New era of advertising hinges on the free flow of information

Facebook and MySpace are trying to extract the commercial value of their members’ profiles in exchange for ‘free’ online networking

It’s the end of advertising as we know it. This time, the announcement comes from a new IBM Institute for Business Value report which predicts more change in advertising in the next five years than over the past 50

According to IBM, we are now rushing towards a new era where “spending on interactive, one-to-one advertising formats surpasses traditional, one-to-many advertising vehicles, and a significant share of ad space is sold through auctions and exchanges. Advertisers know who viewed and acted on an ad, and pay based on real impact rather than estimated impressions. Consumers self-select which ads they watch and share preferred ads with peers. User-generated advertising is as prevalent (and appealing) as agency-created spots.”

IBM’s timing was perfect. It released its report just as social networking market leaders MySpace and Facebook announced a flurry of initiatives designed to monetise their massive user bases by connecting advertising with social networking. “For the last 100 years media has been pushed out to people,” Facebook founder and chief executive Mark Zuckerberg told his press conference on November 6. “Now marketers are going to be a part of the conversation.”

There are two prongs to these initiatives. One focuses on leveraging word-of-mouth marketing opportunities via things like Facebook Ads and “Beacon”. The other leverages the information volunteered by networking individuals to generate highly targeted advertising. If, for example, I announce that I am interested in fishing but not golf, then marketers of fishing equipment know to target me and marketers of golf equipment know not to bother. Everyone wins: the fishing equipment marketer (higher response rates), the golf equipment marketer (less waste), and me (advertising that’s relevant for once). Fantastic.

What’s even better is that the ads aren’t restricted to text. They can be as emotional, glitzy, sexy and aspirational as you want. This is not just any database marketing, it is data-driven display advertising.

It may be the marketer’s ultimate dream – combining the strengths of direct and display to cut costs and generate much higher response rates – but before we start shouting from the rooftops, a word of caution. With these initiatives, Facebook and MySpace are triggering an era-defining debate, the outcome of which is by no means certain.

The heart of the debate is this. Whose property is the information that individuals volunteer in the course of social networking? Who reaps its financial benefits?

Rights and benefits

Currently, the answer is as clear as day. Facebook’s terms of use state: “By posting User Content (defined as “photos, profiles, messages, notes, text, information, music, video” etc) to any part of the Site, you automatically grant, and you represent and warrant that you have the right to grant, to the Company an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to use, copy, publicly perform, publicly display, reformat, translate, excerpt (in whole or in part) and distribute such User Content for any purpose on or in connection with the Site or the promotion thereof, to prepare derivative works of, or incorporate into other works, such User Content, and to grant and authorize sublicenses of the foregoing.” In other words, the rights and benefits effectively go to Facebook.

Delving deeper into Facebook’s terms, we discover just how important it thinks this information is. It makes it clear that it “may use information in your profile… for purposes such as… personalizing advertisements and promotions”, and that it intends to maximise the value of these profiles by (for example) collecting “information about you from other sources, such as newspapers and instant messaging services” and using this information “to supplement your profile”.

Facebook’s privacy policy highlights its determination not to pass on such information to third parties. This sounds like a blow for privacy, but seen from the angle of effective information ownership it looks very different. Facebook wants monopoly control over the information its users give it so that it can tax advertisers wishing to reach these individuals at the highest possible rate.

How valuable is this chokehold? Well, Facebook’s recent share deal with Microsoft valued the company at $15bn (£7.2m). If we assume that Facebook will gather, say, 150 million registered users over the next three years, then that puts a value of $1000 (£481) on the information volunteered by each user.

Back in the good old days, the imperial powers signed legally binding contracts with local chieftains by which, in exchange for a few baubles, the chieftains handed over mining rights for the land under their feet. The chieftains had no concept of the value of the assets they were handing over.

Facebook and MySpace are trying to do the same with the oilfields of the 21st century – individuals with information to volunteer. They have launched a landgrab for these oilfields’ massive commercial value in exchange for the novel bauble of “free” online networking. When researchers Ralph Gross and Alessandro Acquisti asked Facebook users if they were aware of the terms of use outlined above, over 80% were not.

So how is this going to pan out? One scenario says we’ll simply see more of the same. The new online generation (those under 30) don’t give two hoots for privacy and are all in favour of transparency. By handing personal information over to the likes of Facebook they get the double win of a free service plus the benefit of ads that actually interest them. A perfect win-win.

Honeymoon period

Another scenario says we’re in a honeymoon period with social networking: that today’s devil-may-care information volunteers are likely to wise up to the fact that information volunteered for one purpose can end up being used for other purposes; that the dangers of volunteering too much information are high and that the commercial value of what they are handing over is huge. Even if some consumer segments continue with a “who cares?” attitude, many others will not.

The new era envisioned by IBM depends on a continuing supply of fresh volunteered personal information. Public debate still talks in terms of “privacy”, when the agenda has moved on to “control” and “property rights”. Of course, this debate is not confined to Facebook and MySpace, but their current landgrab has placed it firmly on the agenda, and it’s not likely to go away. Now the question is are the actions of Facebook and MySpace really opening up the oilfields of 21st century commerce? Or could they hinder their development?

Alan Mitchell,

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