“Facebook under pressure to find new ways to turn user data into profit,” here, Feb 27, 2011. Excerpts:
It is Facebook’s biggest conundrum. As the world’s largest social network, it faces intense scrutiny from consumers, courts and regulators worldwide over how it handles the data it collects from its 845 million users. But as a company preparing to go public, it is under pressure to find new ways to turn that data into profit.
In effect, Facebook’s greatest achievement is also the source of its greatest challenge. It has persuaded its users to voluntarily share a great deal of information about themselves: who they are, where they live, whether they follow basketball or opera, even what their children look like. All that data could make Facebook a game-changing advertising platform.
Advertisers can tailor messages on Facebook on the basis of demographics like age and gender and on the preferences and affinities of its users. If Facebook users click the “like” button for a particular grocery store chain, for instance, their name – and sometimes their picture – can appear as part of an advertisement for the chain on the Facebook pages of their friends. The same can be done when users read a news site connected to Facebook, or a song they stream from one of Facebook’s many entertainment partners, though users can tweak their settings to prevent Facebook from using such information for advertising.
The rich, varied pool of data is Facebook’s greatest asset, giving the company a lot of ways to get creative with ads and sponsorships.
“Facebook already has more data than they are leveraging,” said Rebecca Lieb, an analyst who studies online advertising for eMarketer, a research firm. “There are so many infinite ways to slice and dice the data Facebook currently has that it’s rather daunting.”
Facebook had $3.7 billion in revenue in 2011, an 88 percent increase from the previous year. According to its filing, Facebook posted a profit of $1 billion last year, with the bulk of that coming from advertising. Nate Elliott, an analyst with Forrester Research, said Facebook was far from realizing its potential as an advertising platform. It could use data on users, for instance, to serve them advertising on other websites, not just its own. It could also create a more “intelligent system,” as he put it, to match marketers to the right consumers.