What Happens In Vegas Is Captured (And Sold) By Facebook

 

 

Editor’s Note: It’s been my  great privilege to get to know David Brudenell and his team at pureprofile over the past few months. We’ve had numerous conversations about the future of research, especially related to data privacy and “big data”. I consider David, along with pureprofile CEO Paul Chan, to be not just thought leaders, but pioneers in developing a new market research paradigm that synthesizes multiple research technologies and business models into a new holistic approach that may very well be the template for the future of the industry. So, when David asked me to review a paper he was working on I immediately asked if we could turn it into a post on GreenBook Blog. The issues that he raises and the vision he paints of a consumer-centric model of data ownership and value is very compelling. I think you’ll enjoy this one, and I know it will foster the continued debate on what market research may look like in the next decade.

 

By David Brudenell

This will be The Conversation over the next five years. It will be the central intersection between businesses and you. It’s because ‘your privacy’ is easily translated to ‘your data’. So the issue today, and over the next five years will not be ‘are you violating it?’, but rather, ‘what are you giving me for access to it?’.

Your Data on the Web

We’re in a connected world. Just think how many times you have not only filled in your credit card and billing information, but also how many times have you typed your name, interests, gender and a raft of other information into a form for a service on the web?

We are required to fill in these fields of information for a few reasons:

1. To protect your personal information. You need to confirm your billing address when making a purchase. This is one of the first and most simple ways of protecting you from credit card theft, for example.
2. Rapid advancements in cloud computing and storage is allowing companies to store more business data. This is only set to increase as data storage costs continue to drop at exponential rates. So if adding a few more columns of your data to a database table is marginal, why not capture that data.
3. There is no central profile storage for these businesses to validate you as well as personalize their products and services for you.
4. You willingly give it, without much thought about its value.

Now, before we get too far down the rabbit hole (or up on the soap-box per sé), I think it’s important to put how our personal data is stored in context:

Most people who are regularly online know that our data is ‘out there’; milling around in numerous servers. Now to be clear, I think that the way that data collected online and stored is pretty impressive. Routing personal data into secure servers with numerous levels of encryption is light years ahead of the dog-eared manila folders in your doctor’s office or the stack of receipts with your credit card information stuffed in a drawer at your local restaurant. I would be the first person to choose to have my data digitalized as I’ve seen, first hand the filing practices of restaurants and doctors surgeries.

So the key argument I believe is not how ‘secure’ your data is – every time you fill out a paper form you take a similar risk to typing it in an online page; it’s how immediately liquid your data becomes online and what you get for it – the value that is exchanged between the provider (you) and the receiver (the business).

Your health versus your privacy

In a doctor’s office, when you fill out that information form for the 14^th time, you are willingly providing that information for (hopefully) a better health experience. A doctor needs to know some of your physical and psychological information to make better diagnoses – it’s a straightforward value exchange where the risk in disclosure is greatly outweighed by the potential benefit of a better health outcome.

You have to fill it in each time you go because there is lower risk to ask you it again than try to transport it.

This is not the case with your other information on the web.

Some would say that the information you share with your doctor is far more sensitive than entering your details and favorite movies in your Netflix subscription.

But what if I told you that my entire Being-  all that was me – unique, totally personal and (potentially!) contained a lifetime of value was sitting in the database of a Web 2.0 company?

All that is Me – personal information and discovering immediate value

23andme.com is a Web 2.0 company that can economically sequence your DNA for you. You pay a fee, they send you a tube to spit in and then you FedEx it back to them. 3-6 weeks later you are granted access to a secure site where you can view your ancestry, propensity for particular diseases, genetic traits and a number of other features. You can see the full suite of products that they offer here.

I’m not going to go into detail on why I got my DNA sequenced other than that I have an educational background in the Natural Sciences and was just really impressed with the fact that I could get it done. But rather, I asked myself why I would actually willingly give the most personal information I had, or will ever have to a web start-up?

To be honest, I didn’t think much about the ramifications of giving access and trusting a business with my DNA. My decision to allow another business to access this information, trust it to ‘do no evil’^[1] and store it into perpetuity was made instantly when I could see, what made me, me.

Getting your DNA sequenced is not for everyone. But trading personal data for instant access to information and insight that I would not ever be able to afford to access is fair. I could understand why I had to pay $400 to get it done as it was a fraction of the traditional cost.

With 23andme the value exchange is straightforward.

Connecting to your friends online costs money

Similar to 23andme, Facebook is another business that collects large, albeit different, amounts of your personal information. At the recent f8 conference, it was announced that a new feature, Timeline will be released throughout October. One of the interesting features was that you are soon going to be able to ‘code’ your activities on Facebook (using marketing-speak, read: ‘stories’). You will soon be able to ‘listen’ to music, ‘read’ a particular type of book or ‘watch’ a movie (Conan the Barbarian in my case).

This is a incredibly smart move by Facebook as it allows them to take largely unstructured data, which requires costly indexing and natural language processing (NLP) make many more structured, lower-cost data sets offering valuable targeting opportunities for marketers.

The savvy team at Facebook knows too that their newsfeed, otherwise known as a very detailed personal profile, is one of the most valuable targeting assets that they have. By getting users to effectively self-code their data, Facebook will have the ability to offer advertisers new targeting criteria which will raise CPM rates and increase the overall yield per user.

When you think about Facebook having access to all of your day-to-day profile data, links to friends and the major milestones in your life, it can be a bit overwhelming.  But think about this: in exchange for your personal information Facebook provides you with the best, structured social service in the world, and indirectly to the best engineers and designers available.

By coding your Timeline/newsfeed, you can ‘plan’ a ‘holiday’ to ‘Sydney’ and in your timeline advertisers like airlines, hotels and travel agencies can put advertisements in your feed. With this example, one can make the logical assumption that Facebook is trying to move to a Google advertising scenario; where ads and content merge.

Today, it’s estimated that Facebook makes about $4.20  per year for your data (Average Revenue per User – ARPU). Multiply that by 800 million users and you can see how they can get five-Billion dollar valuations. By adding access into your newsfeed data through the timeline coding, it’s possible that Facebook can aim for a $20-$30 ARPU and justify even larger valuations.

Let’s not forget too some of the other great services that Facebook offers – namely by moving to offer full HD photo storage on the platform. How much of that Facebook revenue bar in the above graphic do you think is dedicated to simply paying for the storage of your pictures? I’m betting quite a lot.

So in exchange for all of these social features, you give Facebook access to your personal information which they group and sell to brands who put ads on your pages. Facebook has become a fantastic, free service which is now in a search for an exciting business model.

You have exabytes of personal data, and I still see banner ads?

So it’s clear that you need Facebook to socialize online with your friends and Facebook needs your data to offer to brands to advertise to. But what’s not clear, is why we still get ads down the right hand side of our Facebook pages.

You can see in a screenshot of my Facebook account, the ad-model is basic. It’s not any different from Yahoo! in 1998, where banner advertising began.

I believe that with the addition of the timeline, the ad-supported user experience will improve dramatically. It’s unlikely however, that Facebook will remove the traditional ad units that exist today as timeline ads will add additional, higher yield revenue opportunities on top of the current platform. So for awhile we’re going tolerate increased advertising in our social networking experience.

What’s interesting is that merging ad units into your Timeline is still not in-line with the enormous amounts of personal data that you are putting into your Facebook page.

What if Facebook cost $10 per year. Would you pay?

This is one of the interesting questions that is not typically associated with the privacy and personal data argument. As you can see from the above SAI chart, it’s estimated that Facebook earns $4.20 from your data per year. All information points to the fact that Facebook is delivering all of its social networking services profitably.

Now for any commercial business, earning a profit is a necessary outcome. Without taking us back to our Business 101, a business has shareholders whom are entitled to a reasonable return over time for investing in the company. However in some cases, a company is able to dominate a market and earn super profits for their activities. Google is a good example of this.

With superior technology and leadership, Google has grown into one of the most successful companies in the world. They hold a dominating position in the search advertising space and with good product they are able to deliver super profits for their business. Traditionally, these profits are delivered to shareholders, however (amongst other factors), Google has decided not to release dividends to investors. This results in high cash flow and affords Google the ability to invest in opportunities outside of their core business through their venture arm Google Ventures.

Now I’m not going to comment about how and why Google selects their investments; there are many smart people at Google and if anything their track record affords them some deep consideration. What if though,  in exchange for a more active role in providing data, the user was entitled to part of that super profit? Or conversely, what if the Google service cost $50 per year. Would you pay it?

If we lived in a world where Google was a paid-for service, these super profits would largely disappear and would instead be allocated (partly) to the users of the service in exchange for their attention. A similar scenario would exist if you paid $10 for a annual subscription to Facebook. I could even see a similar referral model to dropbox being employed.

I don’t think that these two questions will be answered anytime soon. At pureprofile we have been perusing this question for almost a decade. The key take away is that there are alternatives to how we are interacting with many of our favorite online services today and that the large amounts of personal data that is moving around may be the key intersection point for linking you to more advanced advertising models. After all, we all buy products and services, and with our personal profiles driving the individual demand for these through a online profile database, we can finally take the leap beyond the ad-banner.

It’s about working together to both get more

As the 800 million people on Facebook quickly grow past a Billion and the service becomes an institution woven into the daily rhythms of our lives, consumers are going to start to look at their data differently.

Our lives are more public every day. Services like Facebook and Google are free for the simple reason that they on-sell your attention and find you through your profile data. Barring a total revolt on social networking and web neutrality in the near future, our online experiences (vis a vié data, vis a vié privacy) will continue to change.

So why not grasp it? Take control of your data and instead of complaining about how it is being misused or misappropriated, start a conversation around it. With an empowered profile you can reverse-the-search and have Google bring search results based on what your looking for, or have Facebook pay you for accessing your data to put relevant products and services in your timeline.