Facebook’s most important product – YOU

With the exception of their short lived “Facebook deals” experiment, Facebook has never asked me for money.  They don’t send me emails promising powerful new time saving features if I only upgrade to the “premium” version of their product.  They never tell me how I can communicate with people all over the world for less than 50 cents a day.   I don’t wake up one morning to discover that my version of Facebook has been replaced by a newer, shinier one with a car payment sized price tag.  Instead, Facebook promises its users that “It’s free and always will be”.

Instead, Facebook spends its time and energy acting very much like a traditional media company by convincing corporations to send them large sums of money in return for displaying advertisements to their 750 million users.  In essence, this part of Facebook’s business is not dissimilar from the traditional TV model of creating shows that create a large enough audience to attract sponsorships/advertisements.   Except in Facebook’s case, they don’t actually have to “create” any of the content as their users do it all for them, for free.  Not only do their users create the content for them, but the more they fill out their profile, the more valuable they make themselves to advertisers willing to pay a significant premium to target increasingly specific target audiences (i.e. high school football players in northern california).

As pressure begins to mount on Facebook to continue growing its business at a rate that will justify recent valuations and the eventual IPO, there are multiple paths it can take to increase advertising revenue.  The first is to increase the amount of time you (and other Facebook users) spend on the site as total amount of time spent on Facebook is the amount of inventory Facebook has to sell.  The second is to increase the value of their inventory by collecting more and more granular information about each user so they can be targeted more effectively.  The third is to increase the total number of Facebook users – but this will become increasingly difficult as Facebook reaches saturation in its more mature markets.

The problem with this scenario is that its sets up an inherent conflict of interest between Facebook and you.  New features that make your time spent on Facebook more efficient and reduce the total amount of time spent on Facebook may be a positive for you, but are a negative for Facebook the company as it reduces the amount of inventory they have to sell.  Any feature that provides Facebook more information about what you like or what you are doing provides tremendous value to Facebook’s advertisers regardless of if you find it useful.  New features such as timeline, sharing music/movies/books will provide tremendous opportunities for advertisers to target audiences who listen to certain bands, watch certain movies or have children of a certain age/sex/medical condition.

There is nothing wrong with this model, as by signing up for a free service that is paid for by advertising you as a user know that your information will be used for advertising purposes.  But as the depth and breadth of what Facebook tracks continues to grow it is reasonable to looks at these new features and ask who they most benefit?  You – their user?  Or an advertiser, their customer?

Remember – you do not provide the majority of Facebook’s revenue.  Facebook is not selling to you, Facebook is selling you.

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