The Long game: Users as products close

Kevin Danaher
Kevin Danaher
In Musings, Online Innovation
14th September 2011
The Long game: Users as products

This week the world’s favourite micro-blogging site Twitter announced that it’s crossed the 100 Million users mark. Quite an achievement for any online business and let us not forget that Twitter is a business. Their most recent round of venture capital funding will leave their value at 8 Billion dollars, but where’s the money coming from to justify that value?

Well as we all know, Twitter currently makes no money, it’s free to users and is a bottomless pit for the aforementioned funding. So what are the market speculators valuing at 8 Billion dollars? The site and all its posts? The technology behind the service itself? No, of course not. That myriad of information (purely narcissistic, or otherwise) although interesting is worth nothing, even the news reported on Twitter is usually a short version of what exists elsewhere in a much more readable form. Even the infrastructure itself over the years of R&D and redesign is probably worth somewhere from a few hundred thousand to a few million at the most (although the 24/7 running costs must be remarkable).

So what’s worth 8 Billion US Dollars to the many investors who keep Twitter running? You.
Quick calculation $8,000,000,000 ÷ 100,000,000 = $80

That’s pretty reasonable! Each user being worth $80 is a great deal, for it is you that they own. Unlike Facebook, to date Twitter seems to remain relatively unscathed in this regard. Facebook has come under plenty of fire for user privacy issues in the last 12 months. Mostly this is because Facebook is very clear that the user is their particular commodity, but people don’t like being seen this way. Facebook knows all about you, what you like, where you go, who you talk to.

Twitter is no different. It knows who you follow and therefore what you like. It knows who you tweet to and even where you are when you tweet. The reason it has escaped criticism is largely because it hasn’t taken advantage of this. Yet! But at some point the investors will want their $8 Billion back. Thus the conversation has been sparked, how long will it be until Twitter introduces advertising to their service?

On a wider level this has happened on similar services and successfully too. Google for example saturate you in advertising throughout all their services. They are so good at it though, the advertising itself is so subtle and so well targeted, that users rarely find it irritating. However, they achieve this in much the same way as Facebook, that being collection of personal data. Google know all about you, it’s just not as obvious as Facebook, who are recently the whipping boy for privacy issue gripes.

In fact, when Google bought out YouTube for close to $1.7 Billion in late 2006 they began the process of heavily commercialising the site. At first this resulted in the usual condemnation of any change but has been largely embraced and accepted by the sites users. And no doubt it’s this advertising that brings in the much needed running capital to ensure a site as complex as YouTube keeps going.

The fact is social media companies treat the user as a product, that’s just an underlying principle of online business. If you (the consumer) appear to be getting something for free, then you are the product. Overall, we have to recognise that this is a trend which is prevalent online now, the long game is king.

As members of this industry the strategy of these companies should be obvious to us, find a niche and populate that niche with great content for free. This will draw thousands, millions or even hundreds of millions of users to you. Once traction is that high, sell these users (or at least access to their prefrontal cortex’s) to the highest bidders.

Sounds horrific, doesn’t it but it’s actually not always a bad thing. The reason Facebook came under such scrutiny was their willingness to share user’s details with partners by default. If user’s have the ability to control what’s shared then bad press can be easily prevented, unfortunately Facebook learned this the hard way. That said, the other usage of our information by Facebook was internal, Facebook’s servers simply determined which, of their myriad of available adverts, were relevant to us. This actually works and personally I find it’s always showing me things I’m genuinely interested in. Google’s extensive algorithms seem to do much the same, with plenty of advertising, but all of it related to the searches I’ve made and hence, things I’m interested in.

We can only hope that lessons learned by others are taken into account when Twitter inevitably begins leveraging their huge user base for something more profitable. If adverts appear in my feeds which are relevant to me I should be happy, right? It’s a balance of course; most users accept that adverts are needed to support their favourite sites and services. This is still a learning period and both sides need to forge some tolerance. Users need to understand that who they are and what they like is up for grabs and online services need to understand there’s a limit to this, users will only tolerate being owned by their favourite service if that trust isn’t abused.