Facebook, Twitter and the economics of attention

Ever since Facebook went public in one of the largest technology stock issues of the last decade, an offering that valued the company at more than $ 60 billion, one of the biggest questions hanging over the company’s head is whether it can generate enough revenue to justify this massive market value. There have been questions raised about both the lack of a strong (or at least convincing) mobile strategy and the relatively lackluster performance of Facebook’s advertising model. And some wonder whether the giant network will ever be able to make advertising work at all, because of the nature of the network and the purposes for which most people use it — and whether alternative networks like Twitter aren’t better equipped to do so.

One of the more recent discussions of that idea comes from startup advisor and entrepreneur Alistair Croll, who argues in a recent blog post that despite its enormous size and reach — something that should theoretically make it perfectly suited for advertising — the nature of Facebook’s network actually makes it less effective at doing this than Twitter. In a nutshell, Croll says, we are more likely to be open to commercial messages appearing in our Twitter stream because the network is asymmetric (meaning you don’t have to approve every follower, and users can send you messages by simply using your Twitter name).

Is Facebook’s structure even conducive to ads?

Facebook, by contrast, is based on a more symmetric model — one that is designed to allow users to control their social network at a very granular level, by approving each and every “friend,” and therefore implicitly accepting that messages from them will appear in their timeline. The network has added subscriptions and other features to try and duplicate the asymmetric model that Twitter uses, but those don’t seem to have really taken off for most users, many of whom complain about subscriber spam. And that kind of structure, Croll argues, makes it a particularly ineffective medium for advertising:

At its core, Facebook is also built around the idea of a network of friends, which means some people (and their messages) are foreign to that network. Our “immune system” reacts when someone promotes something to us. Our first reaction is that their computer has a virus and it’s spamming their social graph —- not that they might be genuinely recommending something.

This is a point that we have made in the past as well. And it isn’t just a threat to traditional advertising, the kind General Motors was doing when it decided to yank its $ 10-million budget just before Facebook’s IPO (the company is apparently reconsidering this move). It’s also a potential risk for the kind of social advertising Facebook is trying to sell to big customers, including features like “sponsored stories,” which embed messages from Facebook users inside ads. As I tried to point out in a recent GigaOM Pro report, the network’s future depends on it being able to solve that problem (subscription required).

If Facebook can’t make ads work, then it is AOL

Sir Martin Sorrell, the chairman of giant advertising and marketing conglomerate WPP Group, put this challenge well when he said recently that he wasn’t sure whether advertising would be effective on Facebook or not, because it is a social place where users expect to interact with their friends, not with commercial messages. As he put it: “The point is that Facebook is a social medium, not an advertising one… you interrupt social conversations with commercial messages at your peril.” As Croll notes in his blog post, this could be one of the reasons why Twitter might actually be better suited to advertising content:

Facebook is stuck in an awkward place compared to LinkedIn, Twitter, and even Google. It’s not a “vertical” social network like LinkedIn. It’s not an “open” social network like Twitter [and] it’s not a default part of using the Web like Google is.

Obviously, Facebook is far from doomed when it comes to either advertising or generating revenue. One of the few advantages the network has — apart from just its massive size — is the “open graph” platform it has created, which connects it to millions of websites through “like” buttons and comments and other features (something Google has been trying to replicate to some extent with its Google+ network and the +1 button). There is at least the potential that Facebook could use these connections to develop an advertising network that places ads on partner sites and targets them using the behavior of its users, avoiding the anti-social problem.

The big danger is that Facebook never makes this or any of its various mobile efforts fly properly, and winds up being just an AOL-style platform that “tries to keep people inside it, making money off the in-system credit taxes,” as Croll puts it in his post. It may have a few billion dollars that it can spend on figuring the problem out, and a billion or so users on whom to test various solutions, but there’s no guarantee that it will succeed — or that success is even possible without radically changing the nature of the network.

Related research and analysis from GigaOM Pro:
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