Facebook | Paul Wallbank - Communications Professional

The allure of free data

It’s user generated, but is it worthwhile.

It looks like a nice business model, you get users to generate your content for you. Many of the new digital media empires like YouTube, Facebook and Foursquare are built upon it.

The Register’s Simon Sharwood looked at the downside of this business model – junk data.

Even the most well intentioned users makes mistakes with thing like addresses and that’s before you get mischief makers or competitors putting in false information.

There’s another aspect too, what one person thinks is relevant may not be to other users or to the people running the service, Simon cites the dozens of “mom’s kitchens” on Foursquare.

For those who’ve added their mom’s house, that’s relevant and maybe even funny to them.

All of this illustrates the downside to the free, User Generated Content (UGC) model; you have to accept what the users give you.

Which means it isn’t free – it has to be collated, processed and the noise has to be filtered out.

At worst, somebody has to make the decision what is relevant and what has to go. This isn’t easy and, as Google found with their Name Wars, can upset a lot of users if it isn’t handled well.

Nothing in life is truly free and with data becoming increasingly important to business it’s worthwhile considering the quality of that free or cheap stuff you get from the net.

Scammed

Social media opens up new opportunities for conmen

“Executive-level income without leaving home” claims the Facebook page, a sign at the end of my street promises a six figure wage from your own computer and one of the lead stories in this morning’s news is the tale of retirees being ripped off by ‘boiler rooms’ offering high return ‘investments’.

We all believe we have the right to be rich so the quick, easy option and the promises of those that say we can be wealthy by simply handing over a modest amount of money or trusting our investments to someone else is a tempting offer.

Deep down we know we’re being scammed.

Right now nations are on the verge of collapse because politicians promised easy wealth, corporations skirt bankruptcy because executives were entitled to bonuses regardless of performance and in the suburbs desperate people clinging to the middle class lifestyle they believed was theirs by birthright fall for get rich quick scams.

Just as the railways opened up opportunities for snake oil merchants in the 1850s and cheap telephone systems gave rise to the boiler room ripoffs of the 1970s and 80s, social media tools open up a whole new range of possibilities for the sneaky to fool the gullible or desperate.

Naturally we’ll get the nanny goats and nincompoops demanding something be done about Internet scams – maybe a law, perhaps a treaty or a code of conduct – all of which will be as effective as stopping railways, telephones or the postal system in an effort to stamp out fraud.

Fraud is technologically neutral; fraudsters just use whatever happens to be the most effective tools available at the time.

The sad thing with the social media based scams is we get to see who among our friends and family have fallen for it. Invariably when we warn them we’re told off because we aren’t believers.

Again though this is nothing new, the same thing happened when the snake oil merchant came to town or the shaman visited the village.

In the 19th Century the phrase “there’s a sucker born every minute” was coined. In today’s hyper connected world, there’s one born every second. Don’t be that sucker.

On becoming a Captive Business

On being trapped by your suppliers or customers

I’ve been writing a lot recently about the risks of businesses aligning their interests too closely with one or another platform, last weekend The China Law Blog discussed the opposite – being a captive customer.

The term “captive customer” is new to me but it’s a familiar concept; in the IT industry most of us found ourselves hostage to Microsoft’s whims at one time or another and it wasn’t a good place to be.

Many smaller businesses and consultants fall for the trap of having just one big customer which their income becomes dependent upon.

While Dan’s point on The China Law Blog is about manufacturing, this risk is becoming even more pressing on the web where there’s a tendency to be captured by one platform or another.

Sometimes entire industries are captured – the Search Engine Optimisation sector is wholly dependent upon whatever Google chooses to with their search algorithm. To make things worse, no SEO expert knows exactly how Google’s equations actually work.

We’re seeing the mass media being captured in a number of ways – by granting licenses to Facebook, one suspects unwittingly, or developing content for Apple’s iPad.

For startups depending upon cloud services or single payment platforms like PayPal there are serious risks as we saw with the co-ordinated takedown of Wikileaks.

In nature, the animal or plant that depends on one source of food or habitat is at risk from even small changes in their environment. Be careful you aren’t a business dodo.

Paying the piper – the cost of the internet’s walled gardens

The web’s walled gardens have a real business cost

With the web increasingly dominated by four major, and many minor, fiefdoms the cost of being part of those groups is gradually becoming clear.

As part of Facebook filings in advance of their public float they published the key agreements with their developer partners including that with games provider Zygna, technology journalist Tom Foremski has a disturbing look at Facebook’s conditions that illustrate the costs and risks.

In terms of the costs, Tom identifies Clause 2.1 of Facebook’s “Statement of Rights and Responsibilities” – shown as Annex 1 in the Developers as probably the biggest price for all content creators;

… you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (“IP License”). This IP License ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it.

So by sharing something on Facebook, you grant Facebook the right to do what they like with what you’ve created. That’s something worth thinking about.

For anybody trying to make a living off Facebook, it’s important to consider they also retain the right to throw you off the service at any time. From clause 4.10 of the Statement Of Rights Annex;

If you select a username for your account we reserve the right to remove or reclaim it if we believe appropriate (such as when a trademark owner complains about a username that does not closely relate to a user’s actual name).

So get into a trademark dispute with a big corporation – and often their lawyers cast a very wide net on potential similar spellings – and your account is shut down.

There’s also the specifics of the Zynga agreement that should concern anyone investing in the games company. Right at the beginning of the agreement we see this clause;

The parties further acknowledge that Zynga is making a significant commitment to the Facebook Platform (i.e., using Facebook as the exclusive Social Platform on the Zynga Properties and granting FB certain title exclusivities to Zynga games on the Facebook Platform). In exchange for such commitment, [*] the parties have committed to set certain growth targets for monthly unique users of Covered Zynga Games.

So Zynga is closely tied into the fortunes of Facebook, we knew that on a business level but now we know just how deep and binding the agreements are.

We should be clear, all the major social media and online services have similar clauses on intellectual property and copyright infringements; there’s no shortage of businesses who’ve been caught out by eBay or Paypal and plenty of people found their Google accounts shut down by their obsession with real names.

For all businesses the message is clear – be careful before committing totally to one online platform or another. Should you end up in a dispute, or find you’ve backed the wrong service, it may be a very costly process to get your company off that platform.

Valuing Facebook

Is Facebook really worth fifty billion dollars?

After over a year of speculation, Facebook has finally announced the terms of its US stock market float, valuing the company at $50 billion dollars according to Facebook’s SEC filing.

The financial details that we’ve speculated over are now public and we can now make more than informed guesses about what Facebook is worth.

What jumps out when first looking at Facebook’s financial figures is the exponential growth in their revenue from 153 million dollars in 2007 to $3,700 million last year. A twenty-fold increase over four years.

Expenses though haven’t grown at the same rate going from 277 million to 1.95 billion over the same period. Like all bigger social media and web 2.0 companies, sales and marketing is the biggest expense.

The Google Experience

The closest comparison to Facebook is Google’s float in 2004. Google floated at a market capitalisation of 23 billion dollars on a reported revenue in their SEC statement of 389 million.

At the time, Google’s profit margins were substantially lower with costs coming in at 234 million. These figures alone indicate Facebook today is a better prospect that Google was at the time of being floated.

Google today is valued at $190 billion on a revenue of $38 billion and a profit of $25 billion. On those measures, Facebook investors will be expecting that exponential growth to continue.

Growing Income

How Facebook continues to grow their revenue is the big question. Currently over half of their revenue comes from advertising in the United States and the bulk of the rest from Canada, Australia and Western Europe.

If online advertising continues to grow spectacularly, as a 2010 Morgan Stanley research paper illustrated then Facebook, as the biggest social medial platform, will get a large slice of that $50 billion global market opportunity. This in itself would justify their valuation.

One of Facebook’s biggest growth opportunities comes from games. Already Zynga, the developers of Farmville and Mafia Wars, contribute 12% of Facebook’s revenues.

The global games business is valued at 60 billion dollars and much of this market is moving to web based, online platforms. Facebook’s 30% cut of income from games on their service is another lucrative revenue stream with few operating costs.

While advertising remains Facebook’s main income stream, other payments from games and online payments went from almost 0 in 2010 to nearly 17% of income at the end of 2011.

The threats

This isn’t to say Facebook doesn’t face any threats in their businesses. The concentration of income from North America, Europe and Australia exposes how the service is a first world phenomenon, although they have high penetration rates in some countries like Chile and hope to achieve similar in India.

Social media though is a fast moving field and there are plenty of opportunities for upstart businesses to displace Facebook just as MySpace faded away.

In their established markets there’s the question of how sustainable social media as an advertising platform is; until recently social media was a novelty to most households and still is to businesses and advertisers.

User fatigue is possible in the mature markets and Facebook – along with other social media services – not achieve the advertising revenue they hope.

Privacy issues are also another concern; as users realise the value of their private information it may be that they demand more for it than seeing where their friends are drinking or playing an online game for free.

Overall though, Facebook does appear to be worth the 50 billion dollar valuation when compared to other similar businesses like Google and is probably more sensibly priced than recent other IPOs like Groupon and Zynga.

Whether the service will deliver on its promise remains to be seen, but those are the risks when investing in new industries.

Facebook and your Family: 702 Sydney Weekend computers

How should you use Facebook in your house?

Tune into ABC 702 Sydney this Sunday, February 5 from 10.15am to join Paul Wallbank and Simon Marnie discussing how to use Facebook in your family.

Some of the topics we’ll be looking at include;

What are the minimum ages for using Facebook
How should parents monitor usage
Setting up privacy settings
Being careful about sharing
Deciding what applications should you allow
How do other social networks affect your family

We love to hear from listeners so feel free call in with your questions or comments on 1300 222 702 or text on 19922702. If you’re on Twitter you can tweet 702 Sydney on @702sydney and Paul at @paulwallbank.

The Internet’s cold war

Should we align our businesses with the online empires?

“We’re designing exclusively for Android devices,” the software developer confided over a beer, “we don’t like the idea of giving Apple 30% of our income.”

That one business owner is making a choice that software developers, newpaper chains, school text book publishers and many other fields are going to have to make in the next year – which camp are they going to join in the Internet’s cold war.

As the web matures, we’re seeing four big empires develop – Google, Apple, Facebook and Amazon which are going to demand organisations and consumers make a choice on who they will align with.

That decision is going to be painful for a lot of business; each empire is going to take a cut in one way or another with Apple’s iStore charges being the most obvious.

For those who choose to go the non-aligned path – develop in HTML5 and other open web standards things will be rocky and sometimes tough. At least those on the open net won’t have to contend with a “business partner” whose objectives may often be different to their own.

Over time, we’ll see the winners and losers but for the moment businesses, particularly big corporations and publishers should have no doubt that the choices they make today on things as seemingly trivial things like reader comments may have serious ramifications in a few years time.

Consumers aren’t immune from this either; those purchases through iTunes, Amazon or Google are often locked to that service for a reason.

Probably the development that we should watch closest right now is Apple’s push into education publishing; those governments, universities and schools that lock into the iPad platform are making a commitment on behalf of tax payers, faculty and students that will affect all of them for many years.

For many, it might be worthwhile hedging the bets and sticking to open standards. A decision to join one or two of the big Internet empires is something that shouldn’t be made lightly.

The importance of transparency

The US Federal Reserve has announced they will release more details from the information they use on determining official interest rates. On the same day the social networking site Twitter is embarrassed when its opaque verified account policy fails.

Being open and honest is the key component in trust and in turn trust is the bedrock of society. If you can’t trust your neighbour, the local cop or the grocer at the shops then society quickly starts breaking down.

Many big businesses, particularly those in markets where they are one of a small group of incumbents get away with abusing your trust; they tell an illegal surcharge can’t be waived because “that’s their policy, you can’t change an account because of the “terms and conditions” and that the call centre’s operators name is Janet even though it’s Rajiv and you know that when you call back asking for “Janet” you’ll be told”there’s 35 Janets working in the department right now”.

All of this we’ve come to expect from big bureaucratic organisations like the phone company, the bank and the tax office. The interesting thing is how many new businesses that are adopting this anti-customer model of operating.

Rules and policies are fine – as long as everyone knows them, they aren’t too onerous and they are applied fairly and consistently.

The challenge for all businesses – particularly those taking on incumbents – is they have to show they are more trustworthy than the existing operators. If you can’t show that, then maybe it’s time to think about how you operate.

What’s a Twitterer worth?

How business can put a value on social media

$2.50 per month is what Phone Dog think a Twitter follower is worth in their lawsuit against a former employee.

As nebulous and ambiguous as Phone Dog’s claim seems to be it appears some price is being created on the business value of social media users.

To date we’ve seen services like Empire Avenue, Klout and Kred try to measure social media users’ real influence on the different web platforms which in turn allows businesses to allocate some sort of value.

As social media and the web mature, we’ll see businesses spend more time understand where the value lies online.

Each platform is going to have a different value to a business. Depending on the market, one person may be worth more on Twitter than on Facebook and similarly a business may put more value on members of a specific LinkedIn group or industry forum.

What we shouldn’t confuse “value” with is how the services themselves make money. For Facebook, the value comes from the marketing opportunities presented by people sharing their lives while for LinkedIn it’s largely coming from employment related advertising and search.

Other social media platforms are finding other ways to make money and each will have a different attraction to users, businesses and advertisers. All of which will affect their perceived value.

That perceived value is the most important part of social media. If users don’t think a site adds something to their lives, then that service has no value to anyone.

It’s tempting to think that people will object to having a “value” placed on their heads as users, but most folk understand the commercial TV and radio that does pretty much the same thing.

The real question of how much people are prepared to share online will come when they understand the value of the data they are giving the social media platforms. When users start to understand this, they may ask for more service from these companies.

What a Twitter user is worth right now is probably different to what they will be worth this time next year, but there’s no doubt we’ll all have a better idea.

The social maze

What are the risks in business social media?

Towards the end of 2011 we saw a surge of stories about companies and employees fighting over the ownership of corporate social media accounts like LinkedIn contacts and Twitter feeds.

For the social media community this is encouraging as it shows that businesses are beginning understand there the value in online networks. It also illustrates the risks for both businesses and employees when these tools aren’t properly understood in the workplace.

The employer’s risks

As social media sites are one of ways businesses communicate with the public, managers have to understand these services are an asset too important to be left to the intern or youngest staff member in the office.

Should that intern move on – possibly at the next college semester – the business may find they are locked out of the account or it is even deleted.

Business pages and accounts should be set up in the name of senior people in the organisation and, where possible, administration should be shared by the relevant unit in the organisation (customer support, marketing or whatever).

The nominal owner and administrators should understand that the account is the property of the business and all posts on it will be work related and not personal.

When one of the administrators or owners leave the organisation, login details should be handed over and passwords need to be changed. Where possible, the ownership should be changed to another employee – this is one of the current problems with Google+ accounts at the moment.

Employers need to understand that the professional contacts individuals make during the course of their work isn’t their property, so trying to claim the personal LinkedIn contacts and Twitter followers of an employee’s private account probably will not be successful.

Similarly social media services like LinkedIn are not Customer Relationship Management programs (CRMs) and using them that way, as a company called Edcomm did, will almost certainly end up with problems and a possible dispute.

Traps for employees

When given a work social media account to maintain, it’s best to consider it as being like your work email – it’s best to use it for business related purposes only and you’ll have to give it up when you leave the organisation.

If you’re being held out as a representative of the business, as we see in the Phonedog_Noah dispute over a business Twitter account, then it’s best to set up a private account for your own use and not use the business account after leaving the organisation, even if they don’t ask for it when you leave.

On sites like LinkedIn and Facebook you should change your employment status as soon as you leave an organisation to make it clear you’re no longer working there. If you’ve left on bad terms, resist the temptation to insult your former employer when you change your details.

Staff using social media have to be aware that can be held accountable in the workplace for things they do on their personal online accounts; sexual harassment, abusing customers and workplace bullying through a Facebook or Twitter account can all result in disciplinary action.

In many ways the disputes we’re seeing on social media services reflect what we’ve seen in many other fields over the years – the ownership of intellectual property, professional contacts and even access to websites have all been thoroughly covered by the courts over the years and there’s little in these disagreements that would surprise a good lawyer.

With all business disputes though, it’s best to resolve them before lawyers and writs start being involved. Clearly defining and understanding what is expected of both employers and staff can save a lot of cost and stress.