Facebook founder finally finds a way to profit from its 150m members’ private data
Saturday, February 7th, 2009
Facebook is planning to exploit the vast amount of personal information it holds on its 150m members by creating one of the world’s largest market research databases.
In an attempt to finally monetise the social networking site, once valued at $15bn (£10.4bn), it will soon allow multinational companies to selectively target its members in order to research the appeal of new products. Companies will be able to pose questions to specially selected members based on such intimate details as whether they are single or married and even whether they are gay or straight.
The company, which has struggled to make money from advertising, has been demonstrating the benefits of its new instant polling tool to some of the most influential business leaders at the World Economic Forum in Davos.
In an interview with The Sunday Telegraph, Randi Zuckerberg, Facebook’s global markets director and sister of founder Mark Zuckerberg, 24, said multinational companies had been bowled over by the ability to receive real-time feedback from the site’s millions of users.
“I had tonnes of people saying ‘this could be so incredible for our business’. It takes a very long time to do a focus group, and businesses often don’t have the luxury of time. I think they liked the instant responses,” she said.
At the conference, Facebook asked a range of questions to its users around the world, before feeding the answers back to delegates within minutes. It selectively-targeted users in Palestine and then Israel with the same question about global peace, before debating the results at a discussion forum. It also asked 120,000 US members whether US President Barack Obama’s economic stimulus package would be enough to save the US economy. Almost 60pc said it would not.
“Davos is really a key place to launch an instant tool like this,” Ms Zuckerberg said. “It’s beneficial for everyone to see us as a global community of 150m users. The vast majority are not just college students in the US talking about things in their bedrooms. We are showing how we are a serious and insightful community.”
Facebook’s presence at the economic and business summit is a radical image change for the social network, which is stereotyped as a website used by students or schoolchildren. It now promotes Facebook users as “serious and insightful” adults in an attempt to advertise its members as a useful demographic for marketers.
Marketing experts have said the vast amount of personal information Facebook holds, together with the loyalty of its users, could be worth “untold millions” to companies engaged in market research.
The power of Facebook, and its members, in driving corporate decisions was illustrated last year, when a campaign on the site led to Cadbury reversing its decision to withdraw the popular Wispa chocolate bar. Cadbury has sold 70m Wispas since it reintroduced the bar in October after the Facebook campaign attracted 40,000 signatories.
Facebook has already sold the new polling system, called engagement ads, to CareerBuilder, a global graduate recruitment company, and AT&T, the US telecoms giant, is trialling the system. A Facebook spokesman said the company’s advertising department is marketing the new service to thousands of companies worldwide and it hopes the polls will go live this spring.
All the company’s previous attempts to monetise the site have failed after members railed against the site’s invasion of their privacy. Mr Zuckerberg pulled Beacon, a service that notified users of their friends’ purchases on external sites such as Amazon, after members launched a campaign in December 2007.
Mr Zuckerberg said the coming year will be “intense” for Facebook as advertising revenue dries up.
Facebook was valued at £10.4bn in 2007 when Microsoft paid £175m for a 1.6pc stake, but analysts have dismissed the valuation as “ridiculous” as the site has failed to find ways of exploiting its vast membership for commercial gain. Madan Sheina, at technology consultancy Ovum, said: “With the economy spiralling into a downturn, that figure might seem to be exaggerated right now.”
The company has denied reports that it is so strapped for cash that it has been forced to approach Middle Eastern sovereign wealth funds for emergency funding. It has also cancelled plans to allow employees to sell off their shares early because of the economic climate.
Market research company eMarketer recently cut its estimate of advertising spending on the social networking sites, including Facebook, MySpace and Bebo, this year by £351m to £912m. It said US advertising spending on Facebook
will fall by 20pc to £147m.
Rival research company IDC said advertisers are turning their backs on social networking sites because they have a lower “click-through rate” than traditional online ads. Only 57pc of social network site users clicked on an advertisement and made a purchase last year, compared to 79pc on the internet at large.
Experts at Deloitte said Facebook is suffering from the double-whammy of collapsing advertising revenue and the soaring cost of electronic data storage. Deloitte estimates that the cost of storing photos and videos on sites like Facebook has increased by more than £70m a year.
“The book value of some social networks may be written down and some companies may fail altogether if funding dries up,” said Paul Lee, Deloitte director of research for technology and telecommunications. “Average revenue per user for some of the largest new media sites is measured in just pennies per month, not pounds.
“This compares with a typical average revenue per user of tens of dollars for a cable subscriber, a regular newspaper reader or a movie fan.”