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BLOG: Facebook IPO: Why your data is worth $93 billion

Mark Sullivan | May 21, 2012
"If the product is free, you are the product."

For example, in recent weeks Facebook has reported in a series of SEC filings how it has largely failed to make money from its mobile app, which nearly half of the company's user base enjoys. Investors, of course, will view this as money left on the table (money lost), and will demand action to develop that stream. Development could come in the form of mobile ads or "paid updates" on the mobile newsfeed. Such an effort would annoy users and cost them a bit of their time, but it would probably not cost them their privacy.

That's just one example, though. The pressure to make more direct use of the personally identifiable data in Facebook's servers will be considerable over the next few months and years, especially if Facebook's existing revenue streams hit hard times, or if the price of the stock falls off. Make no mistake: Marketers and advertisers would love to get their hands on the ad-targeting data that Facebook has amassed.

Facebook's immediate strategies for pumping up revenues will likely include selling ads (in various forms) on Facebook Mobile, and placing ads for clients on other sites outside of Facebook.

The latter strategy will transform Facebook into a large ad network. A company such as Ford, for instance, might approach Facebook and buy an audience of Facebook users who have either discussed new cars on Facebook or visited car sites around the Web. Facebook would know who those users are, because the cookie it drops in users' browsers would report that information back. Facebook would then design a highly targeted ad campaign in which it places Ford ads on Facebook and at partner sites around the Web where it knows potential car buyers may visit.

But that strategy might not be enough. Facebook will soon reach a billion monthly users, a staggering number, but its growth is expected to slow way down soon. In most of the industrialized world, everybody already knows about Facebook, and anyone inclined to sign up has already done so. Much of Facebook's current growth is coming from poorer countries around the world, and soon even those new markets will be tapped.

Today Facebook makes about $5 from each of its users, while Google makes $30. It's unlikely that Facebook will push that $5 number up on the strength of its existing business. Investors will look to Facebook to make more from the users it already has.

Holding Facebook Accountable

We consumers have to keep an eye on Facebook as it announces new businesses. (See "Protect Our Data! A Digital Consumer Bill of Rights" and "A Bill of Rights for Facebook Users" for related discussion.) The temptation to exploit user data in ways that erode privacy will always be present. Just by joining Facebook, we tacitly approve of the company's leveraging of some of our information--name, interests, friends, and so on--but we need to make sure that the other information or media we keep at the site remains off-limits if we have marked it as private.


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