Does Online-Marketing work on Social Networks?

Can Social Networks earn enough money through online marketing to justify their investments? The pessimist answer to this question is given by today’s article in the Financial Time called “Publicis warns of web bubble”. Journalist Andrew Edgecliffe-Johnson quotes Maurice Lévy, CEO of the marketing company Publicis:

“Far too many people are building plans based on advertising and they may well be disappointed because there is not enough money for everyone. […] It’s exactly the same situation as we saw at the end of the 1990s, when everyone thought that because he had a website he’d get the valuation. Now everyone building a Web 2.0 operation believes he will receive the advertising. […] I’m not sure we’ve found the right way of communicating with that audience.”

The general argument is twofold: the market for online-marketing is too small compared to the evaluations of companies like Facebook and Social Networks are not suited for online-marketing.

Social networks can not be compared to sites like Ebay or Amazon. Social networks are primarily used for exchanging social information and staying touch, not for buying and selling items. Online Marketing is a nuisance to Facebook users, but does not disturb on Ebay or Amazon.

Facebooks Marketing Mechanisms

Companies might use social networks for totally different reasons then marketing. They can use social networks for market research and getting an idea of what their target group is concerned about (trend scouting). They can test new products and establish feedback channels. They can use social networks for recruiting or for their internal social networks.

Facebook has six mechanisms to co-operate with businesses:

• Socialads: These are classical ads placed in the left margin of the site or as horizontal bar in the News Feed for the users. The cost very little - the minimum charge is 5 US-Dollars.
  According to Brad Lindner, big brand names such as Blockbuster, CBS, Chase, Coca-Cola, Microsoft, Sony Pictures, and Verizon Wireless have entered advertising deals with Facebook.
• Pages: Similar to a user-page, advertisers can create a page of their own that allows users to write on the advertiser’s wall and send messages.
• Insights: Like Google-Analytics, Facebook offers a tool for the advertisers to see the impact of their campaign. It is a free service for users of Social Ads and Pages.
• Applications: Applications are small programs that users can install on their profiles. They allow specific interactions between users, such as sharing videos or sending visual messages. Other applications allow to play games with other users, compare users with each other or rank them.
• Polls: Advertisers can create surveys in which users can participate. The results from the surveys can be seen while users are filling them out.

Are Beacons Illegal?

The sixth piece of Facebooks Advertising Strategy are Beacons: Beacons can be used in combinations of pages and ads.

Beacons track what people do on the Internet while being logged in to Facebook. When I read an article in the New York Times, the New York Times will send a short notice to my Facebook profile which then will be displayed to my Facebook friends (or whoever can read my feed according to my privacy settings). I need to be logged into Facebook.

Allfacebook and Techcrunch had released plans of this earlier this week:

From what we hear, third parties supply this data to Facebook without compensation; what they get in return is a link back in the News Feed (which is effectively a free ad). Facebook, of course, gets incredibly valuable data about the user. This data can be used to serve targeted (highly, highly targeted) ads back to them in various other places on Facebook and elsewhere.

Fred Stutzman explains how this works:

Any time you load [a] Beacon-enabled page, Facebook knows exactly what you are looking at. In essence, this setup is sending your clickstream and path data to Facebook, precisely correlated to your Facebook identity.

Adam Ostrows Poll shows that a large majority of people find this intrusion into their privacy very dangerous. William McGeveran argues that this part of Facebook ads might even be illegal:

It may break the law. […] Privacy law, as it should, treats advertising uses differently from other uses. One of the four common-law privacy torts forbids “appropriation.” Specifically: “One who appropriates to his own use or benefit the name of likeness of another is subject to liability to the other for an invasion of his privacy.” […] Several states including New York and California have statutory provisions that are similar. New York’s well-known statute creates both a misdemeanor and a civil cause of action for “[a]ny person whose name, portrait, picture, or voice is used within this state for advertising purposes or for the purposes of trade without the written consent first obtained.”

In easier words: it is illegal to use somebody’s name and picture to advertise a product without his consent. But this is exactly what happens with the Beacon feature. As Sachin Balagopalan writes:

So when a member becomes a fan of say Coke all his/her friends will see the announcement in their news feed - something like “Joe is a fan of diet Coke”. Where it gets interesting is Coke can pay to place their logo and a caption underneath every news feed item that references diet Coke. In addition to that Joe’s friends will see his image and text stating his likeness towards diet coke on the banner ads throughout the site.

The general legal discussion is quite fascinating, however it is unclear how users will react. In response to these concerns, William Tildesley created a Facebook group and Om Malik has questioned a representative from Facebook about how users can avoid being tracked, but the answer is far from satisfying. Natt Weiner explains how to block the Beacon mechanism when using Firefox Mozilla.

I think that only experienced users which care about their data privacy issue would take these steps. I agree with Sohaib Thiab:

With more and more sites eventually use Facebook Beacon, our browsing, purchasing and general internet habits will be recorded and distributed in our news feeds. […] This partially answers the questions everyone has been asking, why is Facebook worth that much (15 billion)? Consumer data that Facebook is gathering is and will be worth hundreds of millions of dollars if not more.

Conclusion

The reason why Facebook is an interesting marketing platform has nothing to do with the sales on its platforms. It is far more valuable as strengthening the link between the target group and the advertisement campaign.