Facebook's Hidden Asset

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As Facebook's IPO approaches, financial analysts, marketers, and consumers wonder how the dominant social media site will change and where future revenues will come from. EMarketer forecasts Facebook's 2012 global revenues to be $6.1 billion while its advertising revenue growth rate continues to decline. But what these forecasts overlook is Facebook's one hidden asset.

To-date Facebook has three significant revenue streams from its participants.

1. Advertising. As digital media's 800-pound gorilla, it's the first choice for social media advertising. Based on eMarketer's projections, Facebook earns roughly 1.1 percent of all ad dollars spent in the U.S. Actionable marketing insights. Facebook's main challenge is advertisers like Ford use it for engagement, spending relatively little on advertising. (Marketers, check out "What's the Value of a Facebook Like.") Further, Facebook isn't attracting top Ad Age advertisers' marketing spend from traditional media venues. While mobile advertising will be a significant opportunity, until the entire market grows, it'll be limited and face large competition from Google, mobile apps, and location-based services.
2. Gaming. Facebook makes a revenue share from gaming products with the potential to grow, but what happens when Zynga's deal expires? Actionable marketing insights. There's an upper bound on revenues from games and virtual goods given potential competition from other gaming products like Wii. Revenues from music, video, and books are unlikely due to competition from Amazon and Apple.
3. F-commerce. F-commerce hasn't been a total success and some early merchants like 1-800-Flowers have left. Actionable marketing insights. Marketers want transactions completed on their own platform so they own the customer relationship. Don't underestimate Amazon's large installed buyer base of Kindle owners and its ability to fulfill orders.

So what's left that no one's discussed? Big data. To understand Facebook's data and its marketing and financial value, I interviewed marketing data scientist, Rhonda Knehans Drake, Drake Direct president and NYU professor. (Here's Rhonda's full analysis of Facebook's IPO.)

Heidi Cohen: What data does Facebook have that's most valuable and why?

Rhonda Knehans Drake: Facebook enables users to connect directly with their network and intimate details of their life via text, photos, and videos providing a variety of data elements, attributes, and monetization opportunities.

1. Timeline's life event details. This is where users update their Timeline with details of their lives. It provides a great deal of insight into how Facebook organizes each user's information based on work and education, relationships, home and living, health and wellness, and travel and experiences. Currently, Facebook doesn't require users fill in all of these profile fields; they may in the future. My hypothesis is that just this shell of a structure is helpful, because even if a user doesn't explicitly provide the information in their profile, it can be gathered elsewhere by other Facebook users.
   
   Since Facebook provides a structure for users to organize and provide such life events, by logical extension, it has a structure to capture this information. To the extent users don't actively provide all of this information in the Timeline themselves, as a social network, most people do share this news via post. As a result major personal events like a baby, new home, or new job are communicated to friends on Facebook in posts, picture albums, etc. If routines were run on Facebook to capture this information, they could realistically be inferred from postings and captured for storage in Facebook's database. This information can target consumers based on their life stage and related needs, which is very effective.
2. Relationships. Facebook knows individuals' friends and the nature of those interactions facilitating implied endorsement. If someone likes a brand, there's a chance his/her friends like it too. Further, if a friend wants to know more about a brand, they just ask about it. This is great for marketers, since when communication occurs in an open forum, it may encourage others in the social network to be influenced. Since Facebook maintains a friend list for each user, marketers can leverage this information to influence the adoption of their brand.
3. Likes. When participants like something it appears on their Timeline and in addition information shows up in their newsfeed. Participants can like a wide range of brand, people, and other offerings providing data for targeting advertising. Alternatively Facebook could compile data to develop affinity profiles and scores, showing people with multiple likes versus those with only one. The more likes in the affinity area, the stronger the connection, making the individual a better target for another entry in this interest. Equally important is the recency of a like. The date of a like is key since those who are newly interested in an area are more apt to investigate other related areas.
4. Post content. Status updates and comments on friends' posts include information that can identify a lot about an individual's temperament, beliefs, and other interests as well as message frequency. All of this information can be potentially mined and categorized to provide marketing insights for understanding, targeting, and communicating with Facebook participants.
5. Time of posts. Use this information to target sending messages to catch our attention when participants are online or to understand online habits.

HC: Who would be the market for this data/information and why?

RKD: Every marketer would find Facebook's information valuable for targeting messages. Specifically, likes and life events data answer the marketing message's "what." What's this person in the market to buy given what's happening in his/her life and what does s/he like?

Relationships partially answer the "who" of marketing messages to allow tailoring based on a prospect's friends who already like the product giving it an implied endorsement.

Post information addresses "how" a message can be targeted. Through Facebook posts, a person's temperament is revealed allowing messages to be targeted based on values and temperament.

When we're active on Facebook it lets marketers know "when" to contact prospects.

HC: How would you value this data and what's your rationale for your pricing?

RKD: The data elements by themselves have a value of $5 to $10 per thousand per data element, consistent with offline data compilers' pricing for similar information. This equates to about $0.005-$0.010 per individual per data element per usage. The cost is additive for using several variables at once.

Additionally Facebook's targeting and delivery mechanism provides incremental value. Based on Facebook's model, a suggested bid pricing for message delivery would be used where higher demand prospects may be priced higher like keyword bidding on Google. Unlike search, Facebook delivers ads to your target audience without waiting for them to act.

To appropriately value Facebook's data opportunity you must include the value of the data combined with the message's delivery (impressions delivered).

To fully assess Facebook's value, you must include the full breadth of its big data offering combined with its ability to deliver the targeted message. What's missing from this analysis is consumers' perspective on privacy and the use of their personal information and how this would affect data usage.

What' your view on the potential of Facebook's data? Please share your perspective in the comments section below.

Happy marketing,
Heidi Cohen