Pining for Profit: Facebook

Introduction
Facebook is hotter than Phoenix in July, but more users mean larger infrastructure
requirements, which cost money. User interface redesigns cost money. Employees cost
money. When the venture capital runs out, where's the money coming from?

In November, 2008, Facebook made a $500 Million offer to purchase Twitter, which the
latter declined. What fascinates this observer, as he's stated to every group who has
hosted him since, is that this attempted purchase and developing rivalry is between
two companies that (probably) have yet to earn a penny of profit (both are private
entities and do not disclose earnings) or show a model by which they transform the
increasing popularity of social media to a consistent and sustainable revenue stream.


Show Me the Money
A few weeks ago, at http://twitter.com/mikehanbery, I posted a Charles Cooper article
(http://news.cnet.com/8301-17939_109-10184856-2.html) about a proposal Facebook has
received, and which has led to a(nother) protest movement within Facebook, wherein
users are voicing displeasure with the notion of paying for the service. As the
article states, with 200 million users, even a $1 per year subscription fee would
provide a kickin' chunk of change. That said, Facebook has promised not to pursue it.
Facebook's revenues are drawn from the ads it wisely places noticeably but relatively
innocuously, on the right side of the page and in peripheral view of the user. Do
they work? The short answer is, historically, no
(http://gawker.com/tech/advertising/facebook-consistently-the-worst-performing-site-24
2234.php). $400 Million is the high end estimate of Facebook's 2008 revenues, $250
Million the low. These figures taken against the 200 million user figure place revenue
per user in the $1.25 to $2.00 range. That's 2 bucks per user...per year. So
Microsoft, Facebook's principal benefactor, values the site at $15 billion? Well, it
wouldn't be the first time they knew something we didn't.

The Facebook demographic is rapidly growing older, which means more purchasing power
for the overall base. Kudos to the site for pursuing an innovative "engagement"
formats for ads, which the New York Times explains in an article today:

Facebook’s approach is to invite advertisers to join in the conversation. New
“engagement” ads ask users to become fans of products and companies — sometimes with the promise of discounts. If a person gives in, that commercial allegiance is then
broadcast to all of the person’s friends on the site
(http://www.nytimes.com/2009/03/29/technology/internet/29face.html?_r=1).

What's so very cool about this approach is that it maintains the balance of
unobtrusiveness for the user with indiscreet positioning for the advertiser while emphasizing
interactive Web 2.0 functionality. Working against it is the aforementioned poor
performance record of social networking ads and that the vast majority of social media
content is created by a whopping nine percent of its population
(http://www.useit.com/alertbox/participation_inequality.html). This means that the
range for Facebook's annual revenue per active user is (again, probably) somewhere
between $13.89 and $22.22. Still a small sum, yes, but an indication that the
aforementioned $2/user/year figure may be off by as much or more than one thousand percent, and consequently that Facebook's goals should shift from user acquisition to user engagement, i.e. converting the 90 percent of the inactive or observant population--"lurkers"--to contributors. In fact, given Facebook's probable high level of operational expenses and the large amount of debt it continues to accumulate (http://www.businessweek.com/technology/content/mar2009/tc20090326_604141.htm), let's change that "shift from," in the last sentence to "expand to include."

Conclusion
Why does this matter? Because the mighty have fallen and taken a piece of us in the process; just ask anyone with Lehman stock. Facebook can't be a loss leader forever, especially as it operates in the aura of its younger rival, Twitter. What's the solution? Try this on: You are. Your public profile (aka "Page"), your ads, in fact all of your efforts will be successful to the extent that you as a user can bring active users to your network...your Facebook network.


Preview
Kickin' Twitter in the next post. They don't even sell ads and they gotta feed the monkey like the rest of us.


About the Blogger
Mike Hanbery (http://www.linkedin.com/in/mikehanbery) is an Executive MBA with 20
years of experience in marketing and media at the national and local level for
startups to Fortune 500. His company, Hanbery & Hanbery, Inc. (http://www.hanbery.com)
works with small nonprofit and for profit businesses in accounting, business
development and marketing. Mike speaks on, trains, designs and implements social media
strategies and is co-author of a book due in April, 2009: Connect and Contribute:
Creating a Social Business.

Startups: Sense and Social Media

If you're a small startup with nothing existing in the way of marketing collateral and we meet, it's quite possibly you'll hear this--much of it you already know:





Sense

First, get a website. Go buy your domain name right now (See? You knew that).

Next, consult with a designer on your website. In fact, consult with at least three. If you're a startup who has engaged a marketing consultant/strategist/"swift kicker" and s/he hasn't offered to do this for you, speak to at least two more marketing...people. It's good practice to get at least three bids on just about anything, so take the time to comparison shop. While it's entirely possible that your consultant is recommending a specific vendor for very good reasons, you are completely entitled to know how and why this conclusion was reached for you...unless you're exactly the same as the last guy. You're not. What were the other, "next best" options and what are the differentiators?

There are lots of free and low-cost services available on the 'net that allow you to build your own site. There are also designers that work with these programs that can apply their expertise and pass along the cost savings associated with the simpler program, which may be all you need. If you go with the free stuff, it's going to look like free stuff. This is to say, your site will look either a) like any number of other sites out there that just used the same template or b) terrible because you are not an expert in website design. Especially if your website is a chief portal and absolutely if it is a point of sale, doing it yourself could prove disastrous. And there's this whole SEO thing...if you don't know, ask an expert (see above).

Social Media

Then get yourself a Page, or Public Profile, or whatever they're calling it this week, on Facebook. Why? My favorite (true) story about talking to a startup prospect who was opening a home security business has me going through the above conversation, nearly verbatim, and then telling him that his business needed a Page and a Group on Facebook. Why both?

The Page

My principal value proposition for putting businesses on Facebook Pages is that, "If you are a business with customers, you're engaged with social media whether you want to be or not." Case in point: A prior post of this blog contradicted a BusinessWeek article. I "tagged" the author--figured I'd be open about it--and she responded, including a link to her Twitter page, which of course I dutifully visited. Well, actually it wasn't "duty," it was that even if we disagree, I obviously could learn from this person. But when I got there, I found a page full of nothing but complaints about two things: 1) the weather and 2) a vendor. There were lots of re-tweets and @thisandthats complaining about this vendor. So I really couldn't "follow" her, because I don't have time for that, but the real point is, her vendor was missing out on the conversation...not present in the first person, only in the third. Thus the clarifying sentence of same value proposition, "If you give your customers a place to talk about you, they might give you the opportunity to participate in the conversation."

Someone who says it differently (better? Quite possibly.) is Reid Carr in a March 19, 2009, iMedia article, Build a Social Media Plan That Never Sleeps. "The more accessible you are to your customers than your competitors," Reid says, "the more likely it is that you're going to be a part of your customers' lives." Here's a link to the very kickin' article: http://www.imediaconnection.com/content/22398.asp

The Page is the place to overtly "be" your business. Your brand, your value proposition, your customer interface. I think a majority of Social Media wonks would agree with this.

The Group

I may well be outside the majority of said wonks about the use of a Facebook Group...and I hope this sparks some discussion. My take on sustainable, value-adding, effective, "netiquette"-friendly use of the Group for business is to raise awareness of the need that your product or service fills. So, the home security company would lead discussions on, for example, tips that make your home more secure, e.g. always close your garage door, put your lamps on timers. Don't push your product here, push the need and demonstrate your expertise.

Back to the Prospect

"I'll never do that Facebook stuff," he said. "I spent the last two months observing behaviors in my old company, looking for people I might eventually want to recruit, and everywhere I looked I saw Facebook on people's terminals instead of their work."

Two things here: First, he's right, if you're taking the Which 70's Child Celebrity Are You? quiz on Facebook in the middle of the workday, you're a prime and deserving candidate for unemployment. Second, he just told me, in his objection, exactly why he needed to be on Facebook...because whether it's right, whether we like it or not, that's where the eyeballs are.

And brother, it doesn't cost a dime.

And There's More

Facebook isn't for absolutely everyone but almost every business should research opportunities for, and think hard about, a social media strategy. Components of this strategy include effective time management, driving traffic among your online vehicles and much more. It's too much for a single blog so a partner and I are putting it in a kickin' book you'll read swiftly and use as a resource forever: Connect and Contribute: Creating a Social Business, coming soon. Real soon.

Now, don't wait for C&C to get your website professionally done or to get yourself on Facebook. Go ahead and test the waters, experiment. Don't do anything you wouldn't do in front of your mother and you'll be fine. Then when you have some experience and familiarity with the battlefield, your strategy mapped out and your tactics in place, you'll be kicking serious swift.

Anthropology, Social Media and Old People

We social media wonks talk a lot of stats anymore. We talk usage and stats, and stats that indicate usage.

We've all heard by this point that Facebook is growing more popular among older people and professionals. Here it is in a cute article by Lev Grossman in Time Magazine last month: http://www.time.com/time/magazine/article/0,9171,1879169,00.html. Here it is in more traditional reporting style by Sharon Gaudin of ComputerWorld last Friday: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9129652&intsrc=news_ts_head. As one would guess, young people hate it when old people show up at the party because now you have to act like you can hold your liquor. I thought blogging whippersnapper Josh Visser summed up the chagrin pretty well here: http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20090313/facebook_bore_090315/20090315?hub=TopStories.

There's more. Is Facebook going to kill email? Reuters http://www.reuters.com/article/newsOne/idUSTRE52A6E420090311 says that's the trend. Small wonder, given all the functionality and instantaneous feedback Facebook offers and the fact that our love/hate relationship with email has been gaining steam for years.

Now, this isn't happening tomorrow. I recently attended a webinar hosted by Compendium's Chris Baggot wherein he showed compelling statistics that search and email remain, by far, the two largest components of web use. And for what it's worth I don't think email disappears, I just think it changes. How it might change is probably good fodder for a future blog post (note to self...).

Just like Facebook isn't turning into an old folks home tomorrow--but there's no denying the trend. Especially because so many of us old folks are crazy for free networking opportunities and/or out of work right now...and, of course, the first rule of finding a new job is telling everybody that you are looking for a job and reminding them of how wonderful and professional you are...and there's noplace better to do that right now than Facebook.

So a March, 2009, McKinsey Quarterly article http://www.mckinseyquarterly.com/Organization/Talent/When_job_seekers_invade_Facebook_2317 has had me noodling this in a bit of a different way all weekend. I can understand how it made sense to these young folk that we treacherous elders would camp out on LinkedIn, where we type in acronyms about things that fascinate us, like "ROI" and "CRM," and leave them Facebook to exchange concert reviews and post pictures of keggers and cleavage. "An important question," the article states," is whether the values and codes of conduct specific to the virtual world will come into conflict with real-world values and norms."

OK...what's ruining the ride for the Sigma Chi set is the fact that we old folks actually like each other on a personal level, too, and many of us actively seek more than a transactional relationship with our business partners. I want people to know that, for example, I'm a University of Denver alum and a big Pioneer hockey fan. Great icebreaker material, and the fact is that while I'm serious about my business, I'm not always a real serious person. I can talk about stuff other than work, every now and then I probably will, I want people to know that and the dress code at LinkedIn is too stuffy for all that. Facebook provides both the strangeness of balancing and blending personal and professional...For example, within the past 5 days I've stopped allowing one of my old buddies to post on my "wall" because his stuff is often profane (but always funny, so I'll miss him) and joyfully regained contact with about a dozen old friends and neighbors with whom I'd lost track. If you read the linked articles, you'll see three different references to how we can't maintain stable social relationships with more than 150 people. First, I don't think that takes social media into account; Second, define "stable" and "social" in 2009; Third, OK, yeah, I won't maintain close contact with all these folks but I like knowing that NeebruM is playing this weekend in Missouri, that Tim's kid is out of the hospital and that Diane wants to have coffee next week to discuss business.

Now, those are real-world values and norms. It's normal that I love the fact my friend Chris plays in a jam band, that Tim knows he's connected to a bunch of people who care about his kid and that I love coffee almost as much as I love what I do for a living. We cry out when inappropriate pictures get posted on MySpace or sent around on cell phones because they're inappropriate and often dangerous--contrary to our values, not the "norm." Old people interjecting themselves into young people's stuff because things are inappropriate, dangerous or fun? That's been going on for as long as there have been old people.

Social Media as an industry is in its introduction phase, moving into growth. Making your own social network is pretty darned easy to do...so if you're desperate to post your keggers and cleavage on the internet you'll find a way and a place. And the risk? Pshaw. You're already used to your mom saying, "I told you so..." Didn't cost Michael Phelps anything, right?

The Future of Facebook

This blog is not sponsored.

Last week, I had a conversation about Facebook for business with two Denver area business activists, one of whom was Todd Morrissette, Vice President of Business Development for Corossol Software. Todd's vision of Facebook as a business tool was so compelling and interesting that I asked him to be interviewed for this blog. Todd responded with a complete article so eloquent that I have decided to publish it here in its entirety. I can get kicked pretty swiftly, myself.

Corossol Software specializes in developing software applications for small and medium size businesses. Corossol's latest product is Centreboard, an online document management solution that assists companies with automating their business processes. Its goal is to provide an enterprise software solution without enterprise software costs. For more information, please visit www.corossolsoftware.com or contact Todd at todd.morrissette@corossolsoftware.com.

It is from this perspective that Todd offers his views about Facebook as a business tool. I hope you find it as kickin' as I do:

Facebook in its current form is a social networking tool. It was not developed for business, but for personal use by individuals. However, as we have seen over and over, tools developed for one group is often used by another. Typically, tools for business have been adopted for personal use such as cellular phones and email. Facebook is having the trend move the other way. Businesses are now trying to determine how to best benefit from the Facebook phenomenon. The reason businesses are adopting Facebook is because, unlike its social networking predecessors such as My Space, Facebook is being used by a larger demographic, not just teenagers. Since Facebook is being accepted by such a diverse group, businesses are taking notice and are trying to see how they can most benefit by adopting the application.

Currently, we are seeing businesses start to use Facebook as a marketing tool to communicate their name and brief descriptions about themselves. This is being done by creating “Fan” pages. Once users become “Fans” of the company’s page, the company can then direct market to those individuals by posting information on the page or sending emails to the individuals. In order to take it a step further, companies can create groups for people to join. Groups allow companies to find “like minded” people and then direct market to them. Here is an example of an organization using a group to its advantage:

A company that prepares tax returns for individuals creates a group called “Doing Taxes Stinks”. Several people may join this group for many reasons, such as they agree, they think it’s funny, or perhaps because a friend joined. The group starts to grow and grow using the 6 degrees of separation theory. Soon the group is over 200 strong. Now the tax company has the names of 200 users who think doing taxes is not fun and they can now market directly to these users through the group page.

More importantly is where the future of Facebook will take us. Facebook is already making changes to fit the needs of businesses by trying to outline how a business can create a Fan page or Groups.

I believe Facebook will eventually become a collaboration tool businesses can use to bring people in remote locations together- virtually. Businesses will be able to create “internal groups” where project team members can provide status updates, schedule meetings (events), post messages to the team and post documents to be shared by the team. This will be an application a business can easily introduce to their employees because their employees are already familiar with the tool. Furthermore, their users enjoy going to Facebook and do it frequently. Employees will not be as reluctant to adapt to the change and the application will be accepted more.

Once again we are seeing how the internet is providing a change to how we do business. With the new social networking websites, individuals are able to communicate with one another like never before. Communication is frequently listed as a major issue in companies, by both employees and management. Facebook, as well as other social networking websites, offers another option for people to communicate. Today, Facebook users are able to share their thoughts and communicate easily to masses. Likewise, users are able to filter who they want to hear from. In the near future, the same will be done within organizations who seek creative solutions to their historical issues.

Swift Kickin' Rebuttal: "Debunking Six Social Media Myths"

Prologue

The title and tone change now, because I decide these things. This blog is not sponsored (more's the pity).

Swift Kickin' Intro

This week: A return to Social Media. I'm a little fired up thanks to reading an article, "Debunking Six Social Media Myths" by B.L. Ochman, BusinessWeek, February 19, 2009, http://www.businessweek.com/technology/content/feb2009/tc20090218_335887.htm.

I thought about simply Tweeting this article, just to gain an honest reaction, but upon a second read I've decided I think it may discount small business entirely. I love discounts but hate being discounted. Therefore, I think it deserves a swift kick. Here 'tis.

Ochman's Myth #1: "Social media is cheap, if not free."

Summary: The tools are free but you need $50K to use them effectively.

Rebuttal: See Ochman's Myth #3, below, wherein she states of her own experience, "...with not one dollar spent on advertising, we were able to generate...traffic in our first three days..." Ochman's success speaks to the importance of having a clear strategy in regard to use of and participation in the medium, which is true regardless of milieu.

Most small businesses don't have $50K for any single marketing plan component. Goals, strategies and expectations must take this into account. Accounts and useage of Facebook, Linked In, Blogspot and Twitter cost zero dollars. Double that to add a Facebook Page and a Group to stimulate needs awareness. Total cash flow? Zero.

Ochman's Myth #2: "Anyone can do it."

Summary: Very few "experts" have proven track records, and examples of failures abound.
Rebuttal: The medium is dynamic, changing right now, as you read this. Did you see that? It just changed again. My favorite failure: Do a Google search for "rahodeb," and read the sad story of John Mackey. Burger King's "unfriending" Facebook promotion was a bomb...but they tried. If you're not in business to take risks, get out of business. If you're using social media to manipulate and deceive, get out of business.

"Track record" depends on differing goals of differing initiatives. In the most quantitative sense, establishing one remains nebulous vis-a-vis social media (see Ochman's Myth #6, below).

The tools are painfully easy to use. For those with the ability to read plain English, instructional knowledge is a Google search away. Are you more comfortable with a trainer? Here's an upcoming bargain in the Denver area: http://www.denverdataman.com/content/march-social-networking-seminar-series. Still can't do it after all that? Um...maybe you're not "anyone."

Ochman's Myth #3: "You can make a big splash in a short time."

Summary: Unless you already have a large market presence, gaining large awareness using social media is going to take a while, if it ever happens.

Rebuttal: You can engage in line with your brand. My friends at Experience Pros (http://www.experiencepros.com/) have taken to this stuff like fish to water, and the fact that they haven't been targeted for acquisition or elimination by a Madison Avenue agency factors not one iota into their evaluation of social media.

Not all "big splashes" are national. You can raise awareness within a particular demographic or geographic community. Say, for example, the one in which you do business...

Ochman's Myth #4: "You can do it all in-house."

Summary: Few in-house teams have the full gamut of experience to incorporate social media into a full-fledged marketing campaign, and to manage it effectively thereafter.

Rebuttal: If you're a small business, you or your brother-in-law is probably the in-house marketing team, so...OK she's right on "all," but you can get started and experiment. You can build a Facebook Page. You can put a profile on Meetup.com and join groups that can help you network appropriately. You are intelligent and savvy enough to do this. You got a business of the ground, didn't you? This is a walk in the park, comparatively. Small businesses shouldn't
do anything "all in-house" except for those few, core things they do best. Where's a great place to find, communicate with and evaluate potential partners? Social media.

Ochman's Myth #5: "If you do something great, people will find it."

Summary: You need to drive traffic to your social media efforts in order to get people to notice them.

Rebuttal: Is Ochman's underlying assumption that your use of a social network is an end of itself? I don't know. One of the appeals of existing social networks is the ability they provide to promote something wonderful you've done...your shop, product or service, for example. No marketing tactic stands effectively on its own. Here, right out of Facebook for Dummies, are some ways to drive traffic to your social media site...stop if you've read them before,
pertaining to some other medium or marketing tactic or anything else:

• Email people
• Talk to people
• Put a link on your website
• Put a sign in your store
• Use the tools available within the social network where you've built your microsite.

If you're not employing these tactics to raise awareness about everything you do anyway, that breeze you keep feeling is your competition passing you.

Ochman's Myth #6: "You can't measure social media marketing results."

Summary: Mentions, comments and click-throughs provide ready measurement criteria.

Rebuttal: You tell me how mentions and click-throughs equal sales and I'll recant this whole article. Ochman is measuring use, not results. If, in order to justify the hour or less it takes to build a Facebook Page, for example, you need tangible ROI, then social media will fail your test...today. That said, given the low barrier to entry and easily-reached ancillary goals available, it is inadvisable to wait until all the metrics are figured out to get started. Plant your flag, befriend the natives, become knowledgeable of the customs, participate, gain some "street cred"...and when and if your research reveals YOUR particular path to profit using social media, activate that plan on a battlefield with which you are now familiar.

Swift Kickin' Conclusion

You need an hour, some knowledge and a plan. You don't need $50K. If you're in small business and listening to the social media naysayers, you're getting your..."swift"...kicked.