Saturday, April 14, 2012

It's the data, stupid

There's an old saying about playing poker: If you look around the table and can't tell who the sucker is, then it's probably you.

This seems appropriate as we consider Facebook, Twitter, Instagram, and all the other free-of-charge diversions that we have on our smartphones -- at least if that smartphone happens to be an iPhone or Android, as David Carr notes in his rumination on Instagram and its recent acquisition by Facebook. Carr wonders how any of these companies are going to turn a profit as they need to invest more and more of their energies into mobile, given how fleeting our attention is on our devices and how little ad space there is.

As an aside, and as one of the commentators on his post notes, Carr may not quite understand the appearl of Instagram, nor how people use it. But the broader question he poses is a legitimate one: How can free social media applications, even those that are immensely popular, survive if they can't rely on advertising, the traditional business model for low-cost or no-cost content providers?

Part of the answer, of course, is that the traditional business model for media companies is dying, as the New York Times so aptly demonstrates with its online subscription system. The challenge that traditional media companies like the Times face in exacting sufficient advertising revenues from online content also afflicts social media like Twitter -- with a crucial difference being the legacy and infrastructure costs borne by old media, which must continue to produce its own content, as opposed to sites like Twitter and Facebook, which need only provide a platform.

As this article from last week's Wall Street Journal makes clear, Facebook, its sanctioned apps, and other mobile apps are not just interested in putting ads in front of you: They are trying to glean as much data about you as possible in order to customize those ads to the highest degree possible, thus making it more likely that they will grab your attention.

A professor at Robert Morris University, where I work, researches the use of nanoparticles to treat cancer. The idea is that instead of using chemotherapy, which attacks the entire body in order to destroy cancerous cells, the nanoparticles can be injected into the body and guide themselves directly to the tumor, delivering the cancer medicine without damaging the rest of the body.

Traditional advertsing, on television, radio, and in print newspapers, is like chemotherapy. What advertisers will be able to do with the data they can glean from the information all of us share on Facebook, Twitter, Instagram, you name it, is like nanotechnology. A lot more efficient and not nearly as messy.

Now, there a host of legal and ethical question raised by this, which the Wall Street Journal tackles in its article. And even the most gargantuan of social networks needs to find a way to generate outside revenues to survive, since, as the mainstream news media has discovered, once you give something away to people online, it's not easy to get them to pay for it later on.
But to evaluate social media's prospects on mobile platforms simply in terms of the amount of physical space available to place an ad seems, I'm sorry to say, hopelessly outdated. Facebook and the like are not giving away anything. They are selling a very valuable commodity.

We have met the suckers, and they are us.

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