7. Greed (Avaritia)
[editorial note: since I began to write this article in early December, quite many announcements have been made which seem to fit this topic perfectly. As a side effect, the article’s original intent (ranting/bullying about certain common misconceptions and vanity power play which exploit structures in Web Analytics) has vanished more and more into the background, giving way to looks at more concerning emerging trends within the field of Social Media, its measurement, and the consequences. For that particular reason this post turned (a) bit epic, (b) less amusing, and (c) is somewhat lacking the structural coherency from the previous posts.
As we know from Ted Nelson: “Everything is deeply intertwingled.”. I hope you will find it worth the time nevertheless.]
Depending on your career ambitions, you may desire getting the title of a “Social Media Guru” (for job descriptions and inspiration, try this search) – or you may insist on having a sign on the door of your office which says “Head of Consumer Insights”. Combined with a yearly salary of £150.000. While you still keep your lackeys, the Analyst, and the hairy IT guy on your roster.
No matter what you want to be called – it is important to understand that yet the Analytics industry is not mature enough that anybody really could derive a 360 degree view on what consumers and customers do by just looking at clickstream data from one data source.
Nevertheless all the commercial toolmakers are claiming that their products are the best – and if you ask for quotes from toolmakers or external consultants you for sure can expect to be charged premium rates.
Your boss may faint if you’d ask him for a salary of £150.000 p.a. straight, but if there’s a good probability you could bring in an additional revenue of £2M a year, he may consider this a fair deal. This simple ROI logic is as well applied by tool providers and service providers.
“ROI” has become a mantra in ad spending over the years. Meanwhile, ROIs are calculated for design makeovers, for usability assessments, and technical platform renewals. The logical next step is to calculate ROIs for employees, and for bought-in third party services. And to pay everybody according to the revenue they generate.
For Web Analytics vendors and other insight providers the famous “Million Dollar hole” that can be spotted from conversion data (cf. for an example the introduction in Steve Jackson’s excellent “Cult of Analytics” book) can be a true door opener, if – and only if – it’s in the client’s central interest to (a) save money or (b) generate more revenue.
Labeling this attempt to find money as “greed” is slightly over the top in most cases: web site budgets have been shrinking for a decade now (unless you are a well-funded startup), and the only way to revert that trend is to tie web site, agency and consultant spending to the revenue generation process.
Agencies and consultants are of course trying to get their share by aiming high: “If the conversion rate (CR) goes up 5 per cent the additional revenue will be eight million Dollar a year”. Although that is undoubtedly true, the big IF in the beginning of the sentence is often overlooked – particularly if your shop has a CR of 12,24% already at the moment. It will get quite expensive to gain enough quality traffic or to further improve the conversion funnel.
Putting up a brand new web shop on your high-volume consumer site with several millions of visits every month requires Web Analytics tracking – that much is for sure. But if you have to pay your Web Analytics provider by visit or page view volume you occasionally can’t help but calling this pricing model “daylight robbery” in many cases.
While the daylight robbery is happening particularly for customers with sites in Europe at the moment, yet another trend comes over from the US.
Particularly with Social Media we recently notice a repetition pattern from the late 90s: Volume metrics like “Impressions”, and non-monetary micro-conversions (“Likes”, “Posts”, “Comments”) are all over sudden becoming the new cool metrics.
We see a shift from the paradigm that web sites have to acquire their traffic to the paradigm that brands are invading the social networks literally for free (as traffic is already there) and are measuring their success in doing so with content consumption metrics. These metrics are clearly focusing on brand building, but the channels are true exchange and communication channels. This implies the need for constant monitoring. To be precise: Social Media traffic costs money, and the nature of the spending is totally different than with Search Engine Marketing. At least if you don’t want to ruin your reputation as a brand.
The short-term reward for companies actively maintaining their presences in social media networks is an increase in “followers” / “Likes” / or whatever other micro-conversion events. The amazing increase in people being present in social media networks generates similar dream increase rates as in the early days of the web (“Twitter followers up this month: 250%, “Likes” on our FB page: +82% in the last 10 days. Wow!”).
We’re, in a sense, going back to the good old days of feelgood metrics at the moment (cf. part 2 of the series) – but in early January 2011 Goldman Sachs has reportedly invested 500 million Dollars into Facebook, seeing a valuation of 50 billion Dollars for Facebook altogether. This coup may change the Social Media game entirely.
As is indicated in various places on this blog monetization is a method for making potential revenue real. Still: the reported 50 billion Dollars may or may not be a hypothetical value – but it creates a particular dynamics and focuses attention towards Facebook. The same is true for many other companies.
If, let’s say, an Analyst from an Investment Bank checks the market capitalization for a particular company and finds out it is underrated, according press releases and investor advice is sent out. Investors start investing in such a company, stock prices rise, and those who have bought in early enough are able to cash in while price and the demand for stocks is still increasing. At least for a while.
If you have followed the economic news in your particular country you may have a precise idea about the mechanism. If you haven’t, rest assured that this happens without any consideration of the “real” value of the company.
The German sociologist Niklas Luhmann described the structure of this economic shift already back in the Eighties: the mode of observation is switched from the first order (“observing companies”) to the second order (“observing observers of companies”). If Goldman Sachs considers Facebook valid to invest 500 million Dollars – and these guys surely aren’t mad – wouldn’t you be wise to invest in Facebook, too?
Monetizing each Facebook user with 100 Dollars may be a bit too optimistic. Or then: it may yield some unpredicted side effects in turning up some more funny money for Social Media gurus: if the average Facebook user has a value of 100 Dollars across his/her entire lifecycle, and a Facebook Fan can be purchased at around 14 to 18 cents – wouldn’t it be wise to recruit more Facebook users through your company’s web site? And couldn’t you easily monetize on getting Facebook fans recruited through your corporate web site and any occasional campaign as well (if you’re B2B)? If it turns out that Facebook will gain another 10 million visitors within the next three months – wouldn’t that increase the value of your investment, too?
And: having more fans may enable your company to get a bigger share of the potential value of existing and future Facebook users … well – you got the idea by now.
The more people join Facebook, the more attractive it gets to have a Facebook presence. Every Facebook user has on average 130 friends, and if one likes your Facebook page, you reach all of his/her friends as well (as the notification about that “Like” is appearing as a wall post). Calculating the true Reach for Facebook is a bit tricky, but still pretty much resembles a Ponzi scheme (for an actual blog post during the writing of this article, check out this article from Joseph Perla. I haven’t read it entirely myself but will do so after this article is done. I hope it’s as good as the first couple of lines indicate).
There’s one apparent downside to the whole easy idea of monetization and generating fans for your company’s presence on Facebook, though. It’s an unnoticed change in the look and feel of the Facebook presence itself, caused by platform updates, as it happened for some of the sloppily maintained presences on August 23, 2010.
A recent accidental update of Facebook (December 16, 2010) was revealing a tab-free design for FB pages, removing all custom-made landing pages for Facebook presences. According to Mashable, Facebook claims not to change the pages to a tab-free design any time soon. In August 2010 the development of FBML applications was declared to be phased out. Instead the return of the deprecated <iframe> tag was promoted. Newer developments like OAuth 2.0, Graph API, and the JavaScript SDK) have yet caused some uncertainties about if and how the support for existing fan pages will be continued in the future (for details on this topic, check FB’s Developer roadmap, here).
As we’ve come to learn Facebook is trying to monopolize access to user’s data on the one hand (that’s yet another flavour of “greed”, no?), on the other hand there are plans to limit what companies can do within their presence on the Facebook platform.
At the same time as an investor appeal is generated, Facebook itself is setting up side bar elements like “Find More Friends”, where users can plough through their email contacts across various services, or find other acquaintances based on their hometowns, current cities, mutual friends, workplaces, colleges and universities.
That may be tempting for some. Others (particularly the German privacy commissioner Johannes Caspar) are generally suspicious about data collection and exploitation of data not owned by the respective companies, and yet some others are seeing FB’s “Open Graph” as a chance to make “FB traffic convert similar to the patterns that we see for Google traffic.” (Jesper Åström, in “The Facebook Marketing Guide 2010”).
Holy mackerel! It seems as if the easy, occasionally boring, and somewhat geeky world of equipping your own tiny little web site with Web Analytics tracking code and making a career from that has turned into a multi-million (or billion) Dollar game by now. Legacy tracking and IT systems, web site contents from the late 1990’s being run on outdated platforms, business people not talking to IT departments, Analysts not properly marketing their capabilities to the business, the rise and fall of compound metrics for Web Analytics and Social Media measurement – this all has been and still is a commodity.
The described ROI angle is still valid and will stay relevant, but the money won’t return that easy as online behaviour is changing, and as a whole new range of devices for browsing and curated channels are emerging as you read these lines.
You may still get away with a corner office, a fancy title, your own staff, and a fixed salary of £75.000 – for now. Chances are getting slimmer that you will be able to keep more for long. And if you’re lucky enough: Enjoy it while it lasts.
And still nobody will be clicking on Facebook ads. Sorry, folks.
Post Scriptum 1: The mentioned Johannes Caspar considers the usage of Google Analytics in its current form illegal in Germany (cf. an according article here, and states that a test legal case against a large company using the service is in the works. Germany is not America, so the “steep fine” will not be as outrageous as it would be in front of a US court, but it could be enough to grind down the whole Analytics industry in Germany in 2011. At least it should be enough to create a massive uncertainty in the market.
Post Scriptum 2: Goldman Sachs has decided to not offer Facebook shares to investors from the US. More details from a search engine near you.
Post Scriptum 3: Facebook has decided not to share user addresses and phone numbers with Facebook apps. More details on your favourite news site or blog.