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New Ad Model by Facebook

Facebook has certainly changed many built-in behaviors of customers

Facebook continues to be on the mind.  I took a quick read of Michael Wolff’s piece which suggests that Facebook lacks big ideas to justify their valuation.  I am not sure I agree with that.  The folks that I have met at Facebook have plenty of ideas.  Outward appearances seem to indicate that they are lacking a bit of focus around their revenue model.

Their currently executed ad model is the same as what we have had on the Internet for the last 15 years, though they could argue that they have better data.  Data is not the asset they think it is.  It’s scarce, so it appears to have value.

What Google has, which Facebook does not, is intent.  Customers are searching for something, and, in some cases, their intent is to purchase something, whether now or soon.  People go to Facebook to socialize.  I’m not generating any new ideas here.

What Facebook does have is loads and loads of users, and a platform for applications.  They also have a strong brand, and businesses who believe that there is a better model to be had for reaching customers on Facebook.

I’d like to turn the clock back and revisit the reverse auction model.  My co-founders from IMSafer went through Y!Combinator in S09 with their awesome service Carwoo.  They have build a great reverse auction site for cars, and it’s working.  Cars are really expensive, and harder to change the model for both buyers and consumers, but their success demonstrates that this model can work online.

Way back in the day (read: the late 90s) there were a couple of companies that tried this sort of thing for regular everyday items.  They also tried models that allowed groups of people to get together to buy the same item en masse, thus reducing the price.  None of them worked.  There’s a variety of reasons, but a prominent one is that they all had to boil the ocean.  They had to do customer acquisition, build a seller network, and design and build a platform to bring it all together.

No imagine a place where a customer can go, and type in the name of a product that they would buy, what price they want for it, and be bound to that offer if their price is met.  This is how open orders work for stocks.  There’s actually two models here: 1) that you have your “sell it to me now” price, and 2) that you will definitely buy, but want to see all your offers.  The first is easy to police and apply quality of service, with the intermediary acting as escrow for funds.  The second is much harder to ensure a low abandon rate on the part of buyers, which wastes sellers’ time.

What’s prevented this from model working online?  For starters, bringing customers and sellers together, as well as the built-in behaviors and expectations of the players in these transactions.  Only now is it clear that your average consumer is as comfortable ordering online as walking into a store.

Facebook has certainly changed many built-in behaviors of customers.  They have created a new adjective for business transactions – social.  How would you build social into this?  Easy.  For any goods (including non-standard ones like services), your friends can see what offers you have in your queue and comment on them.  Reviews from your friends can be persistent, meaning that they would get shared again and again as more of your friends look for items of that type.  Sounds a lot like the open graph, no?

The idea is simple – allow users to make declarative statements about things they want to buy/rent/etc, and have a marketplace where vendors can service those calls.  This may happen because of a status update they just read (“I’d love to see Avengers tonight!”) or some pictures a friend posted (“That hotel looks amazing – I want to book a 5 day vacation to Maui”).  For hard goods, matching price and seller is easy.  For services, allow consumers to evaluate different offers which fulfill their needs.

The nerd in me wants to explain like this: Allow individuals to create objects in a personal queue, which gets flushed to a global queue, accessible by all vendors, and when an offer is made, the vendor sends their offer out, where it is routed to the right personal queue.  This would be anonymous for “buyers”, but “sellers” would at least be able to see the relevant social graph data – i.e. age group, number of friends, size of network, location, their interests, their friends interests, etc.  Lots of data to help the sellers decide what they would be willing to pay for customer acquisition.  Sellers pay Facebook for completed offers.  Buyers are contract-bound to complete the transaction – which gives sellers certainty that they will get the business.  A queue item could be made cancellable at any time by the buyer for a fee, but that’s an advanced topic for another time.

Facebook has the infrastructure.  They have the open graph.  They have the customers.  They have the advertisers.  This may not meld with the worldview inside of Facebook of how they will ultimately monetize.  It certainly feels less creepy to me than the current model in terms of how customer information gets shared and when.  It also changes the behavior queue of the consumer.  Right now the queue is the desire to buy something and the reward is the completion of that transaction.  The behavior (searching for things on Google) can be replaced with a new one (make declarative statements about things I want to buy) without having to change the trigger or the reward.

More Stories By Brandon Watson

Brandon Watson is Director for Windows Phone 7. He specifically focuses on developers and the developer platform. He rejoined Microsoft in 2008 after nearly a decade on Wall Street and running successful start-ups. He has both an engineering degree and an economics degree from the University of Pennsylvania, as well as an MBA from The Wharton School of Business, and blogs at www.manyniches.com.

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