CASE: E-435 A

DATE: 04/17/12

SOCIABLE LABS (A)

Nisan Gabbay graduated from the University of California at Berkeley in 1999 with a BS in
industrial engineering and operations research. From there, he worked as an application engineer,
management consultant, and venture capitalist focusing on internet companies. In January 2007,
Gabbay left venture capital to create and launch a Facebook application (“app”) that enabled
users to see their friends’ social events, parties, and offline activities. The app recommended
activities based on both popularity within a user’s friend group and relevance to the user’s
demographic information. Over time the company built a small, but enthusiastic user base in San
Francisco.

One night, at an art show in San Francisco that Gabbay had found through his app, he overheard
the couple next to him talking about how fantastic the show was and how they had both
discovered it through Gabbay’s app. Excited, Gabbay introduced himself and the three discussed
how useful it was to discover information through their friend network, and how apps like
Gabbay’s helped in that endeavor. Having left the party with a strong feeling of validation,
Gabbay was inspired to extend the technology to manage and curate other types of information
beyond social events. In particular, he explained:

Friend influence is a key factor in the discovery and purchase process for so many
types of products and services, yet most of this occurs offline. I knew there had to
be a better way to access my friends’ opinions without having to e-mail them or
call them all individually. What if I could go to an e-commerce website and
quickly see which products my friends had purchased or recommended? That’s
when the idea for Sociable Labs was first born.1

By mid-2008 Gabbay had moved away from his Facebook application idea, toward what would
become Sociable Labs: a start-up business attempting to use friend recommendations to curate

1
All quotations from Nisan Gabbay are based on a casewriter interview on February 17, 2012.
Arar Han (MBA ’09) and Lecturer Russell Siegelman prepared this case as the basis for class discussion rather than
to illustrate either effective or ineffective handling of an administrative situation.

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 Sociable Labs E-435 A p. 2

and recommend purchase opportunities on the internet. Much as his Facebook social events app
helped friends discover events based on their friends’ events, Gabbay wanted to show users what
their friends were buying or “liking.” He hoped that such knowledge would help guide their
purchases and even enable merchants to use Facebook to help grow their sales.

FACEBOOK IN 2009

In January 2009, Facebook was the dominant social networking platform in the United States,
with 150 million users. By February, the figure had risen to 175 million. At the time, social
networks, and Facebook in particular, were known as addictive tools that teenagers and young
adults used mainly to check friends’ status updates and photos. As free games from Zynga
quickly became another major attraction on the platform, Facebook’s reputation as a place to
play and hang out only grew. As a New York Times commentator playfully described:2

Facebook provides so many ways to while away your existence. Do I want to read
about the latest baby exploits from the legion of young mothers? Do I want to try
to decipher the existential koans some of my friends seem to mistake for status
updates? Perhaps click through a few dozen random party pictures? It’s all so
diverting…

Checking Facebook begins as something you do between everything else―

answering the phone, writing e-mail, actually working―until one day you realize
you spent an entire afternoon fitting everything else between your time on
Facebook. Given how good Facebook already is at diverting, it is almost unfair
that it is becoming one of the world’s most popular platforms for actual games.

Given its identity as a place of leisure, Facebook was not known as a business tool. While
businesses created Facebook “pages,” which allowed them to collect “fans” and communicate
directly with them, explicit marketing and sales uses of the platform were rare. When “Facebook
Connect” was released in December 2008 Gabbay saw an opportunity to make Facebook more
relevant to web businesses.

SOCIAL INTEGRATION

Facebook Connect allowed any website on the internet to accept Facebook credentials as a
universal log-in. If users logged in to external websites through Facebook Connect, the websites
gained access to users’ demographic details and Facebook friends. That information, thought
Gabbay, had the potential to create a dynamic and individualized marketing experience to each
Facebook user from within the external site. This was a fundamental shift in how marketers
could use Facebook, explained Gabbay:

Before, if you wanted to do social media marketing, you were on Facebook itself.
Now, you could take advantage of social media data from Facebook, and intermix
it with an existing site experience. This is loosely called ‘social integration.’

2
Seth Schiesel. “Playful New Ways to Waste Your Time,” The New York Times. July 11, 2009.

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 Sociable Labs E-435 A p. 3

While “social integration” was a new phenomenon, it was not the first time that businesses had
taken an interest in using social media for marketing. In Gabbay’s view, blogs were the start of
social media in business: “Companies wanted to know what people were saying on the blogs, so
there were a slew of companies that created media monitoring solutions.”

Then came MySpace, which allowed businesses, especially bands, to establish profiles that their
fans could visit and use as a medium of communication. Facebook, said Gabbay, adapted that
model to allow any business or organization to collect fans and message them directly. Twitter
did the same.

As Gabbay explained, by the time he started thinking about Sociable Labs:

The emphasis of the social media market was all on the collection of fans and
followers, and messaging to those people. This actually wasn’t a revolutionary
technology. It was just another form of business to consumer marketing, like e-
mail marketing.

As marketers invested in building fan bases and messaging them, observed Gabbay, a niche
industry cropped up to serve their needs. Companies were started to help marketers figure out
how to collect fans and how to message them, particularly around the optimal coordination of
messages with press releases and other announcements. While these services helped manage a
novel channel for corporate communications, said Gabbay, they were soon found to lack a “real
business benefit”:

Marketers found that these tools weren’t actually a scalable way to drive sales,
especially for e-commerce sites. There was some disappointment in that. People
asked, ‘Without incremental sales, what’s my ROI in this?’ It was a big question.

A NEW BUSINESS USE FOR FACEBOOK?

Gabbay wanted to solve this issue. He disagreed with the prevailing wisdom that social media
marketing was the practice of collecting Facebook fans and Twitter followers, much as bands on
MySpace had. In Gabbay’s view, businesses―especially e-commerce sites―did not benefit
financially from collecting fans and followers:

[A] music band trying to gain a following is a very different goal than say, Dell
trying to sell more computers. Businesses were struggling to leverage social
media marketing to drive sales. Even the best examples, such as Dell heralding
the several million in sales they achieved via their followers/fans, were minuscule
compared to their total sales volume. Moreover, they had to make significant
investments to acquire a very large number of fans/followers.

Furthermore, said Gabbay, e-commerce sites typically had much higher traffic on their own sites
than they had on their Facebook fan pages: more than 10 times as much, in the case of Dell.com.
By integrating Facebook Connect within their own domains, they would not need to rebuild their
site traffic on their Facebook fan pages.

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2021 to Mar 2022.
 Sociable Labs E-435 A p. 4

CONTEXT SWITCHING

Gabbay felt that social integration also solved a core problem he had noticed while developing
his events app and observing the way Facebook users engaged with applications. Ever since
2007, when the Facebook Platform had been released, third-party developers had been able to
enter the Facebook domain as providers of applications. Of these applications, observed Gabbay:

The most successful were clearly about entertainment: things that would get a rise
from friends and give the user some instant gratification. Users on Facebook were
clearly there to kill time and be entertained.

In fact, added Gabbay, “Apps that tried to switch the context, i.e., get Facebook users to switch
from entertainment-oriented tasks to other activities, failed to gain traction.” Such user behavior
limited the potential scope of the Facebook Platform; Gabbay saw that even his events app,
which provided users a clear and valuable service related to entertainment, lay just outside the
entertainment context.

When Facebook Connect was announced, Gabbay immediately recognized its potential to solve
the problem of context switching. Instead of trying in vain to switch Facebook users away from
an entertainment mindset (or context) to perhaps more serious endeavors, like purchasing a book
or paying the bills, websites like e-commerce sites could allow customers to log in as Facebook
users. If users permitted the sites to access their Facebook friend networks, the sites could collect
and show customers any information that might aid their browsing or shopping experience. In
short, rather than putting shopping on Facebook, Gabbay could help bring Facebook into the
shopping experience.

SOCIAL INTEGRATION: THEORY OR PRACTICE?

Gabbay was excited by the potential of enabling e-commerce companies to socially integrate
their sites with Facebook Connect, and giving Facebook users a way to navigate e-commerce
sites without losing the benefit of knowledge from their Facebook friend network. He imagined a
software tool that allowed e-commerce retailers to employ Facebook Connect to utilize friend
recommendations and other social features on their sites, so customers would not have to switch
back to Facebook itself to find out what their friends thought. While Gabbay had very little
money left from his application company to pursue this new idea, and no longer employed any
engineers who could build it, he was determined to forge ahead and test this new idea.

Though Gabbay did not know whether users would openly release or balk at disclosing their
Facebook profiles and friend networks to third-party e-commerce sites, he felt strongly that they
would appreciate the social value he could provide. Above all, Gabbay was passionate about his
alternate vision for the role of social media in e-commerce:

Whether it’s helping people discover a great event, find the perfect dress, or pick
the right camera, social integration can aid people in discovering and harnessing
friend opinions easily and more efficiently online, right at the point of purchase. I
believe that’s the future of social commerce.

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2021 to Mar 2022.
 Sociable Labs E-435 A p. 5

Gabbay wanted to know if anyone in the e-commerce industry would agree, and if they would
pay him to provide this service. He also wondered if large numbers of users would be willing to
utilize their Facebook identities outside of Facebook.com and at e-commerce sites across the
Internet. Gabbay considered how to figure out whether Sociable Labs would be a valuable
service to e-commerce companies and Facebook users alike. He wondered how Sociable Labs
could become successful.

STUDY QUESTIONS

1. What is the next right step for Gabbay to pursue Sociable Labs?
2. Would you invest in Sociable Labs, and why?

This document is authorized for use only in Prof. Suresh Bhagavatula's PGP - Entrepreneurial Mindset and action (EMA) 2021(SB) at Indian Institute of Management - Bangalore from Dec
2021 to Mar 2022.