preference data shared through Open Graph is (I believe) stored on Facebook’s servers,  which is valuable consumer information that publishers may have to purchase from Facebook in the future.

Facebook Users: The Open Graph adds data to a user’s social graph on Facebook.  Users who “Like” content across the web can now send that preference data back to Facebook and express to their network that they  interacted with content and thought it was cool– the content can become an extension of someone’s personality (the way Pearl Jam’s Ten was an extension of my personality in junior high).  This social graph information is becoming content of its own and people like consuming it.

A dynamic social graph means that there’s always a reason to come back to Facebook to find out more about people: how they have changed, what they like, content recommendations, etc.  We can now get a more complete picture of a Facebook connection, and most users will think that’s a good thing.  The downside/risk is that users may not be interested in sharing all of their off-Facebook preferences and habits.  And, assuming Facebook users actually want to share this information, it’s possible that people’s streams will have a lower signal-to-noise ratio in the future– which can be bad for UX.

Marketers: Because Open Graph gives marketers better ways to integrate the platform on their sites, it possibly gives them less reason to develop immersive experiences on the Page and Tab structure inside Facebook.  These plugins might cannibalize Facebook’s biggest revenue generator, the “cost-per-fan” .  To get an idea of the difference in approach, check out this great example of an in-Facebook campaign; the Microsoft Kin campaign.  A great example of marketers using the Facebook Plugins is on the Levi’s website.

See the top red circle in the top image?  That is really well-integrated social bookmarking.  The result of a user clicking on a like tells my Facebook community that I like Levi’s.  The bookmark  allows me to comment, it gives specific data and the posting links directly back to the website, where my friends can like, or click out to purchase the product.

See the bottom red circle in the top image?  That’s how I can Become a Fan of the Levi’s Facebook Page.  Connecting to the Levi’s Facebook Page might get me a special discount, or some special content, but that’s really not clear to me from this button.  As a marketer, I would much rather have a user “Like” a product than “Become a Fan”.  What this will mean for “cost-per-fan” media in the future is anyone’s guess; I think it’s certain that these changes will affect development and marketing budgets from brands in the future.


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The Mis-Application of Innovation

With all of the recent discussion about civil charges being brought by the SEC against Goldman Sachs, I got into a discussion with some friends about innovation, technology development and its abuse by people who either don’t understand the technology they are using, know but do not care about the risks involved, or knowingly behave unethically in an effort to leverage short-term gains.  After reading a blog post by Bill Taylor on the subject, I thought I’d chime in from a technology standpoint (although Bill does a much better job than I do at explaining my own thoughts on the subject–  you should definitely read his post).

Bill points out two blatant misuses of recent innovations developed by really smart people and abused by the financial services industry:  collateralized debt obligations and micro-lending.  These are both somewhat complicated technologies, and I think it’s safe to say that the U.S. housing market collapse was pretty clear evidence that the technology was egregiously abused.  The micro-lending conversation is perhaps a bit more ambiguous (it could be posited that the rejection of certain micro-lending offers are a natural piece of the economic puzzle, and will soon drive rates back down).  My position in the conversation my friends and I were having , which I still maintain, is that blaming technology is pointless and mis-guided.

People innovate.  It’s a natural thing for humans to do and should never be discouraged.   The idea that the innovation is the culprit is a dangerous position to take when situations like this arise because innovation is absolutely a net positive endeavor. Technological gains are part of what has made the U.S. economy surge in the past century, and it will unquestionably be the source of our economic growth in the future.  We live longer, happier lives as a result of technological innovation.

I think problems start to arise because of a lack of transparency and asymmetric information problems.   As Americans, we consume too much health care, we take out lousy mortgages and loans and we tend to make foolish financial decisions  as consumers.  American consumerism is generally an impulsive phenomenon–   or, we know we’re making bad decisions, but everyone around us is making them to so we fall in line with the behavior.  The solution to bad decision-making is more education and greater transparency. The solution is not to halt efforts to innovate from fear that innovation will be abused.

Gowalla, Foursquare and Lots of Zeroes

I just heard some great thoughts from Dave McClure on the location based service industry sector.  He jumps through a couple of quick assumptions and drops down some pretty big numbers on the value of the overall market.  In response to questions over the entire market:

…there’s at least 50 million users in the U.S. that are potentially the consumers of these services.  If you assume that each of these users is worth $5-$10  in local search advertising per year, then yeah, it’s a big number..”

…it’s a big market measured in billions of dollars and probably worth tens of billions of dollars…

After listening to Dave talk for a few minutes, I started to think that the $100 million valuation of Foursquare sounded (somewhat) cheap.  This blog is seems like a good pace to explore why, which I’ll try to do in three quick points:

1. The mobile application market is exploding

Think about the fact that three years ago there was no market for mobile applications, and that the market size is now approaching $17 Billion. The adoption of applications are signaling an eventual  decline in the use of laptops, as users can do more on mobile devices and seem to want to.  I don’t know of anyone that believes that mobile devices do not play a larger role in their lives than they ever have, and that their use will continue to grow with the improvement of smartphones and the development of bridge devices like the iPad; and if users are on mobile devices more they are certainly more likely to consume location based services.

2. Frequency marketing and coupons are massive

For a year I worked in social media strategy for an agency that marketed OTC Health and beauty products and I can say without question, that every mass market product fighting for shelf space in big box retail  uses coupons like most of us use oxygen.  In my plans, coupon downloads were consistently a strategic marketing objective for every brand that we worked with.    For getting new customers, coupons induce trial and frequency programs drive repeat purchase.  This is a market that, if location based services are able to capture even a small amount of U.S. consumers, will be worth billions of dollars.

3. Where else are ads actually useful?

If users are decreasing their dependence on desktops and laptops in lieu of mobile, then digital advertising needs to move into the smartphone.  I currently don’t get a lot of ads on my phone and, until I downloaded my first Twitter application, I don’t think I ever saw an ad on y phone (I’ve been lucky enough to never have received an SMS advertisement, which I find incredibly intrusive).  But geo-locating advertisements based on where I actually, physically exist at any given moment is a big deal; it’s useful and exciting.  Who wouldn’t want to walk into a mall and be fought over by department stores with discounts, right on their phone? Anyone in the U.S. under the age of 25 is unlikely to ever clip  coupon form a newspaper–  but they are highly likely to use digital coupons that are readily available on an LBS that they are a member of.  With enough imagination, it becomes possible for these services to do for brick-and-mortar locations what Google has done for e-Commerce sites.

You can check out Dave McClure’s interview  in this TechCrunch post and you can check out his blog at 500 Hats.

Bebo & Ning: Second Place In Social Networks

Recent developments surrounding the world of  social networks are consistently pointing to a consolidation of social networks online.  Facebook currently touts over over 400 Million users.  It’s difficult to say how any users Twitter currently has.  The last numbers I saw were about 75 million, but I may be quoting an old stat.  Regardless,  these numbers trump Myspace and every other social network that has hit the web 2.0 scene.  On one hand, this is a story about the emergence of clear winners in the battle for clear market dominance.

The other half of this story is about social networks which are starting to falter, or admitting defeat.  Last week Ning announced that it was getting rid of free services and cutting 40% of it’s staff.  In even bigger new,  AOL has also announced that, two years after buying Bebo for $850 Million, the company will sell or shut down the site.  It’s becoming clear that a lot of second-tier networks are losing their user base and becoming ghost towns.

The emergence of a winner may have been inevitable.  However, I don’t have any interest in criticizing AOL for their acquisition of Bebo.  At the time of this transaction (2008),  social networks were still anybody’ game;  I believe MySpace was just over 100 million users at the time, 25% of where Facebook currently stands. In the social networking world network effects are profound, but as recently as 2008 the space was shaping up to remain fragmented, pulling in users of like interests and/or demographics very much the way forum-based communities still do.  If you were trying to establish a social media presence,  a brand or person used to build profiles on Friendster, MyYearbook Bebo,  Myspace and others.  When I was still working with record labels on social media strategy, we used to recommend web ubiquity, putting a profile on as many as a dozen social networks.  It seems that’s all over for now.

The 2007 social network world was killed largely by the sheer volume of consumers that poured into Facebook.   400 million active accounts is pretty much everyone when we’re talking about a place to put profiles.   But I’m not sure the world was a better place with the fragmented network system that we had before (the world of MySpace, Facebook, Bebo, NING, MyYearbook, Friendster, etc.). Yes, there were more choices and less restrictions for users, but all of these options are free for individuals so there’s not a price problem for consumers.  I think this presents some challenges for advertisers and I think this presents some serious challenges for developers.  Everything is platform dependent now and I’m not convinced that this is a good thing when it comes to Facebook.    Every time you get a clear market leader like Facebook, consumers and suppliers lose choice and the world becomes (just a little) less interesting.

Google Docs Are Improving: iWork & Windows Get a friend

Google recently announced new features and improvements to their Google Docs suite.  Some of the new features look  great (I have not tried them all), but their biggest improvement for me is the ability to upload and store documents in any format.

As an enthusiastic Gmail user, I’m thrilled to have some storage space integrated with my email client in the Docs section.   Having my email client and document storage together in the cloud improves my mobility. On a side note, I’m curious to what this will do for smaller collaboration tools like Box.net.  Until now, Box was the easiest solution for sharing Microsoft Office documents (far better than Windows Live).  Now that I can store and share MS Office documents through Google, I’m going to be less likely to use an isolated system like Box.

In terms of actually moving from Microsoft Windows to Google Docs,  I don’t think I’m there yet.  I still don’t like the process of converting my Office files to Google Docs files for two reasons.  The first is that it doesn’t really work–  at least not seamlessly.  I have attempted to convert a number of Office files into Google Docs and they don’t look right when they’re up.  Yes, I can probably do some re-formatting and get them to convert more seamlessly, but I don’t want to–  I’d prefer to just keep them as office docs.  With further improvements, I believe this can be circumvented.

The second problem is a big one (and a repeated challenge): user base.  First, online collaboration is only as good as the number of people who you can get to collaborate on any given project. While it’s wonderful in theory, it’s not done in practice very much and I do not see this trend changing anytime soon.

As an MBA student, I send Document files around to a lot of people in different work environments.  The only consistently shared applications suite in Microsoft Office. Half of the students in any given group will be running on a Mac (myself included), but no one would ever share a Pages file.  And es a lot of people use Gmail, almost everyone I work with has a Gmail account, but the standard remains Microsoft Office files.

I recently bought Microsoft Office 2007 for Mac after trying to work with Google Docs, then the iWork suite.  The fact is, none of it worked the way I needed it to, so I’m back to MS Office (and I’m pretty happy there).

Peer Lending Gets Another Boost

According to TechCrunch, peer lending site the Lending Club, secured $24.5 million in Series C financing, led by Foundation Capital and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.

Peer lending companies like Lending Club and Prosper are sites that connect lenders and borrowers in a transparent, social network style environment.  While certainly not risk free investments,  I believe these sites allow for a free-market solution to small-to-medium sized loans in an efficient way.  Through this direct approach,  these sites have the ability to eliminate layers of cost and bureaucracy that surround loans which, in theory, allows for lower rates for borrowers and higher returns for lenders.

While I do not believe that peer-to-peer lending will ever replace traditional loans, credit cards and big banks,  it’s inspiring to see a new asset class emerge that, one day, could compete with Wall Street, or at least influence the price of this amount of money.  When you consider the scalability of this model (assuming transparent information on borrowers remains available) and the extremely high APRs that credit cards can charge for small amounts of money, this outlet could potentially  become a real resource for consumers trying to lower their interest expense, or make small investments in their businesses.  If these sites reach their potential, they will become a natural anchor to credit card rates.   Additionally, with annualized returns over 9.5%, it’s not impossible for places like the Lending Club to pull in a large investment pool from a large group of small investors looking to diversify from the market and avoid paying management fees.

According to their blog, the Lending Club has issued a little over $100 million in loans since it’s inception and currently controls about 75% of the peer lending industry.  This is an extremely small piece of the lending pie,  but I’m hopeful that this industry wil continue to grow.  The real challenges that peer lending sites face is (again) one of network effects.  As a market making site, it’s important that borrowers and lenders can connect with similar risk profiles (lenders that are willing to accept risk for higher returns, and borrowers who are willing to pay higher rates with relatively low default risk).  I plan to open a (very) small account this month to get an idea of the lending process  and I’ll post again on this topic soon.

On another note,  the Lending Club website is a great example of what a startup site should look like.  The value proposition for lenders and borrowers is clear & upfront; there’s very little potential for anyone visiting the site for the first time to be confused.

Locking on Strategy: Apple & Twitter

I’ve been trying to identify a trend I’ve seen this week in my RSS feeds, told through the story of Apple changing rules on iPhone application analytics (Venture Beat), the much-discussed HTML5 vs. Adobe battle (I like this Scobleizer read which discusses it)  and  Twitter developing 3rd party applications for mobile applications and acquiring Tweetie (I downloaded the Twitter application for Blackberry yesterday and it’s excellent). It seems that the biggest innovators in technology are integrating and consolidating their channels.

It’s been interesting watching these companies shift strategies and jockey for space.  Apple has always kept a somewhat closed shop.  The recent exclusion of Adobe Flash from the iPad was a bold move on Apple’s part, but not entirely surprising considering the company’s history of being a vertically integrated firm that does not like becoming dependent on channel partners.

Watching Twitter and Facebook move around has been the more interesting story.  For the past year, Facebook has been redesigning it’s user experience to mimic Twitter’s model.  Status updates and tweets are a very similar now, and this is most likely the result of these platforms focusing exclusively on gaining advantage through network effects.   Twitter and Facebook have been dependent on content and users first, revenue second.   Now that they have both gained massive user bases and rapid adoption growth; the focus is turning towards revenue generation.

Facebook generated over $500 million in 2009 revenue, which came thorough display and performance-based advertising.   Let’s assume that Twitter is moving into third party applications in order to serve up mobile ads; is it enough to match the revenue levels that Facebook has generated?  The picture gets cloudier when you consider  the fact that Facebook made the majority of their ad revenue through 3rd party application advertisiers like Zynga.  The platform has already chalked up some revenue by licensing their search results to Bing & Google, and I believe there is more revenue down this path in the form  of brands looking for in-depth market research along the lines of what BuzzMetrics offers.

Another route is the sponsored tweet.  I’m not a huge fan of this model as a user or as a marketer–  I just think earned media should stay earned and buying people’s twitter feeds doesn’t seem like a scalable, sustainable model to me.  The fact is that Twitter is an unbelievably useful, intriguing and transformative technology. While I’m not certain what their revenue model is going to ultimately be, I imagine it will be a combination of the revenue models that we’re seeing now (some search, some mobile ads, some sponsored tweets). Regardless what their ultimate revenue solution is,  the platform is undeniably here to stay.

UPDATE: Twitter announced it’s model for rolling out sponsored tweets yesterday , and will discuss them in greater detail ad the AdAge Digital Conference, here in New York, next week.    I’m looking forward to seeing how these perform.  Clearly, opening a channel for  more mobile advertising is a big opportunity.