December 1st, 2007

Facebook Beacon: A Cautionary Tale About New Media Monopolies

by

Facebook Beacon, currently in the process of going down in flames, is a classic case of overreaching. So much has been written about what’s wrong with Beacon — blatant privacy violation, lack of blanket opt-out, failure to make it opt-in, gathering data from non-Facebook users — but I haven’t seen much about WHY they got it so wrong. (Except for Umair, of course, who called Facebook evil back when everyone was still slobbering over them.)

The reason why Facebook got it so wrong with Beacon is actually much more interesting and important to the evolution of media, advertising, and technology than the reason why Beacon is imploding.

Facebook overreached because it’s acting like a traditional media company with monopoly control of its channel.

Remember (if you can) the days before the web, when every medium — TV, radio, magazines, and newspapers — were filled with ads. Everybody always said they didn’t like advertising, yet that didn’t stop people from consuming these traditional media in massive quantities and creating huge profit margins for large corporations.

How did these media companies get away with making so much money by running ads that in most cases people didn’t really like? Because they controlled the channel — and we had no choice.

Then the web came along and exploded these natural media monopolies — nobody controlled the channel — the “user” is now in control.

Except for Google, which developed two de facto new media monopolies:

  1. The gateway through which all other online media are accessed, i.e. search
  2. An ad network (AdSense) that became the most effective way for small, independent publishers to monetize content — i.e. they monopolized the monetization, not the channel

So what does this have to do with poor Facebook?

Facebook’s user news feed, which are published to each of their friends, began to look like the next monopoly in new media. Want to find out what’s going on with your friends, who are all on Facebook — you HAVE TO go through Facebook. Just like you had to subscribe to the local newspaper if you wanted to get news in the morning.

The problem is that Facebook isn’t really a monopoly medium — it just has high switching costs, i.e. it’s a pain to get all of your friends to switch to another social network. But you CAN do it. In traditional media, natural monopolies like the local newspaper meant there simply were no other options.

But on the web, there are always other options. Google search isn’t really a natural monopoly either — Google has just managed to maintain the user perception that it’s better.

High switching costs and high brand equity are not the same as natural monopolies.

But Facebook acted as if it had a real monopoly — it treated its users, to user Umair’s term, like “brainless meat for the grinder” — kind of like TV networks did when they force fed us 3-4 for minutes of mind-numbing commercials.

Facebook figured that users would have no choice but to accept Beacon — but they forgot that high switching costs are not a monopoly. And when the backlash started, they came crashing back to reality.

They realized that if their users caught wind of all the negative media coverage about privacy violations, and started to look carefully at what Beacon was actually doing, they might get so annoyed that….they might actually leave.

Sure you could change TV channels, but those annoying commercials would crop up again soon enough. You were stuck in the land of 30-second-spot monetized content.

But not so with social networks — there are hundreds of online social networks that aren’t being driven to extremes by the pressure of a $15 billion valuation, who won’t (at least not yet) try to monetize your every action without your permission.

Already, people like Dave Winer, Doc Searls, and others are trying to bust Facebook’s non-monopoly by advocating for social networking data portability (although the advocacy isn’t limited to social networking data) — this movement hasn’t hit mainstream users yet, but it may only be a matter of time before it is in fact easy to switch social networks, because you’ll still be able to connect with friends on the old network.

The other key ingredient in this over-reach was technology — the worst TV could ever do to us was subject us to a bad commercial. But TV couldn’t violate our privacy, it couldn’t buy and sell our private data — because it wasn’t technically possible.

But in digital media, anything is possible.

So Facebook got caught in the perfect storm of believing it had a monopoly — when it didn’t — and having the unprecedented technical capability to abuse the privilege that it didn’t actually have.

What’s the lesson then? It may well be that natural monopolies in media — which drove the media business for the last century — are dead. And without monopoly control, you don’t have license to exploit your audience, i.e. your users.

The biggest new media success story — Google — has to be hyper-vigilant to user experience, because it knows users will drop Google in a heartbeat. Which gets to the other reason why AdWords and AdSense have been so successful — it’s the closest to useful information that advertising has every gotten.

So if media monopolies dead, media companies are going to have to stay hyper-focused on being PERCEIVED as indispensable — because technically they no longer are. And they need to be extremely careful not to abuse the privilege that this perception conveys.

Comments (32 Responses so far)

  1. I first wrote about Beacon back on November the 2nd and even then called it a bad idea

    http://www.winextra.com/2007/11/02/a-pandemic-of-beacons/

  2. Hi Scott, good analysis.I would like to add to that. In my opinion the monopoly issue is actually a sub problem of something more fundamental. Facebook’s business model forces them to think as a monopolist. It is the basic problem with the current main web 2,0 business model. Providing a free service and making revenues with advertisement. It forces you to leverage the network, instead of user value. It also forces you to put up walled gardens, because if the user leaves you have no revenue stream. There is nothing wrong with advertisement revenues, but you can only use that as a business model if the advertisement itself provides the user value. That is why Google is taking up 75% of all advertisement revenues world wide. They got it right, providing advertisement in search. And where Facebook has one closed platform, remember that the walled garden Google works with is the entire Internet. Can’t beat that.

  3. There were a lot of people concerned about Facebook quite a while ago, its just that many of the blogs that dominate Techmeme were punting it uncritically until a week or so ago.

    For example, we first flagged the T&C in July 2007…

    http://broadstuff.com/archives/324-Facebook-Copyright-have-you-read-the-small-print.html

    …and posted our concern that the US A List had lost perspective in October

    http://broadstuff.com/archives/494-What-is-it-with-American-A-list-tech-bloggers-and-Facebook.html

    …and slated Beacon when it came out because it was clear it wouldn’t work:

    http://broadstuff.com/archives/511-Facebook-Ads-do-they-have-a-cluetrain.html

    The major issue imho is the US A-List is no longer dong analytical reporting.

  4. …but I haven’t seen much about WHY they got it so wrong

    I was a bit surprised to see a couple of bloggers (whose names will go unmentioned) who actually believed Facebook would get away with this.

    For that reason, I think this was a very welcomed outcome. Even “new media”, as we used to call it, can only push the marketing so far.

  5. [...] Karp had an excellent article about how Facebook’s Beacon messed up and created such a reaction from Facebook [...]

  6. [...] seiner Sicht Facebook mit seiner unter Datenschutzaspekten fragwürdigen Werbetechnik Beacon so grandios gegen die Wand gefahren [...]

  7. [...] Scott Karp: “Facebook Beacon, currently in the process of going down in flames, is a classic case of overreaching… Facebook overreached because it’s acting like a traditional media company with monopoly control of its channel.” [...]

  8. Scott – so does it all come down to genuine caring of the individual by the company, or does it all come down to marketing? There are so many companies that “get a pass” while their competitors are ripped to shreds at every opportunity by the media. Apple, Target and Google seem to make us love them, even when they do wrong.

    It will be interesting to see how this shakes out for Facebook. Does it have enough brand-strength to join companies like Apple in the ranks of “companies we love to hate, but throw our adoration and money at anyway” club.

    Have a nice morning.
    -Dan

  9. [...] Scott Karp provides analysis of Facebook’s misstep in trying to leverage a monopoly it doesn’t really have. [...]

  10. [...] Scott Karp has an interesting take on the fierce blowback against Facebook’s Beacon as a textbook case of old fashioned monopolistic media behaviour. [...]

  11. While reading about all the problems and mistakes that Facebook has been making recently I remembered an article I read in Advertising Age back in June of 2006 by Simon Dumenco with the title “Screwing up MySpace: A News Corp. How to Guide.” It seems that Facebook missed that piece because they have proceeded to either make, or being in the process of making, all the mistakes that Dumenco warned MySpace about such as:

    1. Attempting “pseduo-subliminal advertising” by using their access to member data to allow for “stealth infomercials” (Sounds a lot like Beacon to me).

    2. Trying to “synergize” their access to member data to shill for big corporate advertisers. (Again, this sounds a lot like their new ad system).

    3. “Adding lots of bells and whistles.” (A number of people have started complaining of late regarding the number of annoying new developer applications coming at them.)

    4. Doing a deal with Microsoft. (This requires no comment on my part)

    It seems to me that Simon Dumenco was prescient. He just focused on the wrong social network… at least for now.

  12. FACEBOOK: LOVE-BASED VALUATION & POISONING THE WELL

    Facebook’s problem is they don’t understand the basis of their valuation. Companies can do stupid things, but they should expect to maintain their valuations.

    http://blog.echovar.com/?p=252

  13. [...] was an opt-in service. This has many wondering whether Facebook lied to its advertisers. Scott Karp says Facebook acted like it had a monopoly and treated its users like “‘brainless meat for [...]

  14. [...] Facebook Beacon: A Cautionary Tale About New Media Monopolies [...]

  15. [...] Facebook Beacon: A cautionary tale about new media monopolies Scott explains: “Facebook got caught in the perfect storm of believing it had a monopoly when it didn’t and having the unprecedented technical capability to abuse the privilege that it didn’t actually have. (tags: facebook media) [...]

  16. Nice one Scott. It’s the whole friendspam thing. Facebook grew by being opt-in-as-default viral. When it left that as the standard for advertising I warned they could run into trouble (friendspam). And here we go.
    But I think the reason they could even run into this trouble is because they are built to sell. You think harder and deeper about these problems if you have a long relationship with a community and wish to maintain it – rather than sell it to the highest bidder at the earliest possible opportunity.
    At least you should.
    That’s why I’m hopeful that established media might actually be best placed to crack making money from social media – because it means more to us in the long run.
    Have blogged a bit on this here:
    http://fasterfuture.blogspot.com/2007/12/established-media-will-have-last-laugh.html

  17. [...] 2.0 argues that Beacon is likely to fail because Facebook does not have a monopoly on social networking.  While acknowledging that the barriers to changing a social networking site [...]

  18. Well done analysis, Scott.

    I’ve been wary of Facebook for some time now (more than a couple of posts at Now Is Gone), but this Beacon episode just smacks of sheer naivety. So much of the platform and the applications have been driven by a “Wow, we can DO that” attitude, and there’s been virtually no introspection about whether certain things SHOULD be done. The larger picture for me is the lack of anyone there who has a hand on the brakes – no one to keep the train from barreling down the wrong track.

  19. [...] with Facebook Beacon’s implosion, the PR tailspin of Facebook itself is more interesting for what we can learn from it than why it [...]

  20. [...] Hence Facebook’s misstep with Beacon: [...]

  21. [...] they too can buy tickets for the same event. (Yea, it’s like Facebook Beacon without the privacy abuse.) Likewise, undecided patrons may create a slideshow widget, loosely based off of Max [...]

  22. Well right Face Beacon is too much in news now. But how much is it affecting facebook & its users. I think people are still continuing using it the way they used to. Infact the other day i read it somewhere in some blog, which says facebook can be accessed over the phone without internet via sms.
    http://modazzle.com/cms/userLogin.html?channel=CM&camp=Facebook

  23. [...] Facebook Beacon was announced on November 6 — that would be nearly four months of development time, and considering what a mess they made of it… [...]

  24. [...] professional. I’m wary, however, about the lack of privacy and of course appalled by Facebook’s recent misstep in how it launched Beacon for [...]

  25. [...] recent Facebook Beacon disaster has certainly not made it easier for APML-evangelists to make their case. In fact, Facebook, by [...]

  26. [...] their press release characterize Beacon specifically as an “opt-in” program, and we all know how that turned out (which may have left NYT feeling like they were sold a bill of goods): Beacon is an opt-in feature [...]

  27. [...] important, it would also give Facebook some much-needed strategic cache in the wake of the Beacon disaster. With $250-million of Microsoft cash in the bank, it is expected that Facebook will be making [...]

  28. [...] Look no further than the recent Facebook beacon privacy fiasco to see how this plays out in social media, as Scott Karp at Publishing2.0 addresses specifically in this cautionary tale about new media monopolies. [...]

  29. [...] settings of any on the market. Yet there is no guarantee that this will continue to be the case; the Beacon debacle, which attempted to use profile data to generate targeted ads, confirmed this fear. Tom and Dana [...]

  30. [...] that has no unique value proposition and depends instead on a traditional customer lock-in and monopoly control strategy need fear [...]

  31. [...] friends and you’re shoving down my throat notifications of what my friends are buying (i.e. Facebook Beacon) — get out of my [...]

  32. [...] Facebook Beacon: A Cautionary Tale About New-Media Monopolies: This article condemns certain Facebook marketing opportunities like Beacon by calling the technique “a classic case of overreaching.” Read this post before setting up a Facebook-oriented marketing strategy. [...]

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