In his weekly “Stories I’d Like to See” column, journalist and entrepreneur Steven Brill spotlights topics that, in his opinion, have received insufficient media attention. This article was originally published on Reuters.com.
Facebook’s landmark IPO filing suggests lots of meaty stories. Among them:
1. Facebook, third parties and data security:
Embedded in the typically long recitation of “risk factors” designed to shield IPO issuers from shareholder suits should things go wrong is a section of the prospectus that warns:
Our efforts to protect the information that our users have chosen to share using Facebook may be unsuccessful due to the actions of third parties If these third parties or Platform developers fail to adopt or adhere to adequate data security practices or fail to comply with our terms and policies, or in the event of a breach of their networks, our users’ data may be improperly accessed or disclosed. Any incidents involving unauthorized access to or improper use of the information of our users could damage our reputation and our brand and diminish our competitive position. In addition, the affected users or government authorities could initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices .
Not explained here is what protective mechanisms Facebook has to prevent these kinds of third-party security breaches and other abuses. Is the privacy and data protection of Facebook users only as strong as the weakest link among these third parties? Is there an Internet equivalent of the Gulf oil spill out there waiting to happen, after which Facebook points fingers at these third parties?
2. Facebook and the ad business:
The prospectus summarizes Facebook’s revenue machine this way: “We offer advertising solutions that are designed to be more engaging and relevant for users in order to help advertisers better achieve their goals.” Or, as The New York Times put it: “Every time a person shares a link, listens to a song, clicks on one of Facebook’s ubiquitous ‘like’ buttons, or changes a relationship status to ‘engaged,’ a morsel of data is added to Facebook’s vast library. It is a siren to advertisers hoping to leverage that information to match their ads with the right audience They reveal to the company not only their names (Facebook prohibits pseudonyms) and hometowns, but also their friends and family members and their tastes on everything from pop music to politics Facebook offers advertisers a giant basket of information so they can find precisely the audience they covet: a Boston woman who posts that she is ‘engaged’ may be offered an ad for a wedding photographer on her Facebook page Similarly, every press of a “like” button on Facebook signals a consumer’s preferences and shapes the ads that are shown.”
That was a good overview. But I’ve been waiting for a story that goes much further and lays out, with real numbers, how services like Facebook and Google—whose search advertising immediately targets people whose searches indicate they are interested in what the advertiser is selling—have changed the economics of advertising and threaten to crush competitors in more traditional media.
Here’s how to do that story: Assume you have two big advertisers — say Chevy Volt cars and Delta Air Lines. Then take five different kinds of media: NBC broadcast television, The New York Times, Time, Facebook and Google. Then take the exact cost in advertising dollars it will take to reach a thousand potential buyers of Chevy Volts and Delta plane rides in each of those media. But then add another, all-important factor: how targeted will those ad purchases be—meaning that if a thousand people see an ad on an NBC show, how likely are they to be people actually interested in buying a car anytime soon, or flying somewhere that Delta flies? What you’ll be able to measure (and add color to by interviewing Chevy’s and Delta’s ad buyers) is the cost per thousand likely buyers of the product—not just potential buyers, likely or not.