Facebook - and social networks like it - succeed when they make it easier for people to form communities of purpose - groups. They lower the transaction cost of finding each other.In the case of Facebook they have removed the heavy-lifting of manual discovery by using profile data and content shared by individuals to 'auto-suggest' friends you should connect with.
LinkedIn has similar functionality.
It makes sense. (image, Getty, via Zemanta).
(This paragraph updated May30, 2010 in the pursuit of clarity - on the suggestion of Jay Rosen)
Lowering the transaction cost of group forming is fundamentally what the internet is for. This becomes ever more evident, even for those who would have you believe the web is one large conduit for content/knowledge sharing, when you add consider the dawning of the ‘web of things’. In the web of things each element of content is another node capable of expressing its meta data to all other things and all other people. Both content and people find each other – forming nodes in a group; a community of purpose.
The problem for the likes of Facebook is that lowering the transaction cost of group forming is incompatible with charging for advertising.
How so? You have to attempt to create an artificial scarcity in our ability to discover each other.
ie An advertiser must pay to connect (via the brutal interruption of an ad) with a person for whom their advert is (at least they believe) relevant. The advertiser is paying a third party, a mediator, for the connection, the ability to form a group with you (he'd obviously like the group to be rather more than just you and he...)
Why can't the advertiser just go searching for people who will find their product relevant?
Ah, that'd be why the artificial scarcity gets deployed. To prevent them from doing precisely that. It is the flipside of the Facebook privacy issue.
Privacy - or who controls who gets to connect with whom - is the artificial scarcity Facebook relies upon to create value for its ads (and it is now the clear and dominant leader in display advertising online).
It's got there through artificial scarcity. But the web - and its driving group-forming purpose - equates to the imperative to go round artificial scarcity; barriers, paywalls, copyright etc
I think Facebook understands that and, in its constant push-back against privacy, is seeking to remove the artificial scarcity it has created to seek new business models ('Like', for example, or even the platform-thinking solution I have previously suggested).
But to return to my original thought, ads are always an example of one party charging another for access to connect. In the group-forming world of the web, mechanisms to limit that access (create scarcity) must always be artificial. So they can only ever enjoy a limited lifespan.
Artificial scarcity has no future on the web. And without that, online advertising has no future either.
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I think I agree with what you are getting at.
ReplyDeleteI am in definite agreement with George Gilder's 'Telecosm' (2000) in which he says ‘In a world where advertisements are read only by people who choose to read them, the quality sharply improves.
Freed from the meretricious need to appeal to passing strangers, advertisers ascend to a higher cultural level..
Advertising becomes an art of truth rather than an art of deceit.’
I still believe there's a future for 'advertising', but it's an evolution away from the model that still plays out, even in facebook et al.
There's two things I would say by way of helpful counterpoint to your argument:
ReplyDeleteFirst the philosophical: I'm not sure that we can talk about the end of scarcity on the web. The right information, connection, context, that I need right now, at this moment, could be considered scarcities.
The web's complexity and scale mean the old scarcities are banished. But new ones will arise, have arisen. Google makes money from the scarcity of relevance, or its ability to bring the best relevancy to a query. And an opportunity to advertise...
The second, more practical point I would make is that what the web does to advertising is end its primacy in the marketing communications mix. Mass advertising was the most effective and expensive blunt instrument in the brand's toolbox.
The web's complexity means that it diminishes in importance, but I don't think it will go away. In short, it has a future, but perhaps it is not as bright as its past.
Hi both - thanks for your thoughts. I agree there is always likely to be scarcity of some kind - but it's unlikely (in my view) that artificial scarcity (of precisely the gate-keeper kind required for paid-for advertising)has much of a long-term future. Lowering the transaction cost of finding the right information, context, at the right time, is where we, and the web are headed, it seems to me.
ReplyDeleteI guess it all comes down to this - if there can be gatekeepers there can be mediation in relationships and there can therefore be a charge for access. But access to relationship may not always equate to 'so I can message them'.
Not sure that interruptive advertising is "brutal". That sounds like an emotional argument where the rest of your post is more rationally argued.
ReplyDeleteFurthermore, I'm not convinced that online display advertising is "interruptive." If only, frankly.
You seem to have a (fairly reasonable) definition of the web as "text and pictures." But I'm not sure how much this is a good view of the future; I'm seeing things like Boxee, NetFlix, NetFlix on iPad, Hulu, iTunes, iPlayer, 4oD and the various VoD services as an indicator of what a lot of "internet" is going to look like very soon.
I'd argue that TV advertising has a tremendous payload (emotional resonance, high recall etc.) but a lousy targeting mechanism (broad-brush contextual or daypart targeting etc.) And there's no tracking worth speaking.
The web on the other hand has a lousy payload right now (despite claims that it's interruptive, it mostly isn't even noticed.) But it has the most fantastic targeting and tracking. We have real-time bidding; retargeting, and behavioural targeting.
I see a short term future where these two worlds meet for mainstream audiences. Sure -- niche audiences like us may not find it to our taste. But that doesn't mean it won't work.
To your first point, regarding the much lower transaction costs of forming groups... I think that's the key for the future.
ReplyDeleteCompanies are getting better at thinking 'how do I use advertising to start conversations with people, then carry on those conversations so I need not advertise to them again'.
It changes the whole business model though, not just the marketing end. You're moving companies from being built to deliver high sales of a particular doo-dah in specific bursts, to being a company that grows slowly and steadily over time...
...which affects everything from manufacture to shift rotation to shipping.
It's easy to work with marketing teams so understand the benefit of the social approach for their business. The hard bit is then changing the rest of the business.
What john v willshire just said.. that rings true to me... and that's why, to my understanding, the playing field is being levelled for the new-start, or new-ish, or the smaller businesses because the focus can be the old fashioned values of knowing your customers almost on a personal level and delivering what is right for them.
ReplyDeleteEngagement and value can win through - more investment in service, less in ad's.
Presumably the smart agencies will be the ones who advocate this approach and develop strategies for nurturing larger, more established businesses through it..?
It's kind of like the Cornershop v's the Supermarket and what Sir Ken Robinson says in this TED talk seems to reflect what needs to happen across industries, not just education.
http://www.ted.com/talks/sir_ken_robinson_bring_on_the_revolution.html
Love the Ken Robinson talk. Suggest you also check out Neil Perkins post http://neilperkin.typepad.com/only_dead_fish/2010/05/from-linear-to-organic.html
ReplyDeleteI'm very much of the 'this stuff is much bigger than how we change how we message' school. Search on here for 'platform' or 'platform organisation' and you should find some stuff on that theme. Subject of my next book, too. Provisional title is 'Platform Thinking: How the web changes the organisation of business and the business of organisation
David,
ReplyDeleteLike what you say and feel that a lot of compannies would benefit from reading it before re-thinking their business models.
I suspect many had no real models and simply jumped on the online band wagon in the belief you could not fail to make money.
Artificial scarcity is an interesting idea and will I am sure shape the web landscape. But, I feel that another key feature will be the 'soft capital' of trust and quality of service.
If you can achieve these then you can win business even when there is no shortage of supply or when free services are competing with you.
Which brings us back to the conclusion that facebook is getting it very wrong by undermining trust and offering dubious product features.
with no real scarcity its only ineria that keeps people using a poor product.
Gerald Power
David, you make a logical argument but you're ignoring Google. If a low transaction cost is truly at odds with advertising, GOOG wouldn't be the giant they are today. "artificial scarcity" is not the only route to making ads deliver value - the Google method relies on NOISE to make the ads useful; it works well and it's the same thing Facebook will do.
ReplyDeleteHi David, GOOG has succeeded precisely because it remains the gatekeeper to a relationship between the advertisers and the intended receipient. google knows where to deploy your ad - and has a mechanism so to do - you do not.
ReplyDeleteEven that is an artificial scarcity agains the backdrop of the web's drive towards lowering the transaction cost of group-forming.
If you could form a group with the people relevant to your key terms without paying google, you would.
Through less silo'd expression and discovery of meta data that becomes more possible.