Facebook Values and Future E-commerce

1

Facebook Values, E-commerce, and Endless Possibilities

Jay Campbell

MBA6180 – Managing Information Assets and Technology Dr. Charles Watkins Capella University February 9, 2012

Facebook Values and Future E-commerce Abstract Facebook is currently the world’s largest on-line social network. In its quest to virtualize the

2

social experience, it has been challenged with developing socially responsible controls to protect its users from unauthorized information sharing in its own applications and advertising. Facebook continues to balance end user privacy with business profitability in order to sustain itself as a company but in a way that does not alienate its own users.

Facebook Values and Future E-commerce Social networking can easily be seen as the “big thing” of today, however beyond what merely looks like just another collaboration tool has developed into something that is so much

3

more. Social networking at its core feeds on our own need to be part of a collective entity and in much the same way the Internet has transformed electronic commerce (or e-commerce for short), the same Internet is transforming the way in which we interact with each other. In this case, the largest social networking site, Facebook, is the catalyst for that change. At more than 500 million users, if it were a country its virtual population would make it the 3rd largest nation in the world. With all that user data, Facebook is the prince of information in the social space the way Google is the king of information in the global Internet space. E-Commerce, Digital Markets, and Facebook In our textbook, Laudon (2010) discusses e-commerce in depth. E-commerce has added a new rich dimension of content in which Internet users can get much more information on a product more quickly than going to traditional stores to learn about it. E-commerce enables ubiquity, global reach, universal standards, richness, information density, personalization, and social technology. Most recently, these digital markets have taken an interest in social media to add the additional level of personalization to compete with traditional brick-and-mortar retailers. This reach will continue into immediate future as electronic retailers continue advancing into the mobile technology space to increase the level of user interactivity through deeper personalization (personal cell phones) and location based service as tracked through the phone’s GPS. From a social media perspective as covered in the case study, Facebook is social networking. Its ability to bring together users with common product and activity interests and friends is what electronic retailers desire to help them sell goods and services more effectively. Facebook adds targeted advertising and shopper analytics to drive social-based shopping to a

Facebook Values and Future E-commerce higher level beyond simple on-line stores. It merges the social and retail presence together to

4

allow online marketers to tap new markets and is ubiquitous given that most social interfaces are free or low cost to advertise. Facebook also encourages information asymmetry by allowing users to discuss issues around a common product or retailer. Finally, Facebook creates new digital goods through games such as Farmville that allow users to spend real dollars to enhance their gaming experience. E-Commerce and the Web 2.0 Impact in Facebook Facebook incorporates many Web 2.0, such as blogs and mashups, and e-commerce technologies in creating the social experience. At its core, Facebook is a combination of microblogs where each user can post anything about on any topic. These blogs are mashed up to produce a user’s Wall to allow a user to see their friends’ updates as well. Facebook also allows e-commerce retailers to establish commercial pages which users can choose to “Like” and have those pages’ Walls mashed into their personal News Feed. Most recently (since this case study was published), Facebook has introduced tagging whereby another user or product can be tagged in a user’s post. This allows a user to create a link back to an electronic retailer and lets the retailer know what users are saying about them. This new bidirectional Web 2.0 technology continues to enhance the role of Facebook in e-commerce. Facebook’s Privacy vs. Usability Challenges Facebook continues to come under fire as it attempts to carefully balance privacy with its business operation. When Facebook was first introduced to the public, it was simply a way for users to share thoughts, messages, and photos with friends, friends of friends, and the public. The interface had very rudimentary technical controls for controlling permissions and the controls could be circumvented to see what should have been otherwise protected data.

Facebook Values and Future E-commerce Additionally, there were originally no organized “groups” to allow users to segment one type of friend from another. In a need to generate revenue, Facebook added on advertising services and interfaces to allow retailers to get access to user information. Unfortunately, Facebook significantly underestimated its users’ desire for privacy and opted-in its users by default to

5

allow advertisers access to their personal information. Pressure from advertisers and Facebook’s own managers have driven the decisions to relax the privacy policies in exchange for generating revenue. Fortunately, Facebook has since taken steps to add a user-, group-, and advertiserbased policy governance processes (Facebook, 2009) and continues to redesign its privacy control based on user feedback by giving users more granular and easy to use controls over how their personal information is shared. Additionally, Facebook continues to challenge advertisers over the inappropriate use of their user’s data, as the information is impossible to protect after it leaves Facebook’s infrastructure. Facebook – A Social Business Model Facebook definitely has a viable business model. Its user’s information including user interests is extremely valuable to advertisers, retailers, educators, and even law enforcement. The challenge is putting a price on that information and organizing and distributing the data to the interested parties in a way that is both meaningful to the recipients and safe for the users. Without the inherent trust of the users of the Facebook service, there would be no information to share at all. Socially Facebook has a responsibility to its users to maintain a level of implied confidentiality but should encourage the use of services such as tagging where users might stand to benefit from the leverage of common interests such as getting a volume-based price reduction on a good or service. At the same time Facebook must consciously disclose that the use of these tools may imply the collection of that information by third parties. Ultimately, Facebook needs

Facebook Values and Future E-commerce to keep the rights of the data with the users but educate on how the conversations in Facebook

6

are a matter of public record -- the same as talking to people in public places. On the advertising side, it would be prudent for Facebook to partner with an analytics service such as Omniture or Webtrends who specialize in the collection and obfuscating of personal data so it can still be useful to advertisers. On the retail side, businesses should expect to pay Facebook for advertising space, for analytic data about Facebook’s users, and for enhanced services that give retailers a personable interaction with the Facebook users on the users’ terms. Advertising With Facebook If I were employed to work with Facebook’s advertising I would seek out new revenue streams that leverage the volume of user information with individual user privacy. The challenge is to effectively model global social interaction in a virtual space. As mentioned earlier, one stream would be through aggregating user data through an ongoing partnership with one or more analytics companies. The aggregated results could then be used to sell advertising space within the Facebook service similar to the way Google uses banner ads on their search result pages. This is already being done on Facebook today, but I’m not sure it is fully effective. To enhance the value of the ad space, Facebook needs to continue to leverage Web 2.0 technology in the ads themselves. This would make the ads more valuable to retailers by attracting more potential customers. This still leaves control with the Facebook user but adds value for the retailer. Facebook could also increase the ad volume on the space. As with many free services, users have come to expect a higher volume of advertisements in the fixed space as a means for the service to cover costs. For example, Facebook could add a section of Google ads on each page that would create a new revenue stream for Facebook. Facebook could also add a

Facebook Values and Future E-commerce subscription service for the users so that if they want an ad-free experience, they could simply pay a small fee per month or year. Neither of these approaches violates user privacy or changes

7

the functionality of existing Facebook services. As with any approach, there is a careful balance between profitability and user security.

Facebook Values and Future E-commerce References

8

Laudon, K., Loudon, J., & Dass R. (2010). Management Information System: Managing the Digital Firm. 11th ed. India: Pearson. ISBN: 978-81-317-3064-5. Facebook Hits 500 Million Users. The 3rd Largest “Country” in the World. (2010). In ArabCrunch. Retrieved from http://arabcrunch.com/2010/07/facebook-hits-500-millionusers-now-the-3rd-largest-country-in-the-world.html Facebook. (2010, October 29). Press Room - Statistics. Retrieved on October 29, 2010 from http://www.facebook.com/press/info.php?statistics Facebook. (2010, October 29). Press Room – Company Timeline. Retrieved on October 29, 2010 from http://www.facebook.com/press/info.php?timeline Facebook. (2010, May 26). Press Room - Facebook Redesigns Privacy. Retrieved on October 29, 2010 from http://www.facebook.com/press/releases.php?p=164155 Facebook. (2009, February 26). Press Room - Facebook Opens Governance of Service and Policy Process to Users. Retrieved on October 29, 2010 from http://www.facebook.com/press/releases.php?p=85587 Facebook. (2006, September 8). Press Room - Facebook Launches Additional Privacy Controls for News Feed and Mini-Feed. Retrieved on October 29, 2010 from http://www.facebook.com/press/releases.php?p=643