Following the recent stock market floatation of Facebook, Kyle Cockett this week discusses the potential implications for the market research industry.
From a quick glance at some of the recent technology acquisitions published in the press, it would be understandable to hold a belief that we find ourselves on the cusp of a sophomore dot com boom. Microsoft has recently purchased the business enterprise social networking service Yammer for $1.2 billion, while Facebook acquired the free photo sharing program Instagram for the princely sum of $1 billion. In addition to this, Facebook recently had a well publicised initial floatation on the NASDAQ stock exchange. The initial price offering of $38 valued the company at approximately $104 billion, with the launch generating around $19 billion for the company’s founder, Mark Zuckerberg.
In theory, all of the acquired ventures listed above have no formal business model in place; such high valuations are likely to leave some financial analysts scratching their heads. After all, at least the original dot com boom start-ups, such as eBay, had some underlying plan for revenue generation in place. The acquisition of Instagram in particular raises questions. On paper, the application is merely a platform for users to share retro or Polaroid styled photographs with friends or followers. It is likely that the sole objective of the purchase is to direct Instagram’s loyal, highly engaged users towards Facebook’s photo sharing services. On the surface, any concerns raised around the lack of a successful business model do not appear to trouble Zuckerberg, who at the time of Facebook’s initial floatation stated:
My goal was never to just create a company. A lot of people misinterpret that, as if I don’t care about revenue or profit or any of those things. But what not being just a company means to me is not being just that – building something that actually makes a really big change in the world.”
However, it is likely the public floatation of the company will now generate extra pressures in terms of upping advertising revenues. Zuckerberg is likely to find himself between a rock and hard place – the fulfilment of building something that makes a ‘big change’ to the everyday lives of Facebook users or generating the advertising revenues that shareholders will demand, undoubtedly angering core Facebook users in the process.
On the face of it, things appear to be rosy in terms of revenue generation. Facebook’s advertising revenues already reached a record high of $3.1 billion in 2011, representing a 69% increase from the previous year. However, while these figures may appear impressive, Facebook revenues are floundering in the face of their nearest competitors. Google has half the page views of Facebook but generates ten times more in revenue terms. One of the main reasons for this gap is that Google users often have purchasing intent – they are often actively looking for products to purchase when they type terms into a search engine. In comparison, Facebook users are more likely to want to chat with friends or share media, without having the distraction of display advertising. As a result, question marks have been raised over the effectiveness of Facebook advertising. General Motors recently cancelled a $10 million deal after deciding that paid Facebook advertising had little impact on their revenues.
As things currently stand, it is hard to envisage how Facebook will ever be able to remodel its offering to gain the same purchasing intent as Google users. Therefore, it is feasible to suggest that Facebook may now turn to alternative revenue streams to satisfy the thirst for shareholder dividends While the purchase of Instagram generated the most hoopla in the business press, Facebook has also quietly acquired application developers such as Tagtile and facial recognition software developer face.com. In terms of publicity and headlines, these purchases have quietly crept under the radar. However, they represent the biggest hint towards the future direction of the company. Tagtile is of particular interest – it is a customer loyalty system offering rewards for those who ‘tap’ their smartphones in store. This will add yet another layer of rich location and purchasing data to Facebook’s user database.
So, what are the implications of these recent developments for the Market Research industry? Examining the current terms of service of Facebook, there are two points that stand out – data may be used to:
- Provide you with location features and services, like telling you and your friends when something is going on nearby;
- Measure or understand the effectiveness of adverts you and others see, including to deliver relevant adverts to you
From these terms, we can easily conclude that Facebook is already being employed for promotional research purposes. Once Tagtile and other applications begin to be fully integrated with user data, Facebook will be able to provide an even clearer picture of who views promotions, how many follow on with purchases and where they purchase from. One of my recent blog posts was on the powerful benefits of harnessing ‘big data’ sources. Facebook has the potential to build the biggest, most powerful data source of all. Is it conceivable that with a slight amendment to their privacy terms Facebook could create a new revenue stream by selling this data to external agencies? Previous hints have already been dropped from internal Facebook sources about the company’s potential as a giant worldwide consumer panel.
At present, the market research industry is only just beginning to face up to the use of social media research extraction tools – the debate currently rages on as to what is truly ‘public’ when shared through open access social media spheres. Without any doubt, there would be similar ethical dilemmas for research agencies should Facebook begin to open up user data. Of course, this is assuming agencies aren’t bypassed completely should this development happen. There are also likely to be question marks over the usability of such data – do the everyday actions of consumers reflect their adopted online personas?
I would be interested to hear the opinions of any fellow researchers or readers.