Inside Facebook

Last week, Kara Swisher and Walt Mossberg of the WSJ hosted their annual D technology conference in San Diego. Kara interviewed Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg (though she spent more time apologizing for calling Zuckerberg a toddler and asking about Sandberg’s alma mater than going in depth in any one area). Highlights are below.

With the Facebook profile redesign launch coming in the next few weeks, developers are quickly scrambling to update their apps to adapt to the new profile integration points. However, the latest version of the Platform Changes page on the Developer Wiki explains some changes that haven’t been talked about much yet (though some were mentioned briefly tonight at the Palo Alto Developer Garage). Here’s a quick summary:

1. Users can no longer add app profile boxes during installation. Since the beginning of the Platform, users have had the option (defaulted on) to add an app profile box when adding an app. While this has significantly helped application growth, it has also led to significant profile clutter. After the redesign, users will be able to “add a profile box to the main profile by clicking an Add New Profile Section button which the application can insert into their canvas pages via the fb:add-section-button FBML tag.” The installation process will consist only of authorization to let apps know who users are, but will no longer lead to automatic profile integration.

2. Left side navigation links are moving. Until now, up to 7 applications (including Facebook’s own) have been directly accessible from the left nav.  With the redesign, “Users can directly bookmark applications they are using.” All applications will be accessible from the “Applications” drop down in the Facebook header. “Bookmarked” applications will appear above other apps.

3. Profile action links are gone. According to Facebook, “There are no profile action links for third party applications. Instead, users interact with their friends using applications in the Publisher box.”

4. Feed stories are turned on by default. According to Facebook, “By default, applications can send Feed stories to Users. Users can choose to opt out of having applications send Feed stories.” Currently, users have the choice to opt out of receiving feed stories during app installation. With the simplified app “authorization” process, this checkbox will also be removed.

5. The future of application emails is in doubt. The Wiki says, “The new behavior has not been determined yet.” Sounds like Facebook is unsure of whether continuing to give developers the opportunity to contact users by email is a good idea.

What do all these changes mean for the future of the Platform? Certainly, these changes will present challenges for apps. What’s good for users and good for Facebook is usually good for developers – hopefully, the profile redesign will ultimately be just that.

This is a guest article by Andrew Chen – see more at Futuristic Play by Andrew Chen.

Data portability: What’s the value of your social network data?
This blog post will be focused on the business-perspective of how a company operating a social network might think about their data, particularly in regards to advertising monetization.

There’s been a lot of discussion on the data portability issue in one form or the other. The consumer perspective on the data portability issue on the consumer side has been well-covered, and is well represented by Robert Scoble, Marc Canter, Gillmor Gang, and others. This is a big topic, especially when you’ve added as many friends on Facebook as our Doonsberry friends have in the above comic.

Business reasons to resist portability
When a company has aggregated a critical mass of audience and data, it’s clear that data is worth something – but unclear how much. In particular, a social network might be resistant to data portability for a number of reasons, including:

• If the data can be monetized through advertising, then a company might want to have proprietary access to that data
• If a competitor can easily import user data, it makes it easier to switch services
• If a user can too-easily share their data with external services, it may create privacy and security issues
• … and others

There are many other reasons why businesses are reluctant to jump full bore into releasing control of the data – some great for consumers, some neutral, and some completely unaligned with their users’ interests. It’s my opinion that, like the way Windows has evolved, you want to provide access to data but you need to make it very clear what users are getting themselves into.

The reason spyware has turned into such a huge industry was that for many years, it was far too easy to install any executable off the internet – the Operating System gave poor warnings to users. There are things you want to do to make sure you’re not destroying an entire ecosystem, while still supporting the goals of your users.

My particular interest in this question mostly has to do with the value of the data, particularly from an advertising standpoint – the first bullet above.

The monetization of user data
The question is, if companies are busy hoarding all this user data – what is it really worth? How do you evaluate its value? And how does it fit into the context of the overall advertising market?

To outline the answers to this question, I’ll cover a couple specific topics:

• Ad network business models
• Interest versus intent
• Data to traffic overlap

Then I’ll conclude with a short discussion on the future of social network data.

Ad network business models
The market for user data is very early. Only in the last few years have companies emerged like Revenue Science, Tacoda, Blue Lithium, and other companies you see on this list. Note, of course, that I was previously employed by Revenue Science and worked on their direct response ad network (in addition to other roles).

But to step back: For newbies to the advertising world, it’s important to note that there are many many ad networks out there besides Google AdSense. For example, Blue Lithium, Valueclick, ContextWeb, Advertising.com, etc are all ad networks that fundamentally do the same thing:

Buy ad space at a lower price, then resell it for a higher price

Quite simply, it’s arbitrage. They sign up publishers, get them to stick ad code on their pages, and then fill the space with banner ads, punch-the-monkey flash games, etc. The bigger the delta between what they buy it for and what they sell it for, the better their profit margins.

The problem is, there’s like 300 ad networks out there, and it’s getting more competitive every day. So like a Wall Street bank, these ad networks have to get smarter (and bigger!). They allow advertisers to target on context, geography, time, demographics, and many other factors. They support Flash ads, text ads, video ads, banner ads, all in many different sizes.

In all the targeting, they become huge consumers of data. To competitively identify low-value ad inventory and buy it on the cheap, you need to have more data than:

• the publisher you’re buying it from
• the 299 ad networks who are also looking for the low-value inventory

If you have less data than either, then the ad inventory price will get bid up, and all of a sudden it’ll be hard to get the volume of traffic you want. And thus, it makes sense to voraciously gather and utilize all the data you can, across many different areas. In particular, “user data” is interesting – if you can tell when someone is in the market for a car, ad impressions against that user are suddenly very valuable.

Question is: What kind of data is valuable? And what kind is not?

Interest versus Intent
The first step to understanding the value of data is to look at the marketing funnel below:

You can consider the top part as consumer interest whereas the bottom part is consumer intent.

A user moves through a long funnel before coming into market and exhibiting buying signals (aka Intent). And there are a lot more people at the top, who are sorta kinda maybe in the market for a car (but maybe don’t even know that they are) versus the folks at the bottom of the funnel who are ready to get their car loan processed and drive out to dealerships the next weekend.

When you are the bottom of the funnel, you are part of a select group, and because you are very close to taking action, it’s easy to value you as a user. Here’s how a car dealership might figure that out:

• The dealership closes roughly 1% of anyone coming through as a “lead”
• They make on average $2000 per car they sell
• So they are willing to buy a lead for $20
• Then build in some margin, and they’re willing to spend $10 on a lead

(Note: these are made up numbers)

The problem here, however, is that there are only so many people ready to buy at one time. So typically, all this inventory gets sold out, and then you have to move upstream to buy more users. In particular, there’s often a big concern that a product can get left out of the “consideration set” if it’s not branded well. That is, even if you’re buying all the Ford dealership leads as you can, if you can’t position your gas guzzling SUV for the eco-conscious set, they never get the chance to filter to the bottom.

When you’re at the top of the funnel, it’s hard to value the ROI from advertising to those users. The focus there is to just be in the game and inside the “consideration set,” as I mentioned. So the targeting there isn’t typically focused on in-market status, but rather on more qualitative things like:

• demographics
• psychographics
• desirable editorial areas (to complement the values of your brand)
• really cool ad creative
• etc.

Anyway, it’s not as quantitative, and the distance between the brand side and revenue is often larger than folks want it to be. But it works, even through the following classic advertising quote applies:

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half”
– John Wanamaker

As a result, it may not surprise you that data around in-market behaviors (aka Intent) are worth a LOT more than the more watered down stuff (aka Interest), particularly because you can prove to advertisers that the former will make them money.

For search engines, the ultimate collector of consumer intent, you can get 1000X+ times the monetization levels that you’d get from social networks. Social networks, being communication-oriented, have very little intent relative to other sites on the internet. This doesn’t mean the social network data is worthless, but it’s definitely hard to use it to monetize.

Where are other places you can find intent?

• Comparison shopping sites
• Product reviews
• Loan calculators
• Shopping sites
• Search engine marketing landing pages
• etc.

Think of any service you might go to in order to make a transaction, or prior to making a transaction. The more of that data you have, the better off you are. These are the same drivers of CPM that I’ve written about in the past, at 5 factors that determine your CPM rates.

On the flip side, this data is scarce. The bottom of the funnel doesn’t have many people, and because people aren’t typically shopping forever on a product, it means the data is perishable.

Data to traffic overlap

Once you have the data, you have to figure out how to use it to buy-low and sell-high. One of the big questions revolves around when/where your data is applicable – and this problem is sometimes referred to as “overlap.”

Let’s say that you collect data about a bunch of unique users on your site, and all those users are very valuable. Then you want to find those same users on some other site, which has cheapo inventory. The plan is that if you can buy that inventory for cheap, but you can figure out the good stuff in there, then you can buy just the good stuff. Sounds great right?

Problem is, what’s the overlap of users between your site and this publisher’s? If it’s small, then you might not be able to write a big check to justify the expense of doing the transaction. If you have 100k users and then you’re finding some % of that on some other site, then that’s not so exciting. So you really need to aggregate a ton of data to make this transaction work. And ideally, you are able to use your own data, but also use the data of other similar companies – this allows for more opportunities to bring in new users, rather than just recycling the current set of users you already have.

This issue of insufficient overlap has been alleviated somewhat recently. Since the mid 00s, there have been a number of ad networks that allow you to buy advertising by-the-cookie. Right Media, in particular, leads in these types of transactions. But Valueclick, Ad.com, etc all can provide similar arrangements as well. So given that these ad networks have already pre-aggregated a huge amount of inventory (several hundred billion page views per month), you can get reasonable scale on your data even if you don’t have too much data. The downside to this, of course, is that it introduces yet another middleman into the mix, and since they know you are buying by-the-cookie, it’s easy for them to charge you a little extra. Doh.

Conclusion
So to summarize the article above:

• One potential issue that makes social networks resist data portability is the monetizability of the data
• Not all user data is created equal, there’s interest versus intent
• Social networks generally produce lots of low-value interest data, which has weak ROI attached to it
• Search engines, review sites, comparison shopping, etc all produce high-value intent data
• Even if you have the data, you have to worry about whether or not you have enough of it to matter – although ad networks and exchanges have started to alleviate that

Questions and comments welcome!

See Futuristic Play by Andrew Chen to read more about Facebook marketing, social networks, and viral marketing.

As everyone is now well aware, Facebook launched its sandbox last Friday for developers to start modifying their applications to fit the new Facebook profile integration points. Today, Facebook announced more details on exactly how developers will be able to publish feed stories.

With the profile redesign, all feed items will be templated. In order to register all 3 feed sizes at once (one line, small, and full) beforehand, Facebook has added a new method called feed.registerTemplateBundle. You can create as many bundles as you want, and in order to publish a feed story, you just call feed.publishUserAction with the template ID.

Facebook’s Pete Bratach explains the mandatory changes developers must make to their applications to be able to publish feed stories after the profile redesign is launched:

Once the redesigned profiles go live, we’ll begin deprecating the existing Feed publishing API methods (feed.publishActionOfUser, feed.publishStoryToUser, and feed.publishTemplatizedAction). The existing API methods will continue to work during the transition period to the new profiles, so you can publish stories using either the existing API methods or feed.publishUserAction.

During the transition period, you should only publish the story once, so you should make use of the old methods or the new methods, but never both. If you are still using the existing Feed methods once the new profiles are launched, stories posted via those methods will only appear as one line stories to News Feed and the Feed tab on the new profiles.

Bratach also said Facebook will announce a cut-off date for the current feed publishing methods soon. After the cut-off, they will no longer work and your application will not be able to publish feed stories.

The Facebook Platform for Mobile has been around for some time, but many users and developers are barely aware of it. Ultimately, however, the limiting factors of mobile platform adoption are not lack of awareness or lack of functionality. Two other key reasons are more limiting:

• First-time users have to jump through a number of hoops before being able to engage with mobile apps
• The near-crippling of application SMS integration through a less-than-friendly permission granting system.

This unfortunately means that the Facebook Mobile Platform economy is struggling to grow. Most developers have not yet taken the time to build a mobile interface for their apps. The perception of lack of interest from Facebook doesn’t help, as is takes a long time for bugs in the mobile platform to be addressed (e.g. here). As a result, most mobile profile pages lack any applications.

Sign-On Issues

First, to get the mobile-only experience, users may need to remember to go to m.facebook.com (the mobile version of www.facebook.com). The www.facebook.com site will often serve the full version of the page instead of redirecting users correctly; that’s definitely less than ideal on a small interface and limited bandwidth. Facebook also recently started requiring JavaScript to log in, which turns more users away.

SMS Limitations

Facebook Mobile provides extensive text messaging functionality that applications can make use of (yes: you can build a Facebook application to send and receive text messages, for free), but this is the part where the user experience can be quite awful. First the user needs to enable their phone for SMS which, if all goes well, is no mean feat in itself.

The issue is complicated by the apparent limitation to specific carriers, especially depending on territory: the sum total in the UK is one (the o2 network). But, despite the off-putting lack of my provider in the drop-down, I entered my non-o2 mobile number and everything worked fine. I don’t know whether this is the case on all networks, but it’s worth a try.

Should an application wish to use SMS facilities in the API, the user needs to perform additional steps to enable mobile functionality on an application by application basis. This is certainly off-putting to the user, especially given the dead-end user journey that Facebook provides. It’s not incredibly difficult, but it’s one more point where users can drop off.

Looking Forward

Once you’re in, the functionality that Facebook provides within the mobile home page is quite good: it’s quick to use and has some core features (including status updates, pokes and messages). It’s also easy to use on a small screen.

Obviously not all applications are well suited for mobile, but plenty are. Gifting, poking, and all the basic friend interactions can be implemented easily. Whether we’ll see more complex mobile-specific applications growing or not will depend as much on how users start to really engage with the mobile web as it will on the growth in social networking.

The real pull for developers to work with mobile, though, would be to launch a micropayment system that doesn’t require the user to install anything, buy credit, or otherwise have to think about whether they will or won’t be using this particular piece of technology. Mobile technology is ready for this and a reverse-billing system with seamless application integration would surely be a revenue-generator for developers, Facebook, and the service provider.

The functionality offered by Facebook mobile is quite extensive, but country and network provider limitations and the poor user sign-on experience are big barriers. Until Facebook views mobile, and especially SMS, as an integral part of the Platform, user adoption is always going to be limited.

Facebook is likely to open-source the Facebook Platform APIs, FBML, FQL, and Javascript libraries soon, Techcrunch speculates this morning. Given the current “social platform wars” with Google, open sourcing Facebook Platform standards would create an alternative platform to OpenSocial for social websites to integrate rich third party applications.

Bebo has already licensed the Facebook Platform architecture for its own platform, and a flood of Facebook applications have been published on the Bebo platform since they run almost completely out of the box. By allowing anyone to adopt the Facebook Platform architecture, Facebook would hope to create greater entrenchment in the developer community on building on the Facebook architecture.

For containers, implementing the Facebook Platform standards is no easy task. In addition to supporting all the Facebook Platform features, you’ll have to maintain your platform over time to keep it in sync with Facebook’s standards. However, by adopting the Facebook Platform, you’ll be able to pitch developers of the over 25,000 currently published Facebook applications that they can reach your users with little to no further work.

For developers, the increased standardization of social containers will always be a good thing. However, as developers have learned with OpenSocial, just because different containers adopt the same architecture doesn’t mean that it’s always easy to port between containers. Different containers have different restrictions and extensions, so some changes will always need to be made.

2:00pm Update: A Facebook spokesperson has confirmed the company’s plans, stressing intended benefits for developers:

“We’re working on an open-source initiative that is meant to help application developers better understand Facebook Platform and more easily build applications, whether it’s by running their own test servers, building tools, or optimizing their applications. As Facebook Platform continues to mature, open-sourcing the infrastructure behind it is a natural step so developers can build richer social applications and share what they’ve learned with the ecosystem. Additional details will be released soon.”

Inside Facebook is looking for contributing writers. If you’re interested or know someone who is, please get in touch with us!

Contributing Writer – Advertising

Do you have a background in online advertising (on either the buy or sell side) AND a strong interest in the world of social media? Inside Facebook is looking for contributors who can help connect buyers on Madison Avenue with developers in Palo Alto and Des Moines.

Your passion and insight into the monetization of the social web are more important than your technical knowledge. This is a part time position with flexible time commitments depending on your availability.

Interested? Please email mail AT insidefacebook.com with a summary of your experience and interests.

Contributing Writer – Development

Are you a Facebook app developer AND a great writer? Inside Facebook is looking for contributors who can offer an honest, unbiased, thorough perspective on developing for the Facebook Platform (and other social platforms as well).

Your development and communication skills are more important than your resume.  This is a part time position with flexible time commitments depending on your availability.

Interested? Please email mail AT insidefacebook.com with links to your apps and writing you’ve done online.

As the Facebook Platform matures, the developer and advertising communities are increasingly looking for the right ways to work with together. Unfortunately, developers usually don’t know how to approach the world of media buyers, and advertisers don’t know how to spend their budgets effectively.

In order to bring these two communities together, social platform ad network SocialMedia is hosting a series of Business School events over the summer in Los Angeles, New York, and London. The full day events will include sessions on analytics, marketing, brand advertising, performance advertising, and business planning.

Inside Facebook readers interested in attending can receive a 20% discount by emailing nick@socialmedia.com with “InsideFacebook – SocialMedia Business School” in the subject line. Those interested in learning more can also check out the agenda and notes from the first Business School event held last month in San Francisco.

(Disclosure: SocialMedia is an advertiser on this blog)

One year ago today, the Facebook Platform was launched at the f8 conference in San Francisco. Since then, it’s been a roller coaster ride full of twists and turns. Here’s a quick summary of the Facebook Platform story over the last year, in three parts:

Part 1 – The Wild West

In the early Platform days, there was no “Facebook user experience” sheriff in town. Developers were relatively free to run wild as they pleased. Now standard please-invite-your-friends screens and only-slightly-relevant feed stories were quickly adopted as unofficial “best practices” by the most aggressive (and, by provided measures, successful) developers.

Early successful developers were quickly snapped up at bargain prices by widget industry “veterans.” Thousands of independent developers achieved greater distribution than they ever could on their own website. Several start-ups were funded to build Facebook apps. Conference organizers found a business in “virality” panels. Facebook found buyers of its stock at what most would call a “healthy” valuation. A new era of innovation on the Internet with 1/1000th the customer acquisition costs had begun.

Part 2 – Weeding the Garden

A few months after the Platform spigots had been running full bore, Facebook started to turn down the faucet just a little bit. And then a little more the next week. And then a little more the next week. What else was Facebook to do, the company asked? The profile page was full of drive-by app boxes, and the feed had become more spammy than the middle of a Sunday paper the week before Christmas.

Around that same time, McClure started adding panels on “engagement” and “monetization” to the agenda. Ticket sales were good. CPMs were not. Some folks on Madison Avenue smelled triage, and decided to help the guys in t-shirts and blazers stop screwing up their east coast meetings.

It was also during that time that a few jealous friends crashed Facebook’s party. Although not quite ready to let loose and get out on the dance floor, many social networks were nonetheless inspired to become just-a-little more vulnerable… but that was still enough to keep things exciting.

Part 3 – Awaiting the Harvest

364 days after the Platform launched, Facebook announced an impending “update” to the profile page and navigation of the site that would, in so many words, “separate the application wheat from the chaff.”

During that year, Facebook’s overall reach had doubled to more than 70 million active users, making it the 6th most visited website in the world. Other social networks had grown much more modestly over the same period.

Developers waited in anticipation of what was about to come – many still very hopeful, but most uncertain of what to really expect.

Clearly, the Facebook Platform has fueled a massive part of the company’s growth over the last year, and Facebook has totally juked its competitors into thinking they need to viciously “protect the user experience” instead of opening the floodgates and giving their own platform economies a chance to develop.

Overall, the Facebook Platform has been a big success by almost any reasonable measure. Not only have hundreds of developers built small businesses (and several big ones) on the back of Facebook, a whole ecosystem has developed to make the marketplace efficient. The state of the Platform is good!

Cheers to hoping that year 2 leads to more growth and stability for the Platform economy and Facebook.

The long-awaited Facebook profile redesign sandbox is now live! Starting today, developers are able to begin the process of modifying their applications to fit the updated Facebook profile integration points. Here’s how to get started:

1. Check out the new version of your Facebook profile page in the sandbox.
2. Developers who are ready to start testing need to download the new PHP client libraries.
3. A test application, Mr. Smiley, is accessible here – click here to see the source code and learn how to work with all of the new profile integration points.

Facebook Pete Bratach says the following parts of the new profile are stable and ready for development:

• New Feed story sizes and types – including the template bundles
• Adding application tabs, and how application tabs function
• Publisher integration
• Setting up the new “main profile section” and adding those to profiles
• Application info sections

Facebook says it will be a few weeks before the redesign is launched to users. Developers can report bugs with the new profile to Facebook in the “New Profile” section in Bugzilla.

What do developers think of all the changes? Here are some recent reactions from the Developer Forums:

• First thing I noticed was that it didn’t work at all in IE6. Hopefully that will be addressed. – sweetsteve
• My initial impression is not a happy one.  I feel like the layout has lost structure and even personality. – haiku2u
• I have a flash game ready for that tab, lets do this – breads
• is it just me or is there a pattern of squelching of apps on facebook in general? – hg++
• Looks like a pretty cool design to me.  I like the expanded wall idea and getting rid of the ‘badges’ that no one cares about on people’s profiles. – andy
• Looks like the narrow profile is going to be smaller than it is now. Going to have to go and resize very single profile image in all my apps and reset every profile. – tomkincaid
• it seems to me that funwall / superwall will be completely killed. – textron

Clearly, the Facebook profile redesign is going to have a massive impact on applications. Which applications do you think will thrive in the new environment?

For more details on the new integration points and what they mean for developers, check out our interview with Josh Elman and Ruchi Sanghvi, the Product Managers in charge of the Facebook profile redesign.