Facebook Chemistry

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.

Chemical balance
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.


Image credits: Facebook office: flickr/pshab. McDonalds billboard: dsgnwrld. IAB display unit sizes: Wikipedia.

One Continuous Groove – A Solution For Mobile Payments

As American Express promotes Serve (its digital pre-paid account), Google opens its ‘Wallet’, and PayPal rolls out in-store payments – it would appear, at least for now, we’re in for a clunky ride with mobile payments. The reluctance of players to make a bold move leaves the space wide open. Ultimately the one who provides an integrated service will win and most likely cause significant disruption to the mobile and financial services industries. This could come in the form of a mobile operator, such as AT&T, offering credit lines to customers – luring them with discounted rates and a single consolidated monthly statement. Certainly this should be a threat credit card companies are considering. Perhaps a credit card company will make a pre-emptive strike for a mobile operator? Will Apple evolve the checkout experience using the iPhone 5 paired with Near Field Communication (NFC) and your iTunes account? Will Google leverage its Android platform or will Amazon offer an alternative payment method. Perhaps we’ll see the network effects of the Virgin group come into play as Mobile Virtual Network Operator (MVNO) Virgin Mobile leverages the Virgin Money division to offer a seamless experience. The point –  mobile payments are going to radically change the financial services industry forever as consumers will drive the change.

Behaviors and the value-chain
Similar to how Apple reinvented how we collect, store and play music; the opportunity exists for mobile payments to create a paradigm shift in our behavior. By removing the ‘wallet’ part from the daily ritual of wallet, keys and phone – mobile payments have the potential to replace the need to carry cash / credit cards and provide us with additional benefits such as a consolidated monthly statement. This alone cannot be overstated.

The behaviors of today will be replaced tomorrow. I experienced this first hand last year after walking into the conference room to start my weekly team meeting. A younger member of the team had just announced the fact vinyl records have a continuous groove that runs from the outside to the inside. To my surprise, there were several people in the room who found this fascinating. To people who were brought up with digital music formats it was a factoid – something they may not have even bothered to think about not ever having used or perhaps even touched vinyl.

Gone are the days of going to record stores, humming a recently heard tune to the amusement of the people who work there or thumbing through thousands of vinyl records. Now that behavior is replaced by devices such as the iPhone, apps such as Shazam and iTunes and 3G+ networks. There is an entire value chain making this possible.

Mobile device –> App –> Network provider –> Cloud service –> iTunes –> Payment provider

Apple had the device and subsequently realized a vital link in the chain was missing – the music store; so they stepped in and filled the gap with iTunes.

Good-bye wallet
It won’t be long before apps are able to replace keys – to open and start a car, to open and lock doors. (I recall many moons ago at university researching technology which recognized the unique electronic signature within our bodies and using this to open doors.) As mobile payment technology matures, credit cards and cash will become increasingly unnecessary. So the 3 touch tap to check for wallet, keys and phone, becomes the 2 touch then the one touch – phone.

Mobile payment technologies remain in their infancy however the space is super hot. However current iterations of mobile payments such as Amex Serve, Google Wallet, Starbucks and eBay’s PayPal all fall short. Why? Because an integrated service simplifies the checkout process, and offers opportunity for value-added services such as loyalty card integration and social comparisons. Ultimately my desire is to have a single bill. Linked or pre-paid accounts and the funding of them, which can take between 1-5 days, is cumbersome and unable to meet my need of now – meaning the current solutions provide little value to me.

Players in the value chain have the opportunity to create one integrated experience. What would be exciting is being able to charge items I buy against my mobile phone bill for example – and at the end of the month receive a single combined credit card / mobile phone bill.

Two peas in a pod
If you think about the basic phone services provided by a mobile network provider such as AT&T and a credit card company such as American Express they are not far off. Each month mobile network providers issue bills to their customers for services used during the period. These services are heavily transaction and usage based. A credit card company also issues a monthly statement made up of transactions during the period.

In terms of systems, telco’s have perhaps the most advanced billing capabilities – offering itemized per second / bit based on services used and the reconciliation of any time spent roaming.

If we are able to charge to a single invoice, life would be easier / more convenient. Personally I’d be happy to see payment charges showing up on my mobile phone bill. In thinking through potential mass disruptions one possibility would be for a credit card company to buy up a telco. In the United States, AT&T recently gave up on its plans to acquire Deutsche Telecom’s T-Mobile USA. Perhaps this is an opportunity for American Express to muscle in on other components of the mobile payment value chain and in doing so offer value-added services, disrupt the competition and defend against the more likely possibility of telco’s offering financial services. MVNO Virgin Mobile is well positioned here certainly in the UK, South Africa and Australia where it has banking arms already established.

As consumers we’ve proven we like convenience, consistency and value. This is why people purchase albums – we are the needle on the record, the vinyl is the internet, the groove on the record represents integrated channels and the data in the grove is the content. Simply put whoever creates this experience will dominate mobile payments.

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[Image credit: visitsteve.com]