And The Survey Says... OUCH!

As it turns out, the advertisements on Facebook and Twitter really do suck (to use a technical term)!

That’s not just my opinion anymore; it’s the collective view of the respondents to One Blind Squirrel’s recent survey on the topic.  

To be very clear, there is absolutely no statistical significance to these data, which are based on fewer than 100 responses from people more like me than not (i.e., primarily friends and family, I believe); moreover, I’m not a statistician (far from it). That said, there is, in fact, an obvious thematic significance to these responses that I think is worth dissecting.

According to the collected data, users almost uniformly find advertisements on Facebook and Twitter both very annoying and effectively irrelevant, while rarely, if ever, transacting as a result of exposure to them. Charts 1-3 (below) show the averages from all applicable respondents.

Annoying.  Irrelevant.  No impact.  Ouch!

Moreover, heavier users and lighter users of each service seem similarly dissatisfied with the advertisements they see (see charts 4-6, which show the averages from all applicable respondents).  This is both surprising and worrisome, given the unique targeting capabilities these companies are supposed to have, based on the volumes of highly personal data to which they have access.  (As an aside, an interesting perspective on usage variances between Facebook and Twitter can be found in the Addendum at the end of this note).

Overall, these views are so damning in my mind that I almost wonder if advertisers on these platforms wouldn’t be better off just giving their “social” marketing budgets away at random, rather than paying for the privilege of potentially damaging their own brands and/or their relationships with their customers, with little, if any, new revenue as an offset.

And, yet, Facebook and Twitter dominate marketers’ “social” spending, generating an estimated $6-7 billion in advertising revenue this year.

This contrast is striking to me.

In a not-so-strange way, these dynamics remind me of Yahoo! circa 1996-2000.  At that time, the company’s dominance of the Web and status as a potential “kingmaker” allowed it to command huge sums of money from companies looking to “lock-up” its prime real estate.  Yahoo! certainly wasn’t the only game in town, but it was one of the biggest and had the aura of being the best.  As a result, the line of companies anxious to deliver sacks full of money to Yahoo! stretched from Sand Hill Road to Madison Avenue and beyond.

Unfortunately for those companies — and, ultimately, for Yahoo! — the deals didn’t work financially, with returns plummeting on marketing dollars invested.  Ad rates were (way) too high.  Paying customers delivered were (way) too low.  And, both revenue and profit generated were (way) too weak.

Over time, this recurring shortfall, coupled with a variety of meaningful exogenous factors, resulted in the .com “crash” of the early-aughts, with an enormous wave of .com meltdowns and downsizings and re-caps and re-orgs and shutdowns.

Hopefully, Facebook and Twitter avoid repeating history, by quickly improving the performance of, and receptivity to, the advertisements on their platforms, and/or by being certain to price these advertisements in line with the value delivered (perhaps Twitter’s timely acquisition of MoPub will prove a meaningful step in this direction?).

After all, imagine how much revenue these two “social” companies alone could generate if the advertisements on their platforms were just mediocre / tolerable and didn’t actually suck?!?!?!

ADDENDUM

As a byproduct of this survey, I noticed a fascinating trend in usage variances between users of Facebook and Twitter.

In short, a high number of respondents seem to use Facebook all the time, whereas a fairly low number seem to use Twitter all the time. Perhaps more eye-opening, though, is the fact that a relatively high number of respondents seem to never use Twitter, while only a handful say the same of Facebook (see chart 7).

Personally, I’m not shocked by this divergence, given my own issues with Twitter, speculation that user growth at Twitter has fallen short of plan, as well as Facebook’s reported numbers that highlight high levels of daily usage; nonetheless, it is still an enormous “yellow / orange-ish” flag that needs to be addressed quickly by Twitter’s leadership.

Amazon's Waters Could Flood Google

Jeff Jordan, a partner at Andreessen Horowitz with the Midas touch, recently opined that Amazon.com’s e-commerce capabilities and successes represent a meaningful threat to Google’s product-search-related advertising business.

I will take Jeff’s thesis — with which I fundamentally agree — one step (maybe even more) further by saying that I believe Amazon.com is one of the few companies that has the ambition, permission, structure, and, maybe most important, data, to actually beat Google at its own game.

As an Internet equity research analyst from 1996-2009 (go ahead... throw your drink on your screen and curse me loudly enough that the barista hears you...), I had a front seat to The Show.  I covered Amazon.com from its days as “just” a bookseller and Google when it was still a private company, in addition to eBay, Yahoo!, Excite, About.com, Netflix, Omniture, aQuantive, CNET, E*TRADE, and many other industry-defining companies.

From the earliest days, it was clear to me (and a few others, obviously) that Amazon.com was no ordinary company, at any level.  However, three attributes set it (far) apart in my mind:

1. Vision and ambition that were orders of magnitude beyond those of other teams that I encountered (until, that is, I met Google);
2. A cult-like dedication to customer experience / satisfaction that permeated every decision made by every person at the company; and,
3. A business model that not only valued long-term cash flow and absolute profit potential, but also deemed near-term profits and profit margin largely irrelevant.

Individually, these characteristics have been powerful; in combination, they have been revolutionary.  Jeff Bezos’ worldview gave his entire team permission — in fact, it gave them the mandate — to think Big, with a capital “B.”  Customers’ pure delight with every Amazon.com interaction gave the company permission to sell (almost) anything to (almost) anyone.  And, finally, management’s clarity of financial intent (i.e., to perpetually focus on long-term potential) has, from day one, conditioned shareholders / Wall Street to expect a business that will forever be amorphous and unpredictable, with razor-thin margins.

Liberated from more typical corporate constraints, Amazon.com has evolved like few other companies in history — from its humble origins as an online bookstore into: Amazon Elastic Cloud Compute, Amazon Marketplace, Amazon Flexible Payments Service, state-of-the-art warehouses (~70) everywhere, Amazon Cloud Player, AmazonFresh, Amazon Mechanical Turk, Amazon Prime, A9, Amazon Simple Storage Service, Diapers.com, Silk, Amazon Cloud Drive, Zappos, Amazon CloudFront, Kindle...

Sound familiar?  It should, because this transformation mirrors that of Google, itself, which began as “just” a search engine company focused on “organizing the world’s information,” and has now become: Gmail, Maps, Apps, Drive, Chrome, Android, Motorola, YouTube, Wallet, Voice, Google Cloud Storage, Shopping, Chromebook, Google App Engine, Google+...

While not perfectly matching each other solution-for-solution, Amazon.com and Google now find themselves overlapping across, and competing within, most major categories of Internet-fueled technology and business.  SaaS.  Hardware.  e-Commerce.  IaaS.  Enterprise.  Media.  Consumer.  Applications.  Browsers.  Storage.  Payments.  Consumer.  Tablets...

And, yet, for all these evolutions and comparisons and similarities and overlaps, I actually think there’s one final aspect to Amazon.com’s business with which Google cannot (yet) directly compete, and which may prove to be the difference-maker in this faux-ish battle: Data.

With +17 years of history and hundreds of millions of transactions across almost every category of goods, Amazon.com now has massive quantities of data about the actual buying habits of tens, if not hundreds, of millions of consumers around the globe.  Not just what people are searching for (Google, though Amazon.com actually has it too).  Not just what people “like” (“like” that, Facebook).  Not just what people want (Pinterest, though Amazon.com actually has it too).  Not just what people tweet about (Twitter).  But, the items that people actually pay for with their own hard-earned dollars!

Armed with this unique transaction- and SKU-specific data, at scale, Amazon.com has the potential to become one of, if not the most signficant advertising platforms in the world, in my view — matching, if not besting, Google.

Look at it this way: if advertisers pay Google $44 billion per year for connecting them with consumers that it oftentimes thinks have interest in their product(s), what might those same advertisers be willing to pay Amazon.com for connecting them with people they know are interested in their products (or those of their competitors, or those in which they will soon have interest...)?

For instance, do you think Volvo, Toyota, Lexus, Ford, et al., might be willing to pay a small fortune to be introduced to an individual in Huntington Beach, CA, who suddenly begins buying newborn diapers by the pallet?  What about Gymboree?  Gerbers?  Whole Foods?  Safeway?  Fab?  Gap?  Pottery Barn?  Ross?  Home Depot?...

Similarly, how much interest might be generated among home decor vendors, local service providers (e.g., physicians, athletic clubs, veterinarians), home maintenance vendors, etc., by a change in shipping and billing information for one of Amazon.com’s long-time customers, whose pattern of purchases are highly suggestive (remember, Amazon.com has developed one of the best predictive commerce models in the world for its own e-commerce franchise) of a home with at least one child and one dog, an avid athlete / runner / yogini, with a taste for gourmet cooking and a passion for gardening, among other attributes?

And these hypotheticals say absolutely nothing of the extraodinary value Amazon.com could (theoretically) deliver to its customers / partners by sharing with them relevant online transaction activity that might follow said advertisements, effectively offering a closed loop marketing environment unlike any other.

By some accounts, Amazon.com has (finally) started focusing on the business potential of advertising.  For years, it has run ads on its own sites.  Then, in late-2010, the company also began serving advertisements on others’ sites, introducing what is, in effect, a full-fledged online advertising network.  But, these are just warm-ups in my mind — Amazon.com methodically experimenting (as is its custom) and purposefully tiptoeing around the edges of its potential.

I’m convinced the day will come — sooner rather than later — when Amazon.com unleashes its data and announces itself as an advertising powerhouse.  And, when it does, I think the gloves officially come off and the real battle with Google commences.

Hello, New Jersey... Err... Facebook!

Response to my original post, "Beware the '!,' Facebook," has been extraordinary and, to a surprisingly large extent, consistent in its agreement with my primary thesis: Facebook seems to have lost its edge and is in real danger of becoming yesterday's news.

Facebook, or Spambook (no offense, NJ)?

So, in keeping with the topic, I wanted to highlight a recent AdAge article, which focuses on Facebook's increasingly me-too-ish approach to advertising on its platform.  While I suppose it shouldn't come as too much of a surprise, given my prior observations about Facebook's stagnating service/offerings, it is eye-opening to read that the company's core business is beginning to mirror that of Yahoo!, and the generic Web, as well.  Where is the granularity?  Where is the personalization?  Where is the social graph?  Where is the innovation?

As a follow-on, there was this nugget from BTIG analyst, Richard Greenfield, who refers to Facebook as, "Spambook," in discussing the company's retargeting efforts and challenges associated with social advertising.  I couldn't have said it better myself, having just been the proud recipient of a "Suggested Post" for property in Short Hills, NJ (image on right).  God knows, I love my many friends and colleagues from New Jersey — and, for the record, their stories from childhood are among the best I've heard (Action Park, anyone?) — but I have never even given thought to buying a luxury home and moving there.  Not to make too much of this one instance, but Facebook knows enough about me to be dangerous, and if this is the best it can do, then it has significant issues.

There is obviously much more to the puzzle of Facebook's potential demise that will take time to put together; that said, the pieces to it that I keep collecting seem consistent with that of a company struggling to find its way forward.

Beware the "!," Facebook

I’ve seen the future of Facebook, and it is... Yahoo!

Between 1994–2000, Yahoo! dominated the consumer Internet industry and much of the world’s attention.  The company’s exclamation mark cast a long, purple-hued shadow across the globe, as users flocked to its ever-expanding array of services, and online and offline companies of all sizes threw money at it (almost literally) to gain prominent visibility among its massive, segmentable audience.  Yahoo!’s page views rocketed; revenue rocketed; profits rocketed; stock price rocketed; market capitalization rocketed.  Yahoo!, it seemed, could do no wrong.

Then, the world changed.  Radically.  

Consumer behavior shifted, with individuals the world over flirting with, and then devoting themselves, to myriad other online services.  The business cycle changed and companies chose/were forced to reduce or eliminate their online advertising budgets. Then, when Internet advertising budgets returned a few years later, business behavior adjusted again, with marketers broadly diversifying their spend across the Web (following those same migrating users).  And, perhaps most significantly and most representative of both of the previous issues, Google emerged, presenting consumers with a slate of invaluable (and competitive) services and companies with a nearly perfect mechanism/venue through which to market their offerings.  

Needless-to-say, the 2000–2013 period has not been nearly so kind to the purple giant-of-yesterday — not to its metrics; nor its business; nor its stock; nor its market capitalization.

Throughout its rollercoaster-of-a-life, however, Yahoo! has remained shockingly static at its core, with a (still) massive, segmentable audience consuming an enormous volume of free content and services, surrounded by advertisements of all shapes and sizes.  That those content/service offerings now include Fantasy Football and photos from Flickr, rather than, say, news and NASDAQ quotes, is nice, but irrelevant, as is the fact that the company now offers rich media and video ads, as opposed to just sponsorships and banners.  Those are incremental changes to the story — variations on the theme; because, the fact of the matter is that — apart from its early days of minimal competition and “easy money” — Yahoo! has struggled mightily to engage its users in fundamentally new ways; unlock the true value of its global user base for its advertising clients; and, bring to market any lasting innovation that even hints at shaking the status quo all over again.

In not so subtle ways, this reminds me of Facebook.  A. Lot.  

Like Yahoo! in its early phase, Facebook hit the ball out of the park from the outset, and, it seems, hasn't yet stopped running the bases.  From the ivy covered confines of Harvard University, Zuckerberg &  Co. now attracts more than one billion users to its site globally; has enabled hundreds of billions of friend connections; sees hundreds of millions of photos uploaded daily; and, generates several billion dollars of revenue annually.   Not bad for its first nine years, right?   

And yet, since its astounding opening act, Facebook has bestowed upon us:  Gifting - blah.  News Feed algorithm changes - yawn.  Suggested Posts - meh.  Messaging - join the club.  Sponsored Stories - ummm.  Graph Search - niche.  Poking (again) - ha.  Timeline - zzzzz.  News Feed design changes - argh.  What's next, a new color scheme?  A new font?

Suffice to say, the company is not exactly setting the world on fire with these efforts; more importantly, these are not (individually or collectively) doing much (if anything) to materially enhance Facebook's relationship with its users; substantively increase the level of dependency felt by its advertising clients; and/or fundamentally alter the trajectory of its franchise or business.  Said differently, where is Facebook’s second act, like Android (acquired, transformed, and massively scaled by Google) or iPad?  Where is its money-printing AdWords product?  Where is its PayPal (acquired, and massively scaled, by eBay)?  Where its its quantum leap forward?  Where is its disruptive force?

None of this is to suggest that Facebook has, in any way, “failed;” nor is it meant to take anything away from the extraordinary space that Facebook has carved out for itself in our collective universe.  Similarly, I do not mean to imply that Facebook is necessarily destined to follow in the path of Yahoo! (after all, it would be damned near impossible to repeat all of those mistakes).  

That said, it is, hopefully, a wake-up call, because — at least to this observer — the company and its business seem far too focused on tweaking the edges of its past creation(s), rather than on changing the world all over again for both its users and advertisers.  And that, as history might suggest, is a very risky path to enduring success on the Web.

Beware the “!,” Facebook.  Beware the “!”!