When I heard the news that Snapchat rejected Facebook’s all-cash $3-billion dollar takeover, I had a lot of questions. First of all, why did Snapchat reject such an offer given its non-existent business model? Secondly, what does Facebook see in Snapchat? How can Snapchat add value to Facebook’s business?
On first glance, it could seem like Snapchat is merely a fad. Users can send pictures or videos to their friends and decide the time frame within which their friends could view the sent message. Following this logic, it seems as if Snapchat should be able to learn a lot about their users based on the pictures that users have uploaded. However, is this really scalable? Unlike words, it is a lot more difficult to categorize and collect user information based on pictures in Snapchat’s current format. Also, Snapchat allegedly deletes messages that have already been viewed by the recipient, which makes information gathering even more challenging.
I think Snapchat has three main value propositions to its users:
- Users can select their audience – Unlike Instagram or Facebook where an uploaded photo is visible to all your friends or friend categories, Snapchat allows its users to select who the picture goes to. This allows users to communicate in a more focused manner.
- Users can communicate in the medium that most accurately depicts their message – Every message is a story and stories can be told differently depending on the content. Snapchat allows its users to express their story through art, text and media.
- Time commitment required is minimal – Snapchat is accessible through a mobile device and each message lasts 10 seconds at most. Time to access messages is limited to 10 seconds, and time to craft a message is also shortened because users know that this is short-lived.
Although these are all valid propositions, it is still difficult to justify why it should be worth $3 billion because none of these value propositions are revenue generating. A closer look into Facebook’s user base shows that 78% of them are mobile users, which means that they directly compete with Snapchat for attention. Furthermore, Snapchat surpasses Facebook’s photo uploads by 50 million images on a daily basis. As Snapchat takes user time away from Facebook more and more, Facebook’s value proposition to its advertisers is starting to erode. Is this worth $3 billion dollars? To Facebook, it probably does – especially so since Facebook’s IPO has faced a lot of investor scrutiny with regards to whether they can provide a reasonable shareholder return.
Whether Snapchat is eternal or ephemeral really depends on how well it can sustain its user base. From a features stand point, there is definitely a lot that Snapchat can do to constantly keep its users hooked.
In the meantime, Snapchat could benefit from cashing in on its large user base. One way to do so is by requiring users to login using their Facebook account. That way, Snapchat could access more detailed user information and target users more accurately. This would be a good value proposition to companies who are looking to advertise. On the other hand, user disruption could be limited by only showing ads after receiving 10-15 Snapchats.
Posted by Yvonne Chen on Oct 11, 2013 | Tags: advertising, Affiliate Marketing, facebook | Comments Off
I want to touch on the topic of affiliates again as I think they play such an integral and interesting role in the online economy. While we learned one side of affiliate marketing in class, I’d also like to discuss the affiliate world I encountered back in 2008, on the Facebook Ads team.
When I first started at Facebook, Facebook had just launched its very first monetization product, Facebook Ads. It was a new platform, used a simple interface, and while it had a limited number of targeting options, it was already using the unique user data that Facebook has today around people’s interests (tv shows, movies, books, etc.) Nevertheless, advertising was a brand new idea at Facebook and to Facebook users. Advertisers were still glued to Google AdWords along with other popular online ad platforms. Facebook needed to break through the community and establish its foothold in the world of ads. So, what did Facebook do? Facebook went after the affiliate community.
Going after the affiliate community
Why did Facebook do this? Affiliates often times ran low quality ads. The Facebook Ads system was flooded with bad ads from weight loss, to the new acai diet, to singles ads with inappropriate photos of women’s chests. These bad ads were all affiliate ads. To increase quality, Facebook could have gotten rid of these ads completely and just went after established businesses and brands. However, they would have missed out on a lot of opportunities that the affiliate marketers were bringing to the Facebook Ads platform.
First, it wasn’t that Facebook didn’t want to go after established businesses. Those relationships took time. Nobody trusted social media at that time, and people still don’t even understand it today so you can imagine the push back and convincing that needed to be done. However, affiliates were swarming to Facebook. And here is where the interesting world of affiliates comes in.
Affiliates, while they can be “dirty” and “sketchy”, they are SMART. They know online advertising like a dog knows how to bark. They understand clicks, impressions, CTR, optimization, etc. They know different ad platforms and the intricacies of how they operate. In addition, affiliates are in a volume business. They upload hundreds and sometimes thousands of ads at a time. This kind of ad volume allows them to learn quickly and iterate. In particular, they are always on the lookout for new ad platforms. Why? New ad platforms offer new and more inventory, which allows them to make money. So, when Facebook Ads came along, they jumped on the opportunity.
Now the ads they put on Facebook, for the most part, were not high quality. This isn’t to say that all affiliates use misleading ads. On the contrary, there are a lot of very high quality affiliates out there that choose to put up higher quality and more relevant ads. However, those ones aren’t always the first movers. It’s the sly guys that get in first to test out the waters and push the boundaries. As a result, Facebook was flooded with bad ads. And instead of blocking them from the site entirely, Facebook chose to work with them.
Facebook’s affiliate relationships
Facebook’s Ads team quickly established relationships with affiliates. I was on that original team that did this, and as much as I didn’t love working with them, I found their world fascinating. Some of the most successful affiliates using Facebook Ads were 20 years old or younger! They were college students making money on the side and paying their way through school. Some of them were older and experienced in affiliate marketing – those guys had an affiliate following. Some were dedicated parents. Some threw lavish parties in Vegas penthouses with the cash they were making.
The best thing for Facebook though was that in partnering with affiliates, Facebook was able to build a robust ads system that laid the foundation for its advertising model today. The sheer volume of ads coming from affiliates on an hourly basis was enough to test the ads system’s durability. Engineers could use the data to build an ads system that could handle that level of ad volume. On the operations side, it allowed for Facebook to build a more efficient and automated ad review system. From a legal standpoint, Facebook was able to test advertising policies and iterate on them to pave the way for the high quality ads from more recognizable brands. And, the amount of feedback Facebook was able to receive from affiliates about the pros and cons of uploading ads, using the ad creation flow, using the online ads tools, and reading through ads policies allowed Facebook to fine tune its product.
Today, those kinds of affiliate marketers are no longer on Facebook because over time Facebook’s ad quality rose with more brands coming on board and Facebook going after a broader range of ad types. However, we must never forget that these original affiliates were the ones that actually helped build the Facebook Ads system. They were the volume drivers pumping money into Facebook, making money for themselves, and ultimately giving Facebook the ad volume it needed to scale to what it is today.
According to eMarketer, U.S. advertising spend on mobile platforms will reach $7.65 billion in 2013, nearly doubling its 2012 size of $4.36 billion. Smartphones, of course, store all kinds of personal information, ranging from deliberate storage of information like contacts to less intentional storage of information like products purchased and topics searched. However, unlike desktop computers, mobile devices cannot always rely on cookies to assess a user’s behavior. Mobile apps, for example, do not hold cookies. We can thus infer that much of the $7.65 billion spent on mobile advertising has a lot of room left for improvement when it comes to targeting end-users, and thus also significant potential for market growth. Smarter technology to track users’ tastes on mobile phones would likely be worth big bucks in the online retail world.
Drawbridge is one start-up making inroads in this space. As discussed in a recent NYTimes article, “Selling Secrets of Phone Users to Advertisers” (5 Oct. 2013), one of Drawbridge’s main goals is to connect a user across multiple devices. Since cookies gleaned from desktop browsing can reveal highly coveted information to merchants, consider how valuable it would be for a merchant to also know which mobile devices are connected to that desktop. If I search for “Best restaurants in Cambridge, MA” on my desktop, Drawbridge’s technology might allow advertisers from Grafton Street to display a message on my smartphone shortly thereafter because it would know which smartphone was mine.
This type of behavioral tracking and connecting, I am sure, is just the beginning of companies looking to piece together and profit from all of our online usage. Even if current privacy laws allow companies like Drawbridge to collect and share information, where are the users’ rights? The onset of mobile technology has been rapid and convenient for millions of users, but any relevant education of long-term implications has been heavily ignored, if not entirely absent. Is the challenge to make users more aware of the types of information they are making public and profitable for third parties? Or are the conveniences offered so great that users do not really care about the tradeoff? I consider myself a fairly educated consumer when it comes to privacy laws, but any fears I have of creating an entire cyber footprint of my life are outweighed by the benefits that come with using technologies like social media and online shopping.
As we continue to become a world that is less private, my biggest concern is that the monetary rewards of this alleged transparency will fall into the hands of only a few. What if, instead, the mobile revolution could lead to a new era of self-empowerment for users? What if users could sell their buying behavior and personal information directly to interested parties? Though the cost implications would undoubtedly be higher, the quality of the information would inevitably be much richer and more accurate, likely leading to a higher lifetime customer value.
As most of us probably still remember, there was a time and age, not so long ago, when we felt that browsing the internet was like walking around while being invisible. Even when we started performing more formal tasks over the web, such as shopping or banking, we felt relatively safe that our data and personal information were secure and private – known only to systems and databases that need to identify users in order to allow access or complete a transaction.
Regulation on the matter is obviously, as with many online-related issues, ongoing and varies wildly among countries – something of a paradox given that the online world seems to be almost unbound by national borders. And while the debate seems to center, if at all, around consumer protection issues driven primarily by concerns regarding data mining used for purposes of targeted/personal advertising, few seem to be worried about other parties potentially interested in our personal information and data. Numerous governments around the globe can gain access relatively easily, to one degree or another, to such data. And while efforts to prevent terrorism, uphold national security, and protect the public feel like noble causes, who can credibly guarantee that our personal information is not being misused by people, agencies, and organizations that have access to it? Where does one draw the line and how do we ensure that such a line cannot be crossed?
Sadly, noone can guarantee online privacy and personal information protection. Nor do internet users seem to care as much these days. Yet it was a mere 80 years ago when a democratically elected party rose to power in Germany and quite soon after that started using personal data gathered by census and processed by technology available at the time to ultimately commit some of the most appalling crimes in recent human history. And, more recently, while Shi Tao’s predicaments do not feel quite so widespread or disturbing a phenomenon, yet his story serves as a reminder of how weak private corporations can ultimately become in the face of political / government pressure, such as the one that the Chinese government officials seem to have exerted on Yahoo. Besides, no matter how much trust one is willing to show towards a government, no one can really claim they can protect themselves from the occasional rogue government employee. After all, worse government scandals than that are certainly not unheard of.
For the moment, online users appear to be feeling relatively safe and seem to be riding the wave of apparent convenience as well as perhaps fashion when it comes to sharing information over the web. While this trend seems unstoppable, it takes only a few, if not one, major events to shake peoples’ faith and peace of mind. If and when such a time comes across, when people collectively decide to start pushing towards a reversal of this trend, the online economy will have to radically change in order to re-adapt. Whole products, services, even business models have been built around the processing and use of data that could potentially be deemed inaccessible or become unavailable altogether. This would certainly be a much different world for the online economy and its participants.
Until then, we can all cherish the fact that we now can, on top of sharing our location with GPS-level accuracy and storing our contacts and messages in a cloud, scan our fingerprints on our smartphones to unlock them!
Posted by Nikhil Sachdev on Nov 28, 2012 | Tags: advertising, mobile, TapJoy | 2 comments
TapJoy, founded in 2007, is a fascinating and controversial ad network that is taking on the $2.6 billion mobile ad industry. Last year the company did $100m in revenues (up from $20 million the year before) and comprised 13% of the Glu Mobile’s (a public mobile gaming company) revenue. TapJoy is a global business (offices in 5 countries) in a big, growing market. Currently mobile advertising represents only 2% of overall ad spend, and that is expected to change rapidly as smartphone penetration and usage continues to ramp across the world.
How does TapJoy work?
TapJoy’s ad network is premised on the “value exchange” – in essence, incentivizing users to download apps and interact with advertisers by providing them access to premium content and virtual credits. Imagine you are playing a popular mobile game, like Farmville, and want to access a new level or purchase some type of virtual good within the game. TapJoy offers you a way to unlock the new level or earn virtual currency by selecting from a variety of actions. You can download a different app, you can watch a video ad, or answer a short set of survey questions. Based on a reading of online news articles, TapJoy seems to derive the majority of their business from incentivizing downloads of different applications. Incented application downloads also seems to biggest source of controversy as some players (like Apple) think incentivized traffic is “bad” traffic.
Former TapJoy CEO, Mihir Shah, argues that TapJoy’s value exchange delivers benefit to all parties involved – publishers, consumers, and app developers (and TapJoy too of course). Publishers (read: mobile game companies) have trouble monetizing their content in a world where mobile CPM (costs per thousand impressions) for traditional display ads are under $1.00. TapJoy offers rates at a minimum of $0.10 per ad interaction and in the $0.85 range for many application downloads. TapJoy makes money as the network by taking a hefty commission (in the ~40% range). TapJoy argues consumers value the service because they are able to earn premium content and credits without any cash outlay and are able to select the most interesting and relevant ad from a panel of options. Finally, TapJoy provides real value to developers who are looking to get their apps in front of consumers; without TapJoy they have few good pay per performance options for acquiring users.
Apple has cracked down hard on TapJoy. They argue that developers of pretty average applications are able to use TapJoy’s platform to pay their way onto the “Top Apps” listing on Apple’s app store. Apple would argue the users downloading these apps have no real interest in the content since they are simply undertaking a one-time action to acquire some incentive. As such, apps of poor or unvalidated quality are able to get high rankings. Once you hit the top apps chart, you are able to spur a surge of organic downloads. Unfortunately for Apple, it doesn’t receive any commission for organic app downloads. As such, if I am a well-funded developer, I can almost guarantee traction as long as I am willing to pay for the cost of using TapJoy’s promotion platform. Apple shut down TapJoy’s initial offering, a very simple tap procedure which leads to an app download. In response, TapJoy has moved offers to HTML pages opened within a browser, something Apple can’t yet review and curb.
What do you think?
Mobile ad networks are a new space to me but one I am fascinated by. I am eager to hear your views on TapJoy and other mobile ad models.
To me, I think TapJoy represents a really unique innovation in mobile that is able to help all constituencies involved in its value exchange. Admittedly some incentivized traffic may not be of the highest quality, but what is the alternative? Consumers have suffered “banner blindness” to traditional PC and mobile display ads for a long time. Despite the ineffectiveness of this form of advertising, billions continue to be spent on this format. Perhaps incentivized interaction is the way that the mobile ad industry needs to head?