Milestone Group Quarterly: January 2008
Articles
Milestone POV:
What Facebook and Muhammad have in Common by Chris Kocher,
Milestone Group Principal
Last month, I had a chance to sit in on a digital media session at the Asia America MultiTechnology Association conference. The panel was led by Mark Stevens of Fenwick and West, who was masterful in teasing out some interesting tidbits from his panelists - Tim Kendall the Project Manager of Facebook's recently botched Beacon introduction, Yoon Lee of Samsung, David Richter of DivX and Chris Corvalho of Lucas Films.
Needless to say there were a variety of views represented, ranging from the cultural differences in the US and Asia, which help explain variations in consumer electronics adoption rates; to snarky remarks on how CES would once again be the year of the Digital Living Room - something that seems to be a continuously moving target.
Although I found some of these topics interesting, the best moments of insight came from Tim Kendall of Facebook. These provided a few key signposts of how we may see Facebook evolve as it attempts to monetize its 58 million users.
Tim kicked off with a relaxed apology for the Beacon privacy debacle, echoing some of the points made in the press recently by Mark Zuckerberg. As Kendall said in his mea culpa: "Beacon may go down as Facebook's biggest screw up." He said that he hoped this was the worst mistake they ever make, and that they certainly learned a lesson from it.
You might think this would have damaged Facebook, but so far it appears to be mostly a PR gaffe. As comScore Media Metrix recently reported, Facebook had 20 million visitors the week of Beacon’s announcement and 22 million for each of the two subsequent weeks. Visitors then rose to 25 million the week of November 25th.
A key point from Kendall was on how Facebook will evolve from a community site to a community that people can take with them as they travel the Web.
Kendall said (and I’m paraphrasing): Imagine for a minute that you’re a member of the Facebook community. You decide to go to Netflix to pick up a video (say, Tom Cruise in Top Gun). When you land at Netflix you identify yourself with a Facebook ID. Then, before you finalize your selection, you decide to see who else in your community has seen the film and what they think of it. Hmmm, more context, more relevance, more ad dollars. Repeat across multiple Web sites and presto, you have some serious incremental ad revenue.
So "If the mountain won't come to Muhammad, Muhammad must go to the mountain.” Or in Facebook’s case, if we can’t squeeze enough dollars out of our site alone, let’s take our revenue generation engine to the places where we can monetize the community to maximum effect.
In addition to this, Kendall touched on a few other strategic topics:
Partnering lite – Although Facebook may develop strategic partners, they want to scale their relationships as much as possible. They’ll encourage the community to build widgets and value added content, but they don’t want to have formal relationships with everyone. They may “check the terms of use” but see no need to “sign a deal.”
Presence is coming – Social commercialization is a big opportunity, and “presence is coming.” The ability to factor in a person’s location will increase communication (which of your friends are nearby) and offer improved ad targeting (what stores are nearby and what offers can be delivered). Clearly this has great potential with increases in mobile applications.
Although he claimed they had not done a lot of work on it, he believes “a whole bunch of new applications will come along” to exploit presence. As innovative as these are, there are other companies like AdYouNet that are developing newer approaches that will further improve advertising efficiency with even greater accuracy and relevance in reaching customers.
The power of the “Social Graph” – If word of mouth advertising from trusted referrals is the Holy Grail, then selling distribution to anyone on the ‘social graph’ is a huge opportunity. Kendall indicated that the relative performance of social advertisements was 2-4X as effective as ads without that context. (This actually seems low to me.) As a side note, there are other companies extending this idea further to even deeper contextual profiling, which can increase ad response rates a good deal more than 4x.
It’s all in the family now – Tim also hinted at some internal squabbles with Microsoft (their recent ad partner and investor). Some friction around controlling advertisements on the Facebook profile page is bubbling up.
To be openly social, or not to be - As expected, one of the audience members asked about Facebook’s reaction to Google’s Open Social initiative. After expressing concerns that the security standards were not as strong as they would like, he admitted they are “taking a really close look at it” and he “wouldn’t rule out joining Open Social.” Then with a little more prodding from Mark Stevens he indicated “we are looking at it and are in active dialog.”
All told, Facebook has some aggressive plans on the horizon. Two panelists validated some of these ideas. David Richter of DivX indicated he saw Facebook as being a good way to find things like identifying, accessing and showing videos. Chris Carvalho of Lucas Media went on to describe how they could imagine Yoda games and Star Wars trivia games on Facebook. Clearly these entertaining games and highly social activities on Facebook could be used to drive more traffic back to their sites.
Facebook will no doubt have a lot of followers as it continues to develop its ecosystem.. It’ll be interesting to see which ones stay with them and which fall by the wayside. Or which ones fracture out into different social networks as they all continue to evolve.
Let us know what you think.
Chris Kocher covers sales management, marketing and business development strategies for fast growth technology companies. His experience working at, and with, major technology brands has allowed him to complement his marketing expertise with a deep functional knowledge in enterprise software, Internet, eCommerce, CRM, SAAS, Supply Chain, MSPs, Security, Communications & Networking, Utilities, and Web Services
He also has functional experience in managing P&Ls, marketing, product management, engineering, QA, acquisitions, business development, joint ventures, M&A, channels/distribution, and OEM sales. During Chris’ 10 years at Hewlett-Packard, he defined and brought pioneering technologies to enterprise and mid-market companies including the first laser printer, HP's first office systems, its first PCs, in addition to developing programs for HP’s networking products and third party software programs.
While a vice president/general manager at Symantec with P&L responsibility, Chris grew his business unit from $12-25M and from 25-70 employees. He built a management consulting firm that accelerated revenues and valuations for over 60 companies. He has worked on portfolio companies with VC firms such as Kleiner Perkins, Redpoint, Mayfield, Trident, Vanguard, Red Rock, Viventures and Convergence.
Chris has an MBA from Columbia University and is well-versed in the needs of early stage companies, with respect to business strategy, fundraising, market positioning, sales channels, business models, technology acquisitions, sales and turn-arounds.
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