Facebook Needs To Become The eBay Of Personal Data

Facebook is in trouble. The company has seen its stock price sink by over half since its initial public offering in May. Important early investors and co-founders are selling off huge chunks of their shares and all but leaving. Top executives are also heading for the exits.

What’s wrong with Facebook? In a word: ads.

Facebook is still trying to convince advertisers, its main source of revenue, that its ads work better than competitors (Google, Twitter) and other formats. It’s also trying to crack the code of mobile advertising.

Revenue projections though, are down, and Facebook’s founder and CEO Mark Zuckerberg has openly stated that mobile is his company’s greatest challenge going forward.

Facebook has changed the Internet and the way we communicate since its launch in 2004. But now Facebook faces a watershed moment. How can the company transition from Silicon Valley wunderkid into viable, world class business? How can it ensure investors, current and potential employees and business customers that it is built for the long run – that it won’t just become another fallen social networking giant a la MySpace, Digg and Friendster before it? Most important: How can it continue to capture user attention and interest in an environment as ephemeral as the Web?

These are questions that won’t be solved by introducing new ad units.

Yet that’s exactly what Facebook has been concentrating its energies on recently. In the past month alone, Facebook has unveiled or begun testing the following products and initiatives: A new ad creator tool, new ad units in non-subscriber News Feeds, search results ads, [improved security against fake “Likes”](http://www.wired.com/business/2012/08/facebook-reveals-the-sleazy-business-of-fake-likes/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed:+wiredbusinessblog+(Wired:+Blog+-+Wired+Business) and reportedly, ad targeting based on user phone numbers and email addresses.

Facebook’s reliance on advertising isn’t so surprising, given that the approach has been the path of many Web companies (see Google and Twitter, again). But it is unimaginative.

One of the defining quotes of the current tech boom comes from early Facebook employee Jeff Hammerbacher, who told Bloomberg Businessweek’s Ashlee Vance in an awesome article: “The best minds of my generation are thinking about how to make people click ads. That sucks.”

That does suck. But it’s also reflective of the extremely difficult quandary Facebook now finds itself in, accountable as it is to shareholders and the Securities and Exchange Commission.

Put another way: If you had data on nearly 1 billion people in the world – not only that, but fresh data and nearly guaranteed new data coming in – how would you use that to make money?

It’s a tough question to answer. Facebook could begin charging some users, but that would certainly drive some away, maybe even more than charging those users would be worth in the long run.

Facebook could sell user data to large third-parties – other companies and government agencies, for example – turning itself into a kind of data broker similar to Acxiom Corp. But again, it would risk alienating many users, not to mention raising the ire of governmental data privacy agencies around the world, which are already on Facebook’s case for practices such as facial recognition and unclear privacy controls. Besides, Facebook already has to hand over some user data as required by law.

Facebook could also begin making its own hardware. That’s a much higher margin business for some, like Apple, than software alone. But it’s also extremely difficult to penetrate in any lucrative fashion. Facebook may or may not be doing this, depending on how one parses the company’s answers to questions about reports of a Facebook phone or other device.

By far, the safest bet for Facebook is to keep doing what it’s been doing and offer new ways to advertise and new ways for advertisers to measure the success of those ads (ideally ways that can be compared to other types of ads, online and off, ways that indicate Facebook ads are more effective). Other writers have noted as much.

But “safest bet” is far from “successful.” In fact, there’s a good argument to be made that even if Facebook continues to rely on advertising, it will still soon tumble from its spot as the world’s most popular social network.

There’s one final clear path forward for Facebook, which the company has been tip-toeing around: Encourage people to use Facebook for e-commerce and charge them for every transaction that occurs on the website. Right now, that commerce is mainly concentrated in Facebook’s App Center and through Facebook Apps and Games in the form of in-game purchases, specifically. But there have been some recent indications – Facebook’s switch from Facebook credits to real world currencies, Facebook’s test of a new online banking app – that Facebook recognizes the profound potential of this model.

A riskier idea, but no riskier than developing hardware or charging some users in tiered freemium model, is for Facebook to transform itself into the eBay of personal data. That is, set up a safe space online for people to auction-off their own Facebook profiles, or select parts of them, to various third-party companies and services that would pay handsomely for the privilege. Then Facebook could take a cut of these sales – charging both the individual data seller for their profits and the purchaser for the right to use Facebook’s auction platform.

Perhaps users could even enroll, by their choosing, into a Facebook Profile and Page ad sales program, allowing users to sell off spaces on their profile pages to advertisers of their choosing. Again, Facebook could take a cut both of the ad sales by users and the budget of advertising companies, charging ad companies fees to use the service in the first place.

It’s clear that Facebook holds a wealth of personal data about its 955 million monthly active users, data that everyone from other companies to political candidates to governments would like to get their hands on. It’s also clear that in general, people, and the media especially, have major problems with Facebook itself selling that data or giving it away, with or without informing users that it’s doing so.

But if Facebook turned over the power, allowing users to be able to not only access their data, but make money off it, such a platform could be an enormous boon for the company and for users as well. Not only that, but it would fundamentally change the social Web once again. Such a business model would instantly transform Facebook from an improved version of MySpace and AOL into something wholly new. It’s already almost there. Now’s the time to start thinking outside of the profile boxes.