We all know why Facebook has such astronomical valuations. It is already as ubiquitous as Tesco. It is a place a billion people go to: whereas they only ever leave Google search, to go somewhere else. But people hanging around, poking, throwing cows, ignoring the adverts and goofing around doesn’t pay the rent. To increase revenue, Facebook needs to sell more stuff: products and services.

A Facebook music “dashboard” has long been rumoured: it would be a way of tying together disparate offerings such as eavesdropping on what friends are playing, streaming music yourself, or buying songs, ticketing or merchandise. A music dashboard is a subtle and relatively unobtrusive way of turning Facebook into a grown-up retail and services platform; an approach which borrows from the classic (Porter) Tesco philosophy of taking a tiny margin from a large volume of transactions.

So Facebook is expected to unveil many of these, including the dashboard, at its f8 developer conference next week. So far, so predictable.

The most interesting detail to emerge is that in addition to transactions there may also be an arbitrage opportunity. Facebook will apparently permit competing streaming music services (Spotify, Rdio and Mog in the US) to pipe music to users, and “reconcile” the content. So if your chat buddy is playing a song via, say, Spotify and wants you to hear it, you can hear it via your choice of streamer. This has been something of a Holy Grail for service developers – not helped by the music industry’s inability to get its metadata story correct. Facebook can even play one service off against another, driving the costs even lower.

But there’s also a downside.

One is that Facebook’s decision to open itself up as a platform, while this contributed enormously to its popularity, also has a downside. Supermarkets succeeded by putting everything you wanted under one roof. They created ersatz deli counters – but did not host rival delicatessens. Facebook’s willingness to use rivals raises long-term margin issues.

But the bigger problem is that there’s not enough money coming into the system. Three years ago, the conventional wisdom insisted that people would never pay for anything on the web. For some people, that’s going to be true now and forever. But that was before the App Store, and the successful (and porous) New York Times paywall. Facebook absorbs an enormous amount of people’s time. If a fraction (say 20 per cent) of them paid 99 cents a year, then the revenue picture would look quite different. If 10 per cent paid even more for premium services then Facebook wouldn’t be thinking about chiselling fractions of cents from its existing partners.

For all the talk of the web being the font of innovation, it’s clear to me that it lacks some really basic features – paying for things is extremely tedious. These are innovations other businesses have put into the practice. And supermarkets have perfected the trick of making you quite pleased with the transaction. Maybe that’s on the whiteboard for Web 11.0, but I think most web companies haven’t given it a moment’s serious thought.

A Facebook that received predictable subscription income wouldn’t be thinking of selling your data, either. The phrase that best sums up the web today – “You Are The Product” – would become less relevant.

I once proposed this idea on BBC radio, in a debate about privacy. My interviewer looked quite startled by the prospect of money changing hands in the beautiful Garden of Eden that is the web.

“Wouldn’t this violate net neutrality?” he mused.

I demurred.

Then a blessing of unicorns charged into the studio, and I was carried away to be re-educated.
Read the original story at The Register.

At a typically oversold launch event yesterday, Zuckerberg complained about the “friction” generated by having to compose a simple email. You had to type a subject line in, he said, incorrectly, making people wonder if he’d ever used email himself. It’s too formal, he concluded. The poor love – I’m surprised he hasn’t thought about suing the developers of POP3 for emotional distress, as well as repetitive strain injury.

The Facebook plan is to integrate email and SMS into Facebook, into one great big inbox, which will be stored forever. And which will naturally drown people who are not on Facebook under a tide of real-time chaff – Web2.0rhea, as we call it here.

The irony here is that Facebook is already a privatised messaging platform. It has got to where it is on merit, I think – it is a rich and nicely implemented UI. Ordinary people think of it as a quite natural “upgrade” to the Hotmail and Yahoo! mail services that they were using 10 years ago. These gradually got inundated with spam and special offers. Maybe Facebook will too, but for now, “communicating” means stopping at Facebook first – because people’s friends are there – and then (more wearily) logging into Hotmail and wading through the promotional coupons, special offers, bogus solicitations to login to your bank account, and Viagra advertisements.

It might strike some people as unfair to think of Facebook as the new Microsoft. People, who’ve drunk the liberation theology Kool Aid of Web 2.0 suppose that the web is a kind of Garden of Eden, where startups are always bright and inventive, where disputes are set aside, and where the good guys generally win.

Microsoft liked to keep its email protocols proprietary, of course. Outlook email is just bog-standard email protocols, wrapped in overly complicated and non-standard DCE/RPC calls. Hotmail and Exchange Server used another internet protocol, WebDAV, which while not as impenetrable still required some work to talk to. Facebook hasn’t had to do it at all. It already has a critical mass of users, which is essentially a privatised address book.

(I’ve railed against the paucity of email clients recently – I realise it’s a minority pursuit, and protocols haven’t evolved as fast as the web services. But from your response – 70 emails on a Sunday – I know I’m not alone in ruing this a little).

Don’t count your pokes

However I fear that hubris is Zuckerberg’s middle name, and things may not go as smoothly as Facebook hopes.

Typically, Zuckerberg hasn’t thought through the implications of the integration for people who aren’t like Zuckerberg (and think subject lines are mandatory, and adding a salutation (“okthxbye”) creates “friction”.

The major design error is supposing that people value all communications equally, at the same flat level, and that messages from the boss who sends one every six months are of equal importance to the Twittering ex-colleague who sends 45 a day.

Each communication medium we use has different norms, and of course different levels of privacy – something Facebook emphatically brushed aside yesterday. How will Facebook acknowledge this? Perhaps it will hire some more UX gurus and give email a slightly different hue of some pastel shade in the inbox. That’ll fix it.

Facebook’s “social inbox” is anything but. It doesn’t really help people on the outside reach people on the inside. It doesn’t help Facebookers manage their communications with people on the outside. It’s another argument that because Web 2.0 designers don’t understand the subtleties and contradictions of real human relationships, they can’t create software that helps real people.

In the last century, an intellectual fashion swept out of psychology, where it had been born, into policy making. BF Skinner was a utopian who believed man could be changed for the better. He suggested we were the results of our conditioning, and our behaviour could be trained, much as rats can be trained to urinate on command. “Behaviourism” had great appeal to politicians, as well as advertisers. It was a nasty “-ism” that fell out of favour for several reasons. One of these was Skinner’s insistence that we are incapable of constructing our own environment.

Web 2.0 sees the return of behaviourism, but with a smiley face. It forces us to respond in a limited numbers of ways. But we continue to choose our mediums, and construct our own environments. Zuckerberg has made the same mistake as Skinner.

Earlier this year, Google tried to turn Gmail into Facebook. Facebook is trying to embrace and extend email. Is it wicked to wish that both of these data-hoarders learn a vital lesson from this?

Read responses to this article in our Mailbag.

Facebook’s privacy-busting referral scheme called Beacon is to be modified. If you buy something elsewhere on the web, this information is piped back into your Facebook profile, so your social network can see what you’ve just bought.

Facebook already offered something similar, but with an opt-in model. This opted everyone in by default. People don’t mind telling friends they’ve gone to see Led Zepp – they don’t necessarily want them to see they’ve just bought a blow-up doll.

Who would have guessed?

It’s damaged Facebook and participating advertisers far more than anyone has realized. Facebook’s notoriously weaselly approach to privacy was well in evident, even as it begun to roll out the “fix”.

“Facebook already has made changes to ensure that no information is shared unless a user receives notifications … ” the company explained. Note, not “permissions”, but “notifications”.

In the reader comments, Darren Coleman asks,

“I can’t really see how Facebook can make any money outside of the traditional model of invasive banner ads and Adwords. As sites go it’s a victim of its own success – you can’t monetise the userbase because they’d sooner just jump ship to the next Web 2.0 darling, and if you’re seen to be doing anything that could be construed as towing the corporate line (e.g. ads, tracking, etc) then suddenly you’re no longer the plucky young upstart website – you’re the corporate mouthpiece bought and paid for by the kind of people that talk earnestly about monetisation, incentivising, growing brands, etc. Urgh.”

“It’s the ultimate self-defeating paradigm.”

Good point – is that it, then? Well, not quite, because there are three ways of making money here, and Facebook is trying them all.

Mark “I’m the CEO … bitch” Zuckenberg called the referral program the “holy grail” of advertising when he announced it, and it remains a pipe dream.

The other two programs are safer bets: giving advertisers even more slightly accurate demographic information is sure to be welcomed: advertisers currently get nothing at all.

And getting a cut of transactions through Facebook remains an obvious strategy. As I pointed out at the time, however, this may be smaller than many people suppose. A store that shares the transaction revenue with Facebook is only going to be prepared to do so as long as it considers Facebook a part of that transaction. Is Amazon going to be prepared to pay every referrer for a transaction? You can bet not.

Facebook’s Beacon experience simply demonstrates that it’s been too clever by half: thinking it can do “permission marketing” without your permission.

And the company’s impatience and greed also explain why it faces a long drawn out battle with regulators in Europe. Like a Roach Motel, you can join Facebook – but you’ll never leave.

On the face of it, it looked like Web 2.0 had found its “Long Boom” moment. Facebook has yet to turn a profit, so Zuckerberg hardly seems in a position to advise other people how to make money – let alone place himself in a pantheon of historic business greats. In Web 2.0-land, merely “being there” is a substitute for having “made it”.

But then Zuckerberg is no stranger to bluster. This, notoriously, was the 22 year-old who had “I’m CEO…bitch” on his business card.

Behind the calculated bluster were a collection of ideas perhaps equally designed to distract the attention (no pun intended).

Of the three ideas Zuckerberg outlined, one in particular provoked horror and ridicule. It was to turn Facebook users, accustomed to its clean and spare UI, into human billboards. Advertisers could build presences in Facebook – at the moment, you must be a person – giving users the opportunity to “affiliate” with them.

“Users can become a fan of a business and can share information about that business with their friends and act as a trusted referral,” is how the company described it.

“What do the users get in return?” asked the IT commentator Nick Carr. “An animated Sprite Sips character to interact with.”

But Nick is forgetting that this cuts both ways – it isn’t a static picture at all.

Take the example of Stella Artois, which was once a “premium” lager brand owned by brewing giant InBev. In recent years this has acquired the notorious nickname “wife-beater”. This is now so pervasive, that lawyers defending their clients on assault charges refer to the “Stella” defence. Sales fell 10 per cent last year – and it isn’t quite so “premium” any more.

An affiliation is not an endorsement – yet Facebook collects either way. Would Stella’s fall have been accelerated by Facebook affiliation? Almost certainly, for on the web, jeering is the background noise. Only the most delusional marketing person thinks that their brand is in any way enhanced by proximity to the mob – brand advertising is all about keeping a distance. A corporate reputation is like a party frock – it crumples easily.

So shrewder advertising spenders will quickly realize the dangers in such 2.0-style “interactive” engagement and how phoney “conversations” with customers really are – and wisely gravitate towards traditional methods, such as plain ol’ display ads.

Nevertheless, and here’s the rub, they still want to have better, more targeted advertising. And even the slightest improvement helps.

Facebook’s future is much more down to who it lets into the club, rather than anything we heard this week.
Don’t be bluffed by bluster

The picture is far more nuanced than a simple analysis permits.

Because Facebook has wrapped up pretty much every internet application protocol ever invented under its umbrella, it’s the portal the old dotcom portals wished they would be. [MySpace gave us the first hint of this shift two years ago, when we observed that users rarely left MySpace - using it for everything except IM.]

For Facebook today, most of its value is as an email replacement – which represents the balkanization of the internet, with people only talking to people they already know. This is socially dismal, but again, good for advertisers. We’ve also seen a successful example of transactional revenue in the Facebook application iLike, which allows you to buy concert tickets. Others will find a way to persuade the in-Facebook brethren to part with their money.

So it’s worth remembering that there are many businesses within Facebook, and we’re barely at the nebula stage: the star is still forming.

This week reaction to Facebook’s announcement fell into two camps. The cynics saw it as confirmation that Web 2.0 companies were only ever out to screw their users as quickly as possible. The technology utopians appeared shocked – shocked! – that Facebook wanted to monetize its user base at all.

The truth is somewhere in between. Facebook may be far cleverer than we’ve been told this week.