Great bruising battles between powerful antagonists is good for media. It “sells papers,” as we used to say, or “generates clicks”, as we now say. When you mix in a love triangle and jilted lovers, well, the audience just goes wild. And Wired did a great job in its piece on Facebook, Google, and Microsoft: riveting stuff. But the thought that kept coming back to me is that Facebook’s bravado, its “grand vision” talk, is what you would expect from a concept-level startup. Surely by now, about 6 years into its venture, Facebook should show some substance? It is time to deliver some real financial results. The concept-level talk is great for attracting capital and talent. Facebook has done that brilliantly. But the point of attracting capital and talent is to be able to generate financial results.

Give It Time? Too Important to Rush?

Anybody who criticizes Facebook’s financial results gets accused of being small-minded, of missing the point, of (gasp!) “not getting it.” In digerati circles, not getting it is like having body odor. Facebook is changing the world, they say. It is a new form of communication, akin to the printing press. Once you get to scale, profits always follow. Google created a service without knowing how to monetize it.

In fact, far too much money has been invested (in both Facebook and hundreds of “me too” ventures) based on that one premise, that “Google created a service without knowing how to monetize it.” The statement is true. If it had not devised the AdWords revenue model, Google would perhaps have sold some kind of enterprise search technology to Fortune 500 companies and rented banner ads on its home page. With AdWords, it found the perfect native revenue model for search, meeting two contradictory needs at the same time:

  1. Do not irritate or interrupt the user, and even occasionally add value for the user.
  2. Provide a compelling value proposition to paying customers.

The problem is that Facebook does not seem to have a clue how to do that. Google did not wait 6 years to unveil AdWords, and when it did unveil it, revenue and profit took off like a rocket. Facebook keeps trying. But to date, its attempts look weak and subject to diminishing returns.

There is a world of difference between increasing returns (what Google gets) and diminishing returns (what Facebook gets with its current strategy). That one-word difference equals billions of dollars.

Email Permission Marketing 2.0 Won’t Cut It

At Federated Media’s Conversational Marketing Summit in New York a few weeks ago, Mike Hoefflinger, Director of Product Marketing at Facebook, gave a talk titled:

Adventures in the Funnel: Awareness, Consideration, and Intent in Media that is Social

Facebook’s new director of product marketing presents his case for why advertising must engage, rather than exhort.”

In a conference full of great case studies, this was a weak presentation. It sounded like Email Permission Marketing 2.0. Yes, email is all spammed out. Yes, every trick in the SEO/SEM book has been tried. And “tradigital”, as social media mavens call it, looks old and tired. But Facebook’s revolutionary alternative is to allow consumers to invite brands to communicate with them, like we used to invite companies to send us emails. That would get over-used and spammy in a heartbeat. Highly innovative brands would do well, as they always do in a new medium, but the law of diminishing returns would apply. By the time this model scaled, and it would have to if Facebook wants to move the revenue needle, users will have switched off in droves.

These are the diminishing returns. The more the model scales, the more it will irritate users, and the more users will switch off, and the sooner growth will slow down and reverse. As with email, Facebook can “make up for this with volume.” But unlike with email, which is virtually free, Facebook has to pay money to serve each user.

Sorry, “Coca-Cola wants to be your friend” is in no way an enduring revenue model. If it sounds phony, maybe that is because it is phony.

The one lesson from social media marketing is that authenticity matters. What no one has shown — and methinks this would be impossible — is how to scale authenticity.

This is where behavioral marketing supposedly comes in. Wired calls this the “third rail of Internet marketing.” Back in March 2008, we wrote about the toxic mix of legislation and user backlash that hinders behavioral marketing. Or, as Wired puts it, “As the Beacon debacle showed, there is a fine line between ‘targeted and useful’ and ‘creepy and stalkerish’ — and so far, not enough advertisers have been willing to walk that line.”

Facebook Should Be Genuinely Radical

Facebook talks a great game about helping the world to communicate. It tries to sound like a group of benevolent revolutionaries. But then it turns to really old-fashioned tools to make money. Its basic message to marketers seems to be, “We have ’em locked in. Yep, Google can’t see them, so we are the only way to get to them. And not only that, we can tell you what every one of them is doing and saying right now. Step right up, folks!”

The one thing that Facebook has on its side is trust. Users trust the company with their real identities. That is massive. Break that trust and bye-bye.

If it were really radical, Facebook would use that trust to good advantage and really turn the tables. It could show users how to do better business with big companies and with each other. That would be radical. Facebook could create a revolution, do good, and make billions in the process.

This is where I move from easy (critiquing) to hard (suggesting an alternative).

To be revolutionary, to disrupt a market, be prepared “to be misunderstood for long periods of time.” That is Jeff Bezos speaking. Or, to quote Mahatma Gandhi, “First they ignore you, then they ridicule you, then they fight you, then you win.”

One revolutionary who has been banging his drum for over a decade is Doc Searls. He became famous as one of the authors of The Clue Train Manifesto. Ten years ago, those authors heralded “The End of Business as Usual.” Eerily prescient, they spoke of social media before it existed. Now that social media has arrived and is everywhere, they may be disappointed to see that business is very much as usual. They are seeing that when 300 million people get together to communicate, the end result is (drum roll, please)…

“Coca-Cola wants to be your friend.”

For many years, Doc Searls has been promoting a radical alternative that he calls vendor relationship management (VRM). In simple terms, it the inverse of CRM. We first wrote about it here back in October 2007; its Wikipedia entry is here.

VRM is a wonderful idea that has largely been ignored, despite a passionate and highly talented set of true believers. It has limited traction, but hasn’t seen the breakthrough it deserves.

Mark Zuckerberg, meet Doc Searls. No fee for the introduction, please. Do you two know each other? Are you already working something out?

VRM has suffered from sounding a tad academic. Proponents have not been able to show its relevance to real consumer needs. But relevant it is, particularly to three types of consumer-facing companies. I call them “the three horsemen of the consumer-clypse”:

  • Phone companies,
  • Health insurance companies,
  • Credit card companies.

I know, I know: there should be four horsemen. But these are the only three that come to mind.

These are companies that:

  1. Have services we cannot live without in a modern consumer society,
  2. Nickel and dime us and tie us up in knots because of the simple reality that a big company can out-negotiate the individual consumer.

Or, as the Beatles put it, more eloquently:

“You’re holding me down,

Burning me round,

Filling me up with the rules.”

The VRM model says, “I, the consumer, will tell you, the vendor, the terms under which I am willing to buy your product or service.” A lovely idea. Consumers who have felt burned for decades would love it. It would do particularly well right now, when times are tough, and particularly in emerging markets where Facebook is growing and in which traditional consumer marketers (i.e. US marketers) are not interested because the consumers there are not rich enough.

Would phone, health insurance, and credit card companies love VRM? No, they would hate it, and resist it in every possible way… until, that is, they are faced with 300 million Facebook users all saying, “My way or the highway.” Then those companies will see things their way. It’s called clout.

The terms don’t have to be outrageous. Companies have to make money, after all. If the price is genuinely too low, they won’t play. This is less about the base price than about the nickel and diming pettifogging rules that you supposedly “agreed to when you clicked on that form.”

In fact, the terms should be such that you would accept them the other way around, in which case they could even be used for peer-to-peer business as well. If a bank wouldn’t loan money on those terms, would any peer from your network do so instead?