Facebook and the Failure of Targeted Advertising

On the way up to Bellingham to present to the Bellingham Angel Group (who I must note were really well organized and friendly to boot) Mike Crill of Atlas Accelerator and I had a very interesting discussion about Facebook, Google, and advertising. Specifically, the idea that by sharing more information with a company that they can then send you "ads that interest you."

Sounds great on the surface. Let's dive a little deeper...

Put one way, advertising is the process of convincing people that they want to buy what you're selling. Merriam-Webster defines advertising as "calling something to the attention of the public" but I think that's a little too simplistic. You not just saying, "Hey, here's our stuff and you can buy it if you want."

Nope, you're trying to convince people that your product is better, that yours is cheaper, that they really want... no strike that... that they really need yours.

As the folks on the receiving end of this we try like hell to filter it all out. We don't want to hear the messages. Not just because they are irrelevant to us, but often because they are both relevant and persuasive. I've got more than enough junk that sounded like a good idea at the time thankyouverymuch.

So the advertisers try to convince you to buy something, and you try your best to ignore them. In this way advertising looks a lot like a classic measures-countermeasures game. But right now the advertisers have imperfect or incomplete information about you.

Advertisers come up with something, you learn to ignore it (e.g. dancing banner ads), they come up with something new, you learn to avoid it... and so on.

Saying that we want more relevant advertising based on our likes, dislikes, culture, background, blah-blah-blah is kinda like saying, "here are the keys to my brain, come on in and make yourselves at home and my wallet is on the coffee table."

We don't want more relevant advertising. We want less advertising altogether and more authentic communication. The advertiser wants me to buy their product. The authentic communicator wants to help me solve my problem no matter what (if any) thing I buy. For a good introduction authentic communications read any of Joshua Porter's excellent posts touching on the Cluetrain Manifesto).


For this reason alone I think that Facebook and others that hope to capitalize on our personal information by targeting advertising based on our profiles (even if they keep the details of our information from the companies doing the advertising) are doomed in the long run.

We just won't sit still for it. We will evolve new defenses and the game will start all over again.

Web 2.0 and Business Douche Bags

At Seattle Startup Drinks last night an interesting rant happened to fall out of my mouth. What happened was that Colin Henry (no biological relation) made the observation that most web 2.0 companies appear to have all of the business value of a pile of horse dung (or something to that effect). As often happens, I lost all conscious control of my mouth and a whole string of observations and postulations just came rolling out.

I blame the beer.

It all started with the oldie but goodie, "How the hell do you monetize Twitter?" About two minutes later we had replayed from memory the entire history of this discussion and come to the "you just can't" conclusion. Now, I'm not going to go into it here, suffice it to say that charging for a service that relies on tipping point type network effects to provide value when there are many free alternatives is a recipe for going out of business.

But then I got to thinking... and when I returned to consciousness I found that the discussion had revolved around are these web 2.0 companies viable businesses, or simply features waiting to be acquired by a bigger company?

Once you start looking at it that way you have to start asking yourself, if the company in question is just a feature waiting to be acquired then why would they need a whole bunch of accounting, HR, marketing, sales douche bags? I mean really, if the point is to spend a year or two building a real nice, useful feature with open APIs and all that crap so that it can easily be integrated into some other company, and you know your exit is going to be acquisition, why the hell would a development team burden themselves (and dilute their stock pool) with a buncha business douche bags?

Holy crap, they do have a business model; Build a feature, prove it out in the market place, then sell their development work. It's like market proven outsourcing of development. My god, it is a brilliant symbiotic relationship between bigger companies and small agile development teams.

In fact, the more I think about this the better it gets. There has always been an aversion to risk and change inside of larger companies that makes it difficult for them to innovate. But small companies moving fast can build out a whole new thingie and try it out in the marketplace for cheap. And it just keeps getting cheaper to do this. With hosted email, accounting, turnkey servers (or services like Amazon's S3 and EC2) small companies can build out major stuff on the cheap. Things that used to be multi-million dollar development projects can be done by a couple of folks in co-working space for a couple of hundred thousand dollars.

The reward for the development folks is higher because it is not weighed down by all the business douche bags (note: this is not to say that all business folks are douche bags, merely that a disproportionate number seem to be in the wild). The acquiring company already has a buncha their own business douche bags so why do they want yours? They would just have to "buy them off" with severance and crap like that.

In a lot of ways this is a B2B rather than a B2C play even if the feature/product is aimed at consumers. This should be obvious when you consider that the monitization scheme is actually acquisition. The small web 2.0 company is selling development cycles to the large acquiring company.

I'm not sure right now what this means for smaller software companies following this model. I suspect that over time it means that valuations for the smaller non-traditionally monetized companies will actually go down since the valuation model has been skewed upward by the ones that have a traditional valuation model (i.e. someone is paying money for the services on an ongoing basis before acquisition).

Interestingly, acknowledging this non-traditional monetization model might give a VC or angel investor group a leg up on the competition. There are teams out there building what amount to features as companies who cannot get funded because of their non-traditional monetization model. In other words, they are vastly undervalued and a bargain provided you can select for them.

I suspect there's money to be made, both by investors and by small teams, with this model. It will be interesting to see if this plays out.

Tale of Two Blogs

I know all kinds of folks out there have talked about this, but I wanna add my two cents and it's my blog so...

It is friggin' hard to have both a company blog and a personal blog and not just talk about useless drivel on the personal one.

The difficulty I'm having is that there are things I want to talk about on this blog that simply don't fit in with the overall goals of my company. These things are in the same idea-space as LiquidPlanner's project management stuff so it is hard to keep them separated.

If I have a good idea for a blog post and it fits in well with the mission of LiquidPlanner then I want to post it to the company blog. But when they don't fit in so well I don't really want to post them here because... well... someone might read it and confuse my ramblings here with our company position on many of these issues.

So I've decided I'm gonna be brave. I'm gonna post here a bunch of the things that don't really fit in with LiquidPlanner so well. So there'll be a bit of a change in tone over the next couple of weeks here. There will be things that didn't really fit in with the original idea of this blog as a digression on project management and organizational wackiness inside of a larger company.

And there will be a lot more posting.

Illustrating the Point about Futility

So two folks (John & Ray) left comments on my time tracking post. Normally I'd have spammed those comments as they're really just shameless plugging for their sites and not adding anything to the conversation.

But then I got to looking at them and realized that they beautifully illustrated the point about the futility of trying to get folks to track their time when there's nothing in it for them. Ray is complaining about how hard it is to get people interested in it, and John is saying if it is easier more people comply but not totally.

Yeah hello... that's my point.

But it goes beyond that. If you go sign up for one of their services I almost guarantee you that things just won't get that much better. That's because, again, there's nothing in it for the people who actually have to enter their time. Time carding isn't a problem for people who are paid hourly. Why? Because they're paid hourly. There is something in it for them.

Anyway, rant off.

In other news, LiquidPlanner is going to the Enterprise 2.0 conference in Boston to show off our online project management software. If any of you happen to be in Boston June 9-11 come look us up!