Entrepreneurs Are Big Losers If The Government Hamstrings Facebook
The world has awakened to the danger in Facebook: it learns a great deal about who its users are as people. Then it enables advertisers and apps on the Facebook platform to take advantage of that knowledge and, in some cases, access the data. That can be a bad thing if, for example, Russian spooks place Facebook ads designed to amp up political polarization and tip a presidential election or the Brexit referendum. It can also be a very good thing when a small business needs to bring a legitimate marketing message to a very specific audience efficiently.
Russia and Cambridge Analytica have created a “#MeToo” moment for Facebook: the media echo-chamber is resonating with reports of deep concerns about privacy expressed by Facebook users, and commentators are speculating that Facebook may need to have its wings trimmed or become a regulated utility. Jealousy spurred by Facebook’s amazing success may be part of the mix, too. Like sexual harassment, concerns about online privacy have been simmering for years, and recent events have triggered a boil-over. Congress has summoned Mark Zuckerberg for a grilling that commentators expect to be arduous. 44 senators attended the first session. Senator John Thune commented: “It’s extraordinary to hold a joint committee hearing. It’s even more extraordinary to have a single CEO testify before nearly half the United States Senate. Then again, Facebook is extraordinary.”
In the midst of this brouhaha, let’s keep our eyes on the fact that 1) Facebook creates enormous value for both users and advertisers, and 2) it’s a unique, young business that has risen very recently to global prominence and hence not had much time to understand what it means to be an important institution and figure out how to play its important role in the information economy, media, and (inevitably) politics.
Facebook is a terrific tool for entrepreneurs, and they will suffer if it is crippled. Consider this example: I work with a company that sells specialized products to consumers. A large part of its revenue comes from three groups of consumers with three distinct psycho/demographic profiles (e.g., age, gender, stage-of-life, preferred activities, and self-image) who are a small percentage of the population and spread across the country. My company offers a strong and simple value proposition: better price and convenience for people with the right profile. Its big marketing challenge is finding the people with these profiles and letting them know what it can offer them.
Conventional media are little help. They mostly serve geographic territories or broad demographic groups and have little ability to target customers based on factors like those above. For example, the audience for Good Morning America, one of the choice advertising platforms on television, is usually described as adults aged 25 to 54, with a tilt to women. This is inefficient advertising if your product appeals to a small percentage of adults. Google is a great resource, but its targeting ability centers on people who have intent to buy specific products. Facebook has unequalled ability to deliver a message to consumers based on tight psycho/demographic factors like those above.
This week Congress and the media are busy weighing how acceptable Facebook’s data and understanding of its members, and its business model which allows advertisers to take advantage of that information, can be. Keep in mind that all marketers need and attempt to target customers (find those most likely to be interested and deliver a message to them), and media companies have always worked to help them do that. Google and Facebook are making waves because they do this better than ever before.
Consumer attitudes towards ad targeting are tricky. Research shows repeatedly that most consumers prefer targeted ads, but many consumers don’t like the fact that their data is used to effect targeting. Many digital ad consumers seem to want the impossible: targeting ads without collection of the data necessary for targeting. Similarly, many TV watchers like the shows they watch and complain about the commercials, but they continue watching. Today technology for on-demand video streaming enables Netflix et al to offer high quality original shows ad-free. But most people continue to watch ad-sponsored TV. Likewise, despite discomfort with ad targeting, billions of people continue using Facebook and Google, because of their unique value.
Successful media is powerful, and power creates danger. Facebook is the next stage in an evolution that began with the invention of the printing press in 15th century Germany. Printing enabled low-cost books and pamphlets, the first form of mass media which, over the next 150 years, changed the political map of Europe by greatly accelerating the spread of ideas. This evolution continued with newspapers, radio, television, and now internet media.
Facebook is also a quintessential Silicon Valley company: brash, focused on growth, moving fast, breaking and fixing things fast. The power of its platform created dangers: loss of control of confidential user data, spreading fake news, exploitation by Russia to sway elections. The current Facebook furor has more to do with these dangers than with targeted ads, which are the core of its business model. Facebook needs to develop rules (probably with government involvement) that preserve the core of its value for users and advertisers while curbing misuse and danger. Zuckerberg openly states that they have not done enough to address the dangers and some form of regulation is acceptable. Other media have faced similar challenges and found a balance between their business models and public interest: newspapers have had centuries to work this out, and even television is now 75 years old.
Facebook leads the next wave of media innovation. It creates danger and great value, particularly for small businesses trying to reach smaller, specific customer groups, and for its billions of users. The Government and Facebook need to learn how to use Facebook’s power wisely, not destroy what is great about it. Let’s not throw this big baby out with the bathwater.
First posted @ blogs.forbes.com/toddhixon on April 11, 2018.