So it’s IPO time for the leading social commerce platform on the planet, and Facebook thinks it’s worth half of Google ($104bn vs $196bn), as much as Amazon ($101bn), and twice eBay ($52bn). But here are three reasons why a psychologist wouldn’t invest, and why, if you are in the social commerce game, a psychologist wouldn’t put all their eggs in the blue Facebook basket.
1) Intention trumps Interest: Commerce notwithstanding, Facebook’s future will depend largely on its advertising revenue, which will depend on advertising effectiveness. But the Facebook advertising value proposition – superior targeting based on peoples interests – pales to insignficance compared to the value proposition of search advertising based on intentions. Psychologists know that interests are lousy predictors of behaviour – intentions are far better. Your likelihood to drink champagne tonight is very poorly correlated with how much you like champagne, but highly correlated with whether you intend to drink champagne. Which is why the intentionality of Google search ads stand head and shoulders above Facebook ads based on interest. With GM the latest business to pull Facebook advertising, businesses get this.
2) Scarcity drives Value: Economists like to talk about the network effect – the more people use something the more valuable it becomes. Psychologists like to talk about the opposite – the power of scarcity – the fewer people have something, the more valuable – and the more cool – it is perceived to be. Diamonds are perceived as – and are – valuable precisely because they are a scarce commodity. Facebook is perceived as cool so long as your aunt and grandparents aren’t on Facebook. With low barriers to entry for alternatives, Facebook’s very ubiquity could trigger a mass exodus.
3) Mind Myopia: Minds are myopic, which means we tend to overvalue the importance of the ‘here and now’ and see the present an an insight into necessity, rather than an opportunity for change. Facebook is big today, so we tend to falsely extrapolate that Facebook will be big tomorrow. History and MySpace et al prove us wrong over and over. Our inability to look at things without the sensory data of the here-and-now means we over-invest in the present and the status quo, and not enough in the future.
So whilst a psychologist may see the value of Facebook as a social commerce super-platform, helping people buy where they connect and connect where they buy, that psychologist would be wary of investing in a $100bn valued Facebook.
Thoughts?
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Paul,
What do you think about Facebook as the interest graph built around users, which can drive a social commerce movement inside or rather outside the platform itself?
About scarcity you’re perfect right, it drives value. But that value it’s perceived when we talk about a finite thing (like diamonds, gold or caviar).
However, Facebook provides unlimited opportunities, unlimited data (be it text, friends photos, or anything else that is happening inside) which changes how value is perceived. It’s not about limited access (to create scarcity) and is more about the value of the data, how relevant is for us to go back on Facebook.
Awaiting for your answer, thank you!
Hi Alex, thanks for the comment. Very pertinent – and you are right of course, the secret sauce/source of FB value is the richness of the data.
Whilst interest is a lousy predictor of behaviour, and intentions are better – the very best predictor of behaviour is past behaviour. (Although your likelihood to drink champagne is better predicted by whether you intend to drink champagne than by how much you like champagne, it is even predicted even better by whether you drank champagne yesterday (or at a past similar occasion).
Which is why the ‘story of your life’ timeline initiative was a stroke of genius. The more behavioural data Facebook can amass the more valuable it will be.
A behaviour graph is far more valuable than a social graph or interest graph and even (perhaps) an intention graph.
The challenge though is to turn big data into big knowledge and ultimately BIG WISDOM . Can Facebook do this?
So what do I think about Facebook as the interest graph built around users, which can drive a social commerce movement inside or rather outside the platform itself? It’s the best we have at the moment – with big commercial opportunities for people selling shovels in this space – but ultimately I think we’ll see the emergence of a platform for self-orgaisation around intentions – what I call the intention graph.
This time I’ve missed it. Intention is indeed the word when we talk about commerce and transactions in general. It’s very well described in Predictably irrational, Dan Ariely.
I’m not happy with Facebook platform and what are they doing, but as you said, is the best we have at the moment. Technology can really change our lives, and I believe that Facebook and Google (if they were together, one having more data about intention and one about relations and social) can build the intention graph , but this is another discussion.
Thank you for your reply, it made me think to adjust a bit what I’m doing now in social commerce space.
Have a good day and keep the good job with this blog. It’s my favorite related to ecommerce.
Paul,
Out of the 950m profiles on Facebook, how many do you recon are true users, and not fake ID’s? Likes are currency on Facebook, and lots of companies buy (fake) likes. As a general user you can’t see who is behind a like on a company fan page. And users them selves are not really confronted with fake profiles as they have there personal network solely on their profile.
When surfing Facebook in search for influencers I found that regions like India have mass volumes of fake users. Makes you wonder!? A direct question at a seminar to the Global Sales Manager of Facebook was ignored (they didn’t understand the question, he said, net question please…)
What is your thought?
Great article Paul.
Just a note about Interest vs. Intention, and the use of adversing on Facebook…
Moreover I’m seeing FB ads not actually getting me to buy anything there and then… but instead to visit their fan page, maybe engage in a conversation etc. FB is a great branding platform, so you ‘like/follow’ your favourite brand.
Those that go to buy head to Google instead, where SEO and PPC results based on intent is prominent. That said, if branding is done well, or very well (!) brands shouldn’t need to invest in SEO or PPC at all!
Hi Sean, thanks for the comment – and good point. It’s possible to see FB ads as simply a means for brands to get permission to talk to consumers (by liking them) – a kind of light version of opt-in email marketing. With permission to speak they can use Facebook to build their brand (their ability to extract margin) with compelling brand/user imagery and a value proposition that creates choice-shaping associations.
I agree that FB has a useful role to play in brand building, and that focusing on direct response ads is to miss the opportunity. I usually argue that selling on Facebook is not about sales per se – but about brand building. The value, for me, of Facebook-based social commerce is that it’s self-funding brand building, much like pop-up retail – event marketing that helps pay for itself, and that plays the authenticity card (we’re a brand designed to be bought, not a person to be liked) rather than all that nonsense about a brand being your friend…
Definitely agree with the proposition regarding ‘intent vs interest’. Facebook is a great platform, with tremendous power within the OpenGraph. I wonder if brands are overlooking Twitter as potentially more valuable as a ‘direct-commerce’ platform. Users constantly express their ‘here and now’ intent allowing brands to interact with them at the correct point in the purchase funnel. Develop the correct ‘Predictive Analytics’ proposition around the Firehose with a vertical industry partner and you have a strong competitor to AdWords.
I like it. Algorithms to make a crystal ball is cool, but people telling people what they really want is even cooler.
Great stuff. Totally agree with you regarding interest vs. intent. I believe there will be a Facebook exodus in the future, but it won’t be in the form of a bunch of users deleting their accounts. It will come in the form of a “time exodus,” where more and more users are spending less and less time on the site. I’ve been on Facebook since Sept 2004, and I spend much less time on Facebook now than I did in the past and engage with only a handful of people. I anticipate many other users will experience the same Facebook life cycle and start spending time elsewhere on smaller networks. Path and other services that limit your number of connections are ahead of their time right now, but I think they will take off in the future.