If you have ever maintained a swimming pool you’ll know pool water chemistry is very much a balancing act. Companies who offer free products and services, such as Facebook and Google, have a similar balance to maintain between their customers and their members (or users). Favorable adjustments on one side of the relationship can have negative impacts on the other. Finding the right balance is paramount to establishing the correct environment (for engagement and activity in Facebook’s case) and yielding returns.
A symbiotic relationship forms in these business models – the customers pay the bills providing users with free access to the products and services. In other words without customers there are no users and without users there are no customers. Simple?
Short-term gains or long-term vision
The management of this symbiotic relationship is a skill often overlooked or misjudged. It is a skill which I’m willing to bet consumes a large proportion of management time in companies employing this model. It is a skill that when developed, becomes a significant strength to the organization. The environment or model forces the hand, and the skill allows these companies to address issues and complex problems. The net result – balanced chemistry. Facebook has made mistakes, some arguably as recently as this week such as the email switcheroo, however overall the company has proven themselves here where many companies fail.
Upsetting the balance is easy and can be done in seconds, for example:
Customer: “What we really want is more impactful ads.”
Sales rep: “OK, how about an ad which takes over the screen for 15 seconds.”
And so the infamous interstitial ad is born – loved by marketers and the sales team who sells them, hated by users (interesting post by Michael Arrington). In fact we heard a similar case earlier this year as General Motors famously announced, just days before the IPO, that it would no longer advertise on Facebook. Turning down a million dollar customer is not a decision made lightly. These decisions undoubtedly come from the top and sacrifice short-term gains for long-term vision.
When a balanced solution is achieved both constituents win. You may remember at some point last year Facebook introduced narrative text in user profiles. Something along the lines of,
“I work at __________, and went to school at _________. I was born on, ____________ and live in __________ , __________.”
To the user this is a no-brainer for update, it’s useful information to share and requested in a non-intrusive way. To the customer, its valuable demographic information which no doubt sizably improved Facebook’s targeting segments. A perfect balance – customers are able to target more users, while the user experience is improved through better targeted services and ads while not being interrupted with 5 new fields added into the registration process for example.
Applying the chemistry to mobile
It’s been well documented Facebook needs a solution to monetize mobile – they cited it themselves in their SEC filing. We should congratulate Facebook and honor their skill in ‘maintaining the balance’ to this point as the very reason you do not see banner ads in their mobile app.
As a leading player in the web, Facebook is at the bleeding edge of technology and user experience. With over 900m active users (as of March 2012) Facebook has significant influence – meaning when Facebook makes a move many other web properties and sites follow. We have seen this as news feeds, messaging, navigation, simplified registration, like / vote up, buttons and styles etc. all take steps towards becoming standards.
The advertising industry has established standards – from billboards to newspapers and magazines, to websites and now mobile (both governed by the IAB). The agencies have great fun and deliver some wonderfully creative campaigns within these guidelines – note the McDonalds sundial billboard below which points out the appropriate sandwich based on the time of day… The difference here is that Facebook is rejecting these advertising standards as they don’t take into account the symbiotic relationship – they upset the chemistry and therefore threaten the business model.
Facebook never bought into the traditional banner advertising units for the desktop UI. In 2006, Zuckerberg famously turned down $1m from Sprites ad agency to make the entire homepage green for one day. In addition when ironing out the Microsoft deal to use its ad sales network to represent Facebook’s ad inventory; according to one Microsoft negotiator,
“Mark was adamant about preserving the user experience and the layout. It drove our ad people crazy because it made it very hard to deliver standard Internet ad units.”
The BBC News iPhone App (shown above right) is a great example where the user experience is distracted by a banner ad running across the screen – worse still the advertisement is untargeted adding little-to-no value.
The fact Facebook makes these decisions every day, positions it well to deliver a solution to monetize mobile in a balanced and non-intrusive way. They have the ‘skill’, the resources, the experience, the motive and the influence to find and establish alternatives. What they need is to find the balance – ongoing success depends on it.