Evan Rudowski: Web Transplant

Why Facebook Will Eventually Go Premium

There's more bad news for Facebook as it seeks to justify its huge valuation -- the world's largest advertiser is not finding Facebook to be fertile ground, according to Randall Stross in The New York Times.

The most successful effort that Procter & Gamble was willing to point to on Facebook was a 2006 page for Crest Whitestrips, which attracted 14,000 fans at its peak -- many apparently lured by free giveaways such as concert tickets. Out of Facebook's 130 million users that's not a rousing success.

That the Crest Whitestrips experiment left a funny taste in P&G's mouth was reinforced by the comments of a senior P&G marketing executive, who said, "I really don't want to buy any more banner ads in Facebook."

(The article also brought me a bit of deja vu when it described P&G's "America's Favorite Stains" campaign for Tide detergent on Facebook. This took me back to a meeting I participated in with P&G for Excite about 12 years ago, when they eagerly described their desire to have an online stain finder application on Excite -- an idea that as a product guardian made me feel a bit dirty. Apparently P&G persists in its noble quest to bring stain information to the world online. I felt vindicated to learn the Facebook version had attracted only 18 comments.)

There is further evidence of problems at Facebook when we consider the news that Facebook CFO Gideon Yu was in Dubai in October seeking to raise additional funding. Why Dubai? Because U.S. investors weren't interested at the proposed valuation, the reports said. And seemingly Dubai investors weren't either, as we've yet to learn of any recent new investment.

There was more bad news last week when it was reported that Facebook cancelled plans to allow employees to sell some of their shares at a $4 billion valuation. Why? Because potential purchasers were balking at the valuation.

It's not difficult to understand why this is happening. Facebook is the latest to apply the classic Silicon Valley model which says build a big audience first, and then figure out how to monetize it. Investors, meanwhile, pile on in hopes of enjoying a big payout once monetization happens.

But, oops, monetization looks like it's going to be very difficult on social networks such as Facebook. At least, it will be if it's dependent on advertising. Investors are looking for some evidence that Facebook is succeeding in leveraging its vast audience to generate advertising revenues, and so far the evidence is scant.

The many of us who use Facebook addictively can certainly attest to its value in our lives. However we can also probably attest to just how irrelevant advertising is to us on Facebook. That's Facebook's problem, and it's a huge one.

The solution? Start charging a premium for access to certain Facebook features. The basic Facebook membership would continue to be free, but enhancements would be extra. This might include photo and video storage beyond a certain limit, or sharing of certain data, or friends beyond a certain amount. I'm just guessing at the ideas. But given how essential Facebook has become for so many of us, it's easy to envision many users paying a monthly or annual fee for an enhanced membership.

At 130 million members, if 10 percent paid $5 per month for enhanced memberships, Facebook would be clearing $65 million per month or $780 million per year. There are other revenue streams to develop too.

That's not enough to justify an overly inflated valuation, but it's a pretty good start. And it's likely a lot better than they're going to do helping P&G teach young people about stains.

So watch this space. Subscription is increasingly the future, and Facebook will eventually join the bandwagon.

Worlds Have Collided

My old industry friend Len Muscarella has a bit of a grumble in his latest Interactive Media Associates newsletter about the increasing use of Facebook for networking by business colleagues.

Len was one of the pioneers of online media, having been one of the early executives at Prodigy, which in the early 1990s was one of the first and most cutting edge consumer online services. I worked with Len at Newsday when we brought him in to help us launch our own service on the Prodigy network. Len has seen more trends in his career then most of us ever will.

 

I understand where Len is coming from, but I think the cat is out of the bag on this one. The days are over when we could compartmentalize our business and personal lives, as if they were separate personae.

(I can't help but recall the Seinfeld episode in which George Costanza's fiancé meets his friends for the first time. "Worlds have collided!!" he shrieks.)

In today's world it's all out there, if we choose to use these services. And if we don't, we're left behind. So we've got to put it out there.

That's why I know that last night a leading venture capitalist went to a particular concert, or that a prospective employee recently had a new baby.

For some people this might be too much, and it does take some getting used to at first. But actually, it's not so bad to know you're doing business with a real person, with their highs and lows, joys and heartaches -- rather than an empty suit.

Now this doesn't mean that we must lose control of our public image. If you post photos on Facebook of yourself incomprehensibly drunk, or leering at members of the opposite sex -- well then you're stupid. Or maybe that's you. And maybe people will not want to do business with that person.

But if you want people to know who you really are, and what excites and inspires you, or where you come from, then Facebook is a great place to do it. You might find some common ground that you didn't know existed. You'll be human. And after all, we're all humans doing business with other humans.

Oodle Gets Facebook Classifieds

Oodle announced today that it will take over the running of Facebook Classifieds, adding to its roster of deals which includes MySpace as well.

This is a great move for Oodle, founded by some of my ex-Excite colleagues including CEO Craig Donato.

It's also an acknowledgement by Facebook that it cannot do everything and expect to do it well. Rather than run its own classifieds service, it outsources to a specialist. What they give up in revenue sharing they should make up in increased activity.

This is especially true for classifieds which depends for success on having a critical mass of listings. A neutral player, aggregating listings across multiple networks, will have a more robust database than individual networks would have if they took the silo approach and built it themselves.

But even in general it always seems to take forever for the big network players to come around to realize they'd often be better off outsourcing than owning. Again and again their impulse is to own and control it all.

So suddenly you have telco executives who fancy themselves to be content programmers or advertising salespeople. Or you have social networking sites who think they can do classifieds. Or mobile operators who think they can run a "walled garden" portal that will somehow satisfy their surfers.

We already own the customer relationship, the logic goes. We already own the billing relationship. So let's extend it by giving them great programming. And why share revenues -- let's just do it ourselves.

Often years and millions of dollars later, they finally realize that outsourcing to specialists is not a bad idea. Of course, at many of these companies there is no collective memory to learn from as executives get moved from one position to the next, never able to apply learnings. So someone else comes along and makes the same mistakes again.

At least Facebook has a bit of Silicon Valley culture, which typically means a willingness and ability to learn lessons more readily and adapt more quickly. Probably this has not been a costly lesson for them to learn. The Oodle deal now provides some upside opportunity.

The challenge now for Oodle is to generate enough activity to make its classifieds database broad and robust enough in an increasingly fragmented classifieds marketplace. But certainly, landing some of the prime beachfront real estate, on Facebook and MySpace, is going to help.