A small but powerful tweak to Facebook's 'social advertising' ad products

News of Facebook's "sponsored stories" came out a little while back, but since I haven't noticed any on my quick scans through FB (might have caught a case of banner-blindness recently), I had pretty much forgotten about it until today. Adage just did a story on Facebook's 'social advertising' features to advertisers and gave a good overview of the different offerings.

Many of the reader responses to this article were predictably unhappy that Facebook would 'sell' users' activity information and even users' likenesses to advertisers, especially without the ability to op-out. Some pointed out that if this ad style became popular, it would invariably cause Facebookers to think twice before hitting the 'Like' button. Keep in mind these were Adage readers who you'd think would be pouncing on these new tools.

But by focusing on the privacy concerns, we might be missing the bigger problem underlying the direction FB is taking to create this so-called 'social advertising'. Traditional WOM is driven by 'customer delight'... where the product or service has significantly exceeded the threshold for 'satisfaction'. The awkward step-sibling of WOM is network marketing where the WOM is incentivized by providing cash payouts to the person spreading the word. In both cases, the message stems from benefits received by the messenger. With FB's 'social advertising' offering, they are silently collecting the rent that should be paid to the messenger to convey the WOM. While it might seem like an elegant way to generate new revenues without disrupting a Facebooker's routine, I think this approach is both flawed and short-sighted.

The value of WOM is in getting the messenger's endorsement. A subtle change to the flow could make this 'social advertising' product truer to traditional WOM, less creepy, and ultimately more effective. Instead of treating user's 'Likes' and other activites as implicit approval, FB should pop up an explicit request to endorse or promote the product or brand. These pop-ups only happen if sponsored by an advertiser. Would we, as users, be willing to endorse the specific product or brand? Well, if they gave me 'customer delight', they would've earned it and I'd be happy to oblige. If I was just merely satisfied with the experience, I might need to be incentivized. In that case, advertisers should take a page from Groupon's friend referral program and offer some benefits to both me and the friends who will see my endorsement.

What's the impact to FB if they made this change? Less creeped out Facebookers for one thing. Also, the cost of the incentives offered by the advertisers to the users should be more than offset by the value of the actual endorsement. If these endorsements work and really brings to life the full effect of 'social advertising', then the biggest winner of all will be Facebook.

Win. Win. And Win.

What do you guys think? Know who I might forward this idea to at Facebook? It might save us from having our pictures next to products or services that we'd really rather not. :)

Can Google Stay Relevant?

I can't help but wonder what the news of Larry Page taking back the reins mean for Google. Unlike Apple when Jobs return in 1996, Google is still minting money by the boatloads. However, I wonder how many people in the industry still look to Google as an innovation powerhouse.

I'm still a happy gmail user and can still remember switching over from my Y!mail account. Gmail was definitely a couple steps ahead of its competitors at that point. My big Google hope, however, was for Wave. When word got out that a tiger team at Google was attempting to re-imagine email given everything we had learned in the last 15 years, I was hounding friends over at the GooglePlex for an early invite. While Wave was definitely fun to play around with, the half-hearted attempt at rollout and poor integration with Gmail probably doomed the product. Furthermore, Wave had pretty much completely missed the social train. Little surprise that the project got canned and the technology got "reabsorbed" into Google proper.

But there hasn't been a big innovation hurrah out of Google since. Buzz did not re-imagining anything. Its features are incremental and, as a result, it hasn't made a peep in the roaring social party. But the worse offense is this latest news of a Google "Offers" Groupon clone.

The pitch sheet for "Offers" that got leaked to the media describes a product that hardly brings anything new to the market. True, they offer to run ads on the display network, but that was a pretty obvious next-step for Groupon and LivingSocial in order to broaden their bases. But what surprised (and disappointed) me the most is that Google is offering local merchants the same broken economics that Groupon is peddling. As a leader in both advertising and technology, Google should definitely be attacking Groupon's Achilles heel by creating a marketing management framework for local merchants that actually makes financial sense. And it doesn't end there. The timing for leaking this news is abysmal! If the strategy or M&A folks over at the GooglePlex had leaked this document a couple weeks before talking to Groupon, they would have had a bit more strength at the negotiation table and, failing that, would have at least thrown some cold water onto their competitor's fund-raising. It didn't even require writing a single line of software. Just the 2-page pdf was enough.

Getting the "Offers" news out so strategically late really calls to mind Google's stumbles in the last couple years. Maybe Page taking direct control will give the team a boost. But since I didn't have the impression that Larry and Sergey had been marginalized by Eric, I'm not expecting a significant change. I'd hate to be the first to ask whether Google will remain relevant in the years to come. I couldn't help but cringe on hearing Carol Bartz talk about making Yahoo relevant. Apparently, when a company is mentioned in the same sentence as the word "relevant", irrelevance might not be too far off.

Search is dead! Long live Search!

Just when you thought that Google had once and for all solved all of our search problems, you realize that half of your Google searches end not with you finding what you want, but when you decide you just don't care enough to keep searching. Sigh! Maybe I'll go further and suggest that Google's failed searches has contributed to the intellectual "shallowing" Nick Carr lamented in his book. It's not that we don't want to know more... it's just that we can't find it (at least not fast enough)!

Fortunately, when big technology companies stumble, they hoe the soil from which innovative startups spring. There's a new batch of search companies coming our way (wearing various guises). Quora, a semi-social Q&A service, is perhaps the widely touted at the moment. There are also a couple social list sharing services getting some buzz (e.g. path.io, pearltree). But social is a red-herring when it comes to search. It might feel that Google is algorithmic and not social, but even from day one, Google's page-rank algorithm has relied on social mechanisms (in that case, people linking to sites they found useful) to discover and rank content on the web. With these newer services, however, the identities of the ranker is gaining prominence.

This could very well be a continuation of the trend away from the anonymous web. Anonymity might aid "free speech" in some niche topics, but has come at a cost of greatly depreciating the information we find online. If we have no way of verifying the reliability of a piece of information, it makes the information close to useless. Or put in another way, information is only as good as the source. With sites like Quora, we can trace the information back to a specific individual and verify their credentials.

That makes for a much more satisfying search experience.

Which is mightier, the Ad or the Coupon?

Location-based services have been all the rage ever since the smart-phone revolution kicked off three years ago with the original iPhone. Since then, upstart web services companies have tried eagerly to explore the space, looking for a viable user/business model. Companies like Yelp, Groupon, and FourSquare all hold a piece of the puzzle. In an article yesterday, a guest columnist on TechCrunch explored what would be possible if we could combine the respective strengths of Yelp, Groupon, FourSquare and Facebook.

Part of Groupon's success has been attributed to the "no upfront payment" angle of their model. Unlike ads, participating merchants don't need to worry whether their ads are showing to the right audience and what percentage is converting. Instead, they only pay on conversion (when the customer shows up at the door). But coupons present a whole different set of challenges for marketers that are quite different from those of advertising.

If marketers design coupon campaigns the same way they would approach ad campaigns, they're going to be in for a rude awakening. Let's look at some of the differences between ads and coupons. From a marketer's perspective, coupons can be used to accomplish one of three objectives.

First, they can be used to draw in a new customer. In this case, the incentive should be sufficiently compelling that it compensates the target customer for any perceived risk of trying out a different vendor/brand/product. Groupon is currently targeted primarily at this objective.

Secondly, coupons can be used to shape the consumption pattern of existing customers, either getting them to consume more or to consume more frequently. This is similar to using advertising to maintain a customer's share of mind.

Thirdly, coupons are one tool that allows customers to effect price discrimination. While published prices are identical for all customers, effective prices differ depending on the coupon each customer has in hand. This allows the marketer to tailor the pricing to reflect the willingness to pay for each customer (or at least, each customer group).

But there are some clear challenges. You really don't want to give a discount to a customer who is already willing to spend a certain amount of money at your store. Doing so would just result in margin erosion. If a customer can pull out their smart-phone and search for a discount right before paying the check, than you're going to see some serious profit leakage. The power of search engines makes using coupons for price discrimination and attracting new customers a much harder problem.

One possible solution lie with social networks. If discounts are non-transferable, that might help block the problem posed by the search engines. Also, it might be possible to take a page out of the social gaming playbook and allow users to send coupons to friends, except that the friend might receive a different discount value than the sender. For instance, if Sue was targeted as a new customer for the Osha Thai restaurant, she would receive a special offer through FB for 25% of her first visit. However, if she forwarded the offer to Charlie and Charlie was already an existing Osha customer, he would only see a discount of 10% on his next visit.

Could this work? It does pose a bit of a risk of angering your existing customers. Imagine if Sue forwarded the discount to Charlie and highlighted the surprising 25% discount offer. If I was Charlie, I'd be a little miffed.

The Underlying Economic Crisis

It's no mystery that we're in the midst of an economic crisis.

What lead us into this economic crisis is a topic that is rather frequently addressed... although rarely competently. But digging down a good bit deeper, we see indications that one of the key root-causes to the economic crisis is our entirely insufficient understanding of economics. And I'm not talking about the economic literacy of the layman (that's also frightfully bad, particularly so because we have a democratic form of government). Even the ones at the highest levels of our ivory towers can claim only a feeble understanding of how our incredibly complex global economy actually functions. The Dahlem report released in early 2009 by a group of (admittedly not well known) economists from both the US and Europe takes the whole economics academia to task for this costly failure.

As a society, we look to our economics academia to provide us the foundational economic theories and models that we need in order to make critical economics decisions. Just looking at the daily news, especially given the upcoming elections, and we see that most of the critical issues we face as a society is deeply rooted in economics. From taxation to health care reform to funding for wars to pension reform to economic stimulus to foreign trade and currency policy, each of these issues both drive and are driven by our economy.

Given all the talk about what we should do concerning these issues, you'd think that we already possess the macroeconomic understanding to make the right decisions. Instead, we find a big gaping hole where our understanding should be. To fill this hole of "missing understanding", politicians, pundits, and even lay-people, throw around economic arguments that they clearly do not understand and cannot back up with solid macro-economic thinking. In short, our economic academia has left us bare-naked in a snowstorm.

The Dahlem report gets within a couple yards of the goal line, but still fails to identify the root-cause of our catastrophic deficiency in economics understanding. True, we have trusted our academia to tackle this tough problem and what they have delivered is painfully inadequate. However, it is not enough to just pin the blame on the ivory tower. To get at the deepest underlying problem, we need to ask the question of why our economists have failed to deliver.

Is the problem too hard? Or have they been distracted with other pursuits?

Given the severe costs to the society from mishandling our economic issues, I would think that developing a more solid understanding of macroeconomics would be at the forefront of our scientific pursuit. The real, and actionable, question for us is what we need to do, as a society, to direct (and incentivize) our foremost economic thinkers to drop whatever sideline research they are currently pursuing and address this deficiency of economics understanding. This really should be today's "race to the moon/Mars". Without it, we will be so cash-strapped as a society that tomorrow's actual "race to the moon/Mars" will only be a cruel joke.

Even the mighty...

In case you've missed it, news is going around that the SEC is investigating Buffett's Berkshire Hathaway for irregularities in loss accounting. Here's a link to the news on Reuters.

What's particularly troubling about this news is not that financial firms are still trying to "engineer" their way to greater paper profits, but that a firm like BH, long respected for taking a conservative, cut-no-corners approach to finance would get caught so far on the other side of the line. I don't claim to have a particularly strong command of FASB regulations, but what is at issue is not the fine print. Part of the cultural decay leading to the present financial crisis is the focus on the letter, rather than the spirit, of the law.

For something like mark-to-market accounting for marketable securities, the spirit of the law is rather clear, even to the non-lawyers. Financial institutions have every incentive to manipulate their earnings (e.g. cookie jars, big baths, etc) and it is to the investor's benefit to minimize the leeway with which these firms can choose to interpret their results. For marketable securities, the mark-to-market rules increase transparency as to the underlying financial condition of a financial firm.

For BH, a firm that others look to as a gold standard for fiscally conservative financial management, to hide losses in their portfolio is shocking. For them to come out and defend their handling of this matter by saying, "Berkshire determined both companies had enough earnings potential that their share prices would eventually exceed the original cost of the stock. It also has the ability and intent to hold the shares until they recovered", is just plan sad. This logic is obviously flawed and if other financial firms were to follow BH's lead, it will do away with any of the protections to investors that mark-to-market regulations were supposed to provide.

If leaders want to lead, it's only fair that they're held to a higher bar. Buffett & Co. have claimed for years that honest, old-fashion astute investing is the surest way to build wealth. Along the way, they stood as vanguards to the image that the financial profession is a respectable one. For their sake, and the sake of the rest of the industry, they need to stand up, take their lumps, and steer the company back over to the conservative side of the line.

What does Google 20% really mean?

I was just glancing through the TC headlines and the article about Twitter folks taking next week off to work on "side projects" caught my eye. What does it mean when two of the most innovative companies in the technology industry feel that they need to forfeit a significant percentage of their teams' productivity in order to avoid "missing the next big thing"?

If it's the innovator's dilemma they are trying to solve, they might need to reread Christensen's book. The problem is not only that good ideas don't surface in a large (typically successful) organization, but that they can't attract the levels of resources needed to nurture good ideas from inception to scale. Giving your development team time to explore ideas they come across during the rest of the week might give your people a sense of self fulfillment, but are these efforts really backed up by the commitment and processes needed to fully vet ideas and see them through to launch? For small scale efforts, low commitment and ad-hoc processes might suffice, but for ideas that might truly transform a company, that seems far fetched.

There are a number of companies, including BrightIdeas and Spigot, who are trying to provide a technological solution to the problem of innovation management (apparently, the challenge already has its own name). But technology is only one piece of the puzzle and it seems doubtful that a pure technology solution will be viable. Entire mindsets need to change in order for companies to be able to leverage the aggregate knowledge and creativity of its people... even for companies like Google and Twitter.

Another point that someone in the comments section of the TC article pointed out is that the Google 20% policy might only apply to engineers. If the problem space that the 20% program is meant to target is restricted to the problems that engineers see and appreciate, then that might make sense. If Google is trying to make "information" more accessible to the rest of us, then it seems strange that they haven't spread their net a little wider in search for problems that are really begging a solution.