by Charlene Li

There was an audible collective sigh of relief that the Microsoft-Yahoo! acquisition soap opera was finally at an end. For three months, the tech world has been paralyzed by the prospect of “Microhoo”, believing that the deal was inevitable. Sanity prevailed on Saturday, as the two giants couldn’t come to an agreement on price and Microsoft declined to pursue a hostile bid that could have proven ruinous to both companies. (Full text of the Microsoft announcement and the Yahoo! response are available.)

A year ago, I wrote about why such a deal wouldn't work, and also how Google would act as Yahoo!'s savior. An acquisiition may still come to pass in the future, but at a significantly lower price. But the world continues to turn and both companies will have to explain themselves to investors, employees, advertisers, and consumers.

Microsoft must define and deliver on a strategy that shows how they can “win” now without Yahoo! as a search jump start. (Frankly, we were skeptical that Microsoft could have integrated Yahoo quickly and effectively to realize the full value and vision of the acquisition). Rather than continue to chase Google’s dominant search position, Microsoft should redefine the “battle” to one where search is an integrated part of the marketing mix. Microsoft has assets and relationships that GOOG doesn’t have: 400 million users relationships through communication tools like Hotmail and Messenger, the aQuantive acquisition, strong display advertising business, and investments/relationships like Facebook. Moreover, AdCenter is well positioned to service advertisers on both the display and search sides, although actual offeringDeal is offs that tie the two together are still in the works. But the thing they don't have today is a strong search user experience, the root of the problem.

With the Microsoft acquisition threat fading, Yahoo! has been given a reprieve but it must explain and execute on a strategy that supports their belief that the company is worth $37 a share – or face another round of acquisition attempts and shareholder revolt. Yahoo!’s three-pronged strategy of being the starting point, advertising platform for the Web, and openness is sound but it has been muddled due to poor communication and tactical steps. At the core, Yahoo! has to convince advertisers that it still believes in its advertising platform, especially in light of the tests it was conducting with Google’s search marketing platform. If Yahoo! ends up trading in its Panama search platform for higher search revenues from Google, it will be giving up any potential for a workable integrated ad platform.  Yahoo!'s advantages especially in behavioral marketing could strongly tie together display and search marketing and the foundation for new marketing solutions and revenues. And it's new Yahoo! Open strategy could position it well regain the engagement of users.

And let's take a quick look at Google. From any perspective, Google was going to come out strong from this three-month soap opera. A dispirited Microsoft and floundering Yahoo mean Google can point to itself as the safe haven for both marketers and consumers.

What do you think about each company's positioning and strategy -- does each company have the right game plan and assets in place? And if not, what should they be doing?

My previous posts:

May 4, 2007: Why Microsoft + Yahoo! makes sense -- and why it won't work

Feb 1, 2008: Microsoft's bid for Yahoo!: What it means

My pick of the best analysis thus far:

Paul Kedrosky: Analysis of the Microsoft Decision, Plus Yahoo's Hari-Kari

Michael Arrington: Yahoo's Tough Week Ahead

Om Malik: Microsoft to Yahoo: Take A Hike

Kara Swisher: Yahoo's Nightmare Scenario: I'm from Google And I'm Here To Help!

Joe Wilcox: The Microsoft-Yahoo Blame Game

AOL announced that it would buy social networking site Bebo for $850 million. I have several points of view on what it means, and I've summarized some of the key ones below.

• Future direction of social networks. In many ways, I think this deal represents how social networks will develop in the future. That's because as a stand-alone social network, Bebo had no chance of competing against big boys like MySpace and Facebook. But as an integrated part of the larger AOL content and ad network, it has amazing potential to play a role in how social networks develop. With the $850 million acquisition of social networking site Bebo, AOL is finally showing its hand -- a plan and way to integrate the disparate assets and acquisitions its been quietly building over the past year.

The foundation of my premise is that social networks will be like air, integrated into everything that we do. Let's start with AIM and ICQ, in the case especially for AIM, leading instant messaging platforms. Most social networking sites already have IM-like capabilities built into them, but the reverse isn't true. And yet, the buddy list of services like AIM reflect very well a key part of my social graph -- the people with whom I communicate with in a very intimate, frequent manner.

AIM introduced AIM Pages a few years ago, which was a lightweight approach to having a profile attached to an AIM screenname. It didn't go over well and I agree with Saul Hansell/NYTimes that this could be an opportunity to bring social networking into AIM and AOL in general.

The potential is that Bebo members' social graphs and activities are expressed and connected to instant messaging, and that IM use is reflected in the nature and tenor of the relationships within Bebo, e.g. if I frequently IM someone, then that relationship is very strong and should be reflected in my Bebo experience if that friend is also there. 

• Valuation of social networks. As Stacey Higgenbotham/GigaOM  points out, the $850 million price comes out to about $21.25 for each of Bebo's 40 million members. That's a bargain compared to the $27.62 per user price News Corp paid for MySpace back in July 2005. Excepting Facebook's $15 billion inferred pricing thanks to Microsoft's strategic investment (which puts it at roughly $300/user!), we're starting to see a rough valuation for today's social networks.

Will this start a frenzy of acquisitions in the space? I believe so, but not necessarily at this valuation. That's because there's tremendous downward pressure on valuation because of the unproven business model, namely advertising. We're in the trough right now, because while there's tremendous consumer uptake of social networking sites, marketers still haven't figured out how to tap into all of that energy and enthusiasm.

That's why it took so long for Bebo to find a buyer, and also likely why other sites like LinkedIn, Hi5, and Friendster haven't gone yet. My prediction -- we'll see smaller, niche social networks focused on a specific group like Black Planet (by BET), or interest area like Flixster (by NetFlix) or iLike (by iTunes/Apple) get snatched up by companies interested in those areas. They have a clear, focused way to engage a specific social group or go deep into an area of passion -- both great ways to get the attention of marketers.

• Multiple open platform support. I've always been impressed that Bebo has been able to sit in the middle between the two giants, MySpace and Facebook. It has the entertainment, self-expression aspects of MySpace but also the communication and application features of Facebook. And although Bebo was one of the core members of OpenSocial when it was announced, when it launched its own open applications platform in Dec 2007, it made sure that Facebook applications would also work on it.

This willingness to craft a middle road between these two behemoths had been a necessity as  Bebo is a far smaller player in the space. But going forward, I believe it will be a strategic advantage for AOL. That's because it will make AOL much more willing to open up its own site, services, and platform to anyone who wants to tap into it -- and more importantly, to go out into any social networks that would have it.

AOL has already organized its advertising assets, led by Platform A, into a formidable ad network that can serve any site, not just AOL's network of content sites. Look for AOL to be a part of this "opening up" of social networks, by sheer force of it having millions of users.

What do you think? Does AOL with Bebo have a chance at shaping the integration of social networks into more traditional Web sites and services? Or was this simply an opportunistic acquisition that AOL is not in a position to truly leverage? I'd love to know your thoughts, either in comments or via email at cli at forrester dot com.

by Charlene Li

On Monday, I gave the kick off speech for the Graphing Social Patterns West conference on the topic, “The Future Of Social Networks” (slides are available on SlideShare, summaries available on News.com, ReadWriteWeb, and allfacebook.) Note that this is still ongoing research, so I welcome your comments.

I set my time frame for the long term – five, even ten years out. That’s because unless we know where we want to end up, how could we ever craft a strategy to get there? For inspiration, I thought about my grade-school kids, who in ten years will be in the midst of social network engagement. I believe they (and we) will look back to 2008 and think it archaic and quaint that we had to go to a destination like Facebook or LinkedIn to “be social”.

Instead, I believe that in the future, social networks will be like air. They will be anywhere and everywhere we need and want them to be. And also, without that social context in our connected lives, we won’t really feel like we are truly living and alive, just as without sufficient air, we won’t really be able to breathe deeply.

There are four components of what I’m calling this idea of “ubiquitous social networks”: 1) Profiles; 2) Relationships; 3) Activities; and 4) Business models. These aren’t new -- I wrote about the first three in my original report on social networks back in May 2004. But in the context of ubiquitous social networks, they will develop into the following: 1) Universal identities; 2) A single social graph; 3) Social context for activities; and 4) Social influence defining marketing value. For more detail on each of these components, see the extended post (warning: it's really long!).

The ubiquitous social network isn’t going to happen overnight – in fact, it’s going to take five+ years to come to fruition. This is part of the continued evolution of open platforms, starting with walled garden services like Prodigy, Compuserve, and AOL that evolved into the major portal aggregators like Yahoo!, MSN, and AOL. This gave way to the “search era” where Google et. al. made all of the Internet easily accessible. Today’s social networks are a throwback to those early closed platforms, and they will be opened up by new “entrants” into the social space – namely, Yahoo!, Microsoft, Google, and AOL – who will leverage their deep, daily relationships with online audiences.

In the end, there are two essential things that have to present for this all to happen. The first is technology -- ubiquitous Internet access and the servers to enable real-time social graph access. Given the pace of technology development, I'm pretty sure this will happen. The second is much harder -- trust has to be present, between people, between social networks, marketers, and developers. This is what is going take a lot of time, effort, and patience, but the optimist in me thinks that it will come. That's because people will press for it, demanding that sites and applications adhere to a Bill of Rights for users of the Social Web.

So what is a social network, marketer, or developer to do? Here are my recommendations:

• Create linkages between services based on individually-controlled identity federation
• Compete on creating the most compelling social experience, not social graph lock-in
• Develop social applications that have meaning
• Integrate social networks into existing activities
• Design business models that reflect the value created by people’s social network

In the extended post (click on "More" below) is a more detailed explanation of how I see each of the four components of ubiquitous social networks developing.

As I mentioned above, this is ongoing research and I'm far from done. So if you have ideas, comments, criticisms, or examples, let me know via comments below or email at cli at forrester dot com.

by Josh Bernoff

I got a fair amount of pickup on my recession post, including articles in AdWeek and MediaPost, and mentions a bunch of blogs including Logic+Emotion, Web Strategist (my colleague Jeremiah), Micropersuasion, ZDNet, and even Techmeme. There was also this interesting post from Bernard Lunn at ReadWriteWeb, "This is not our bubble," which looks at how the recession will affect entrepreneurs and venture investments.

There was plenty of cheering from the social sphere, along with some jeering, too. But I think some people missed the point (or more likely, I wasn't clear enough about what the point was).

I say social applications and not social media for a reason. People will want to boost word of mouth in a recession. This is great news if you're selling community apps to companies. It's also good news for Facebook community applications and groups. You're a company and you want to charge up your citizen marketers about your product -- you can build your own application or climb on board an existing network and work within it.

This is not good news for plain old banner ads, or any other form of CPM-based, brand-based advertising. That includes banner ads in Facebook. Raw monetization of traffic won't be worth any more in a recession -- it will be worth less, since awareness-building will be less important.

What does this mean?

First of all, it means that Facebook, Myspace, et. al need to continue to work harder on innovative ways to create social advertising opportunities that are more creative and less intrusive than Beacon v1. Is the recession good or bad for the big social networking sites? Depends on how soon they can get those ad formats working.

Second, it means all those me-too, social-network with a twist startups who don't have a monetization plan, or whose plan is dependent on traffic=advertising, are in trouble. This is social media -- media being defined as ways to turn traffic into advertising. Not a good place to be sitting in a recession, when marketers are looking for scale and interaction and persuasion, not just impressions.

by Josh Bernoff

Is a recession coming? Don't ask me -- I'm not an economist, and even the economists don't really know. But if it's anything like the last recession, advertising will plummet and experimental media will crater. (In the 2001 recession, US advertising dropped 9% and Internet advertising plummeted 27%, according to Veronis Suhler Stevenson.)

But do not panic. Things are different this time.

Here's what smart marketers should know:

• It's not a tech bubble. The last recession was caused by the dot-com bubble and the terrorist attacks. There was a lot of ignorant money out there chasing illusory opportunity, and companies had overinvested in technology. This time, the precipitating event is a housing bubble, and technology spending is not irrational.

• Awareness ads will lose effectiveness. Advertising (or as we often call it, "shouting") is mostly about generating awareness and reinforcing brands. In a recession, ordinary consumers like you and me aren't as willing to spend. Sure, we'll be aware of the product, but that doesn't make so much difference when you're worried about your future. Advertising is expensive and is a lot easier to cut than headcount. Many are predicting ad spending will hold up; I'm not so sure.

• But social applications are about consideration, not awareness. Blogs, word of mouth, social networks . . . they're about people connecting with other people. You may resist advertising if your finances are tight, but if your bud tells you that new movie is really worth seeing or that the Gap has the cutest new tops, that's more persuasive than advertising. Basically, in a recession, the consideration phase is more important than awareness -- and that's where advertising flops and social applications succeed.

• It's cheap. Social applications can be nearly free (think blogs, Ning.com, facebook pages) and even more sophisticated communities are typically $30K to $200K -- a lot cheaper than a significant sized ad campaign. After our last post, all the responses were positive. One interactive marketer from a highly cyclical company told us this:

"Budgets are tight in light of the economic conditions as you surmise, but [the budget for social applications] has not been impacted. We are still keen to move forward with our trial and have support….at this point anyway.  Interactive in general has been more protected than other comms areas and saw an increase."

• It's measurable. If your social application doesn't have a measurable output, you'd better get one. But if it does -- if it generates leads, or conversions, or buzz, or something useful -- then you can prove it's working. beinggirl.com is four times as effective as TV ads, Procter & Gamble told us. That won't get cut in a recession.

These same arguments apply to some other forms of online marketing, including search ads and email marketing. Those are going to be good investments in a recession. If you're smart, you'll position yourself now with proof your apps are working. Then when the ad dollars get tight, you'll be in good shape.

Click here to see what we wrote for our clients (we've made this piece of research free for everyone).

Also on this topic, see also David Armano's post on 10 ways digital can help you thrive in a recession. And an earlier Paul LaMonica post (CNN Money) featuring my old colleague Jim Nail.

Finally: I'm anticipating this topic might get some currency around the blogosphere and the mediasphere . . . if you want to follow the reactions, tune in to my twitter feed at twitter.com/jbernoff

by Josh Bernoff

My colleague Jeremiah Owyang created twitter.com/superbowlads so we could all rate the Super Bowl ads live. Twitter.com/superbowlads received over 2500 tweets during the game. As Jeremiah pointed out in his blog post, it was incredible to be a part of this, but a bit unwieldy to figure out what happened.

Since there is an empty spot in my soul in the wake of the Patriots' historic choke, I thought I would try to fill it by analyzing all those tweets. Wrangling 2500 tweets into categories and making rankings out of them took some ingenuity and I still don't claim to have a definitive analysis, but by making some reasonable assumptions (see end of post for details) I not only could make sense of what actually happened, but gain some insight into people's reactions to the ads.

Disclaimers: 1. This is a summary of tweets from about 70 people who are not representative of ANYTHING. They're more interested in media and advertising than the average person, but that's about all I can say. 2. My classification system is the best I could do, but classifying random tweets is not perfect, especially when people who tweeted aren't always clear about what ads they were referring to. Did the best I could. 3. I didn't include any ads with less than 9 tweets, but I DID include the FOX promos since a bunch of people rated them.

Here's a table showing the results of my analysis. What's interesting is that many, many ads generated both positive AND negative sentiment. This table is sorted by what I call "Net Positive" which is percent who rated 4 or higher, minus percent who rated 2 or lower -- sort of like a net promoter score. (The instructions called for a 5-point scale -- I accepted fractional scores and zeros, too.) More insights below the table.

Some insights from reviewing these tweets:

• Coke scored two of the top three spots, FedEx got the other. The coke ads also scored high on USA Today's Ad Meter, but not as high as here. The twitterati loved the positive messages in the Coke ads. FedEx's silly pigeon got the other top spot. Both will "build the brand" but there's no real call to action.
• Amazingly, the NFL's own ad about the oboe playing Chester Pitts got a huge score. Apparently you like warm, uplifting stories. None of the other NFL ads even got enough tweets to score them.
• Salesgenie scored two of the bottom four spots. Many twitterati found these animated spots racist. I wonder if salesgenie will actually benefit from desperate salespeople who want the leads they are promising, or if the racist backlash will hurt them. That's a nearly $5 million gamble. Amazingly, one Salesgenie ad scored an average of 0.78 on a scale of 1 to 5 -- indicating the scoring range didn't go low enough to account for viewers' disdain. The lowest-scoring Bud Light ad, about immigrants picking up women, was also cited as racist by several.
• Claritin, Ford, and Sunsilk left people unmoved. These three ads, like Salesgenie's scored not a single 4 or 5 rating, but only moved 9 or 11 people to rank them at all. In contrast to Salesgenie, the reaction was boredom, not a negative reaction. Why spend so much on an an avail and then create a lackluster spot?
• The commentary was interesting, revealed more than numbers. Jeremiah is onto something here.  I participated in Nielsen's "Hey Nielsen" polling but couldn't write free-form text. These twitter commenters, by contrast, told us that they would have been happier if Richard Simmons got run over (Bridgestone), that they forgot the name of the product in the dancing lizards commercial (it's Ice Breakers), and that they enjoy seeing Justin Timberlake get hit in the crotch with a mailbox (Pepsi).

Obviously, a superbowl ad is like a Hail-Mary pass -- it's great if you connect, but costly if you don't. And what's the value of an ad like the Toyota Corolla badger ad, which got many positives but just as many negatives? I know all of you marketers have tested these ads to an infinite degree before spending all this money -- but then why do so many of them leave people cold?

Do you think any were designed to provoke?

Finally, ask yourself this. Imagine that it is August 1, 6 months from now. Which of these ads will have made a positive impact on their company's sales? How will you quantify that? And could you have made that impact more cheaply? How?

I look forward to your comments.

Final notes:

Here are links to Google Spreadsheets with all the comments summarized and sorted by commercial. It's fascinating to see the range of comments on some of these commercials. (Some spaces, commas, and other special characters have been deleted due to the way I did the analysis.)

Ratings summary (table above)
Comments on brands A-C
Comments on brands D-N
Comments on brands P-Z

How I did the analysis:

• Sorted comments alphabetically to identify brands.
• Where comments on multiple brands, created duplicates
• Where comments on multiple commercials, identified which one based on time stamp, comments
• Assigned a numerical value based on comment. Scores above 5 scored as 5. Negative scores scored as zero
• Put comments for each ad on a separate page
• Removed duplicate comments from same individual (except promos, which aired multiple times)
• Sorted from highest to lowest score
• Computed statistics for each ad
• Ads with less than 9 comments were put into miscellaneous category. This includes some promos, lots of local ads, and a few national ads.

by Josh Bernoff

I'm just curious -- corporate social strategists: Are you getting pushback in the face of the potential recession? Are your budgets being cut? Or maybe increased?

Add your comments here or email me at jbernoff (at) forrester.com -- I'd love to hear from you.

by Charlene Li

I just received word from Facebook that they will be making significant changes to Beacon. I've included the full text of their statement below.

As you may know, I had a situation with Beacon where information from Overstock was sent to Facebook without my knowledge. Because I took no action, the information appeared on my profile.

This is a definitely a step in the right direction -- I argued for greater transparency along with many other people, and it appears Facebook has heard the protest. But given the concerns out there, I think Facebook has to do a lot more to regain the trust of not only its members but also of its partners. Here's a quick summary of the major changes and what it means:

- Facebook members will be given clearer notifications of information sent by partners to Facebook, on both the partner site and on Facebook. Beacon also won't send information to Facebook if it believes that members didn't see a pop-up on the partner site. This was a major problem in my situation -- if a Beacon notification did appear on Overstock, I never got a chance to see it.
- Adding Beacon-generated stories will require an explicit opt-in by the member. Before, if the member did nothing, the story would appear. The changes mean that the user HAS to approve the addition of the story -- so no more inadvertent discoveries of purchases by your friends. (In my the comments of my original post, "Will" bought an engagement ring on Overstock -- and his friends, fiance, fiance's friends, etc. all found out about it)

- If you take not action, stories will be archived and still available for you to take action on later.

- There will be no opt-out option of Beacon, either at the partner level or universally from Facebook. That means that if you really, really can't stand the idea of your information traveling between sites, you have to either never use sites that deploy Beacon or stop using Facebook.

It's this last point that I think is most interesting. Facebook obviously wants to keep Beacon going, and it has taken the first step to give members greater control over when information is posted. I, for one, am comfortable with this, as I find it a pretty convenient way to publish information (like when I bought Beowulf tickets on  went to see Beowulf).

So MoveOn and many of us pushing for change got what we wanted -- the ability to opt-in to stories that appear on our profile. But I believe some privacy advocates will continue to loudly agitate for the full dismantling of the Beacon program. I don't think this will have that big of an impact on members -- after all, MoveOn had 54,000 members of its group as of today, which is significant, but nothing like the hundreds of thousands who petitioned for change after News Feed was introduced last year.

The greater impact will be on nervous partners, some of whom -- like Overstock -- have withdrawn their Beacon participation. Most have taken a wait-and-see approach, weighing the benefits of exposure to their customers' friends network against possible push-back from privacy advocates. My concern is that this mistrust of Beacon spills over and dampens the already nascent beginnings of social media marketing.

It's imperative and in Facebook's best interest -- and the interest of the social networking marketing industry as a whole -- that Beacon be a program that is clear in its intent and execution,and wins over the trust of members and partners.

I'd love to know your thoughts -- has Facebook gone far enough with these changes, or do they need to do more?

Here's the release:

Facebook Update on Changes to Beacon
No stories will be published without users proactively consenting

We appreciate feedback from all Facebook users and made some changes to Beacon in the past day. Users now have more control over the stories that get published to their Mini-Feed and potentially to their friends’ News Feeds.

Here’s how the Beacon changes work:

- Stories about actions users take on external websites will continue to be presented to users at the top of their News Feed the next time they return to Facebook.  These stories will now always be expanded on their home page so they can see and read them clearly.

-  Users must click on “OK” in a new initial notification on their Facebook home page before the first Beacon story is published to their friends from each participating site. We recognize that users need to clearly understand Beacon before they first have a story published, and we will continue to refine this approach to give users choice.

- If a user does nothing with the initial notification on Facebook, it will hide after some duration without a story being published. When a user takes a future action on a Beacon site, it will reappear and display all the potential stories along with the opportunity to click “OK” to publish or click “remove” to not publish.

- Users will have clear options in ongoing notifications to either delete or publish. No stories will be published if users navigate away from their home page. If they delay in making this decision, the notification will hide and they can make a decision at a later time.

- Clicking the “Help” link next to the story will take users to a full tutorial that explains exactly how Beacon works, with screenshots showing each step in the process.

These changes are in addition to those made earlier to improve the notifications on partner sites as follows:

- Users were sometimes moving away from a page before a notification could be fully displayed. We changed the process so that we confirm the full display of the notification before any information can be sent back to a user’s Facebook account.

- The notification appears more rapidly and is more clearly displayed.

There has been misinformation in the market about some key aspects of how Beacon works:

- Participation in Beacon is free for all partner sites.

- Beacon only allows for the sharing of specific actions on the specific sites participating in Beacon.

- Beacon only has the potential to display actions to a selection of a user’s friends through News Feed and on a user’s Mini-Feed.

- Facebook is not sharing user information with participating sites and never sells user information.

As with all its products, Facebook will continue to iterate quickly and listen to feedback from its users.

I put a lot of trust in sites like Facebook to do the right thing when it comes to privacy. After all, the only stuff that gets out into the public is the stuff that I actually put in.

Until now.

Earlier this week, I bought a coffee table on Overstock.com. When I next logged into Facebook and saw this at the top of my newsfeed:

I was pretty surprised to see this, because I received no notification while I was on Overstock.com that they had the Facebook Beacon installed on the site. If they had, I would have turned it off.

I used my personal email address to buy the coffee table, so I was puzzled why and how this "personal" activity was being associated with my "public" Facebook profile.

(Since I was on Facebook, I updated my status to say that I was trying to figure out Facebook Beacon. And Scott Rafer instantly messaged me that he could explain all -- which he very succinctly did. Thank you Scott!)

Facebook Beacon is merely a small piece of script that allows the partner site to put a cookie on your  browser. So when I bought the table, an Overstock cookie was created, which then transferred the information to Facebook. Facebook then checks to see that the same browser is logged into Facebook, and shows the information. I'm not sure of all of the details, but I suspect that if I had logged into my "personal" Facebook account first (yes, I have two Facebook accounts and unless you know my personal email, you won't find my truly personal Facebook profile), that Overstock activity would have been logged to that Facebook profile.

So there's no checking or verification of email address, name, etc. to verify that the activity on Overstock is being done by the same person logging into Facebook. Imagine my horror if items were added to my NewsFeed because my kids were using my computer ("Charlene played DragonFable last night for 3 hours").

So I'm joining a growing chorus of Facebook critics that Beacon has some serious problems. Facebook has made the point that Beacon isn't sharing information publically, but with your friends. That's correct, but I think both the critics and Facebook are missing the point.

The biggest problem is the lack of transparency. Facebook is right in that I would really like to have some things that I do on third party sites to conveniently appear in newsfeed, e.g. events I'm attending from Evite or eBay/craigslist listings so that my friends know about them. That's the promise of Beacon. But I need to be in control and not get blindsided as I did in the example above. I was seriously wigged out, but wouldn't have been if Overstock had simply told me that they were inserting a Facebook Beacon and given me the opportunity at that time to opt-in to Beacon.

And this is the problem for Facebook -- they aren't in control of what their Beacon partners do to notify people that this is happening. Facebook can only control this from their own interface, when the information has already been transmitted between sites, and without my explicit permission.

There's a fine line that gets crossed when behavior data slips from being a convenience to being Big Brother. This is one of those times. Give me back my control by letting me opt-in (not opt-out as is currently the case), or I'm installing the Beacon Blocker.

I'd love to hear your perspective on this issue -- and please send me examples and screenshots!

Update 11/23/07: The plot thickens. It turns out that my husband and I inadvertently both bought the same coffee table from Overstock.com on the same day (yeah, not the greatest spousal communication going on!). I suspect that the order that made it on to my Facebook profile was actually HIS order, because I had additional items in my order.

So that means when my husband purchased the coffee table, because the Facebook cookie on that machine was for my Facebook account (my husband is not on Facebook), the purchase was attributed to my profile. He also did not have any notification that Overstock.com was sending the information to Facebook.

Lastly, some of who have friended me noted that I bought Fandango tickets to Beowulf Wednesday night. I received a very clear pop-up notice at the end of the transaction, and had no problem with that information being added to my profile. Granted, I had advance notice that this would likely happen, so to some people's point, i think that this is a matter of people getting used to this feature, much in the same way that it took a while for Newsfeed to grow on Facebook users.

But remember that Facebook made some significant changes to Newsfeed after it was launched, namely, giving people the ability to control what items made it into the newsfeed, and who in your friends list could see it via limited profiles.

I think that Facebook Beacon will have to undergo some significant retooling -- it has a lot of potential in terms of tying together aspects of my online life, but as I wrote above, I need to be able to have total transparency and control on when this is happening. Reigning in and policing partners like Overstock.com will be an essential -- and tough -- thing to do, especially if Facebook switches Beacon to be opt-in.

by Charlene Li

The video highlights from our Consumer Forum 2007 are now available. Josh and I were keynotes and we spoke in details about some of the key highlights from our book. Below is a summary of the keynote speakers and speech topics. In particular, I highly recommend the speeches by Christie Hefner and Henry Jenkins.

***Note that you need to use Internet Explorer to use the navigation and see the slides.***

by Josh Bernoff

The only live TV I watch is sports -- and since AT&T Wireless blanketed the airwaves with it's "we work where you live" campaign during the Red Sox's triumphant march to the World Series, I got a chance to see a lot of it.

Now they are extending it to a Web site where you can create a custom T-shirt (or mug, etc.) about the places you live. For example, what you see at left is for someone who lives in Twitter, Web, and Facebook.

Through Zazzle, you can pay $20 and get the shirt yourself. It has a little AT&T logo on the back.

After having my fun, I had to ask, Is this worth it?

First of all, is it social? It doesn't really involve other people -- unless you count the ones that see your T-Shirt or your mug. And they don't get much of an AT&T message. This is zeroth, most minimal level of user-generated content.

Is it viral? Could be. Depends on how many people find it mildly interesting, as I did.

In the end, this is an ad campaign advertising an ad campaign. AT&T Wireless is now throwing what must be hundreds of millions of dollars at rebranding itself back again after selling its name and naming itself Cingular. How much money has been spent on these names? Ad Age raised the question of whether the branding effort was "A Failure of Epic Proportions".

But when you spend so much on branding, is advertising your advertising worth it? Will the people fooling around on this site take away any message about AT&T Wireless that they didn't already get from the TV commercials? I doubt it.

Still, it's fun. Here's what you get when you mash up GigaOm, TechCrunch, and Forrester.

Tags: AT&T Wireless, where do you live, bernoff, Forrester Research, Groundswell

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by Charlene Li

(Note: this was originally posted on Harvard Business Online, which is part of Harvard Business School Press, the publisher of our upcoming book).

As an analyst, I’m often asked by people why they should bother with services like LinkedIn, Facebook, and MySpace, both from a personal as well as corporate perspective.

Let’s start with a fundamental premise – that all business is social and personal. Business involves people and communications and we all prize “networking” skills and opportunities. Businesses don’t strike deals with each other – people do. And we build bonds by talking about everything from sports teams and the weather to our families and hobbies.

So we as business people already engage in social networking every day, primarily through phone calls, emails, meetings, and events. The same activities take place on social networking sites – people share tidbits and moments that build relationships.

Yet, many people when they first go and experiment with a site like Facebook, don’t find it relevant to their professional lives. There are two reasons for this: 1) Your professional colleagues are likely not actively using Facebook; and 2) Most of the applications today aren’t designed for a business context.

Let’s take the first problem – you may not have many friends in these social networks. This was my problem – it was only this past spring that people I actually know started using Facebook. My friends are posting links, book reviews, the events they were going to, and suddenly, I now find myself at a near addiction with Facebook. I went to an event because five friends said they would be there. And when I saw them at the event, I congratulated them on closing a round of financing and asked about their recent vacation – all of which had been shared on Facebook. What’s the business value of staying on top of your network? As we know from experience, priceless.

Now for the second problem. Business applications on services like Facebook have yet to take off, which is why people like Tom Davenport have a hard time seeing the business value of social networking sites. I don’t blame him – after all, the most popular applications on Facebook today include such frivolous things like playing Scrabble and Vampires (where you “bite” your friends – don’t ask). That’s because these applications are being designed by 20-something developers for their 20-something friends.

But remember: The notion of creating social applications is only 6 months old – we are in the early days here. Business-oriented developers are just now waking up to the possibilities, and the audience that would use these tools are just discovering social networking. It’s going to take some time for these two sides to find each other and develop an ecosystem for business applications.

Here’s an example – LinkedIn described to me a new social application that would show events in your industry that are coming up – and who in your network is going to them. It will also show you people in that city that you could connect with. So if you know that colleagues, suppliers, partners, funders, customers, etc. are going to be gathering, you’re going to want to be there too.

There’s one final business value that companies are already seeing – and that’s reaching the people who are using social networking sites. Advertising on social networking sites won’t work well – but communicating with people, talking with the “fans” of your products on Facebook makes a lot of sense. Victoria’s Secret has badges that its enthusiasts can download on MySpace on put on their profiles for their friends to see. Ernst & Young (yes, an accounting firm!) answers questions from college students on Facebook – people they are trying hard to recruit.

So don’t write off social networking sites as merely social playgrounds for the young. Your customers, prospects, and employees are exploring and extending their relationships there. Some of you will be bolder in creating business value in these networks while others will wait for the pioneers to carve out the paths. But ignore these new communities only if you believe your customers are not there – and there are few instances where this will be the case.

Does your business embrace social networks? Or is it taking a hands-off approach?

Tags: Facebook , MySpace, social networks,  Forrester Research, Groundswell

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By Jeremiah Owyang, insight from Charlene Li and Shar VanBoskirk.  This is also being cross-posted on the Jeremiah's Web Strategist Blog and the  Forrester Marketing Blog. 

Executive Summary
Both Facebook and MySpace have launched profile and network targeted advertising and marketing products. As they both use member interests and the communities which they are part of, trust continues to become key in adoption as information is passed along the network. The sheer size of MySpace’s member base, as well as the thriving local business membership will lead to success. Facebook, which brings a unique solution evolves advertisements to endorsements and encourages members to subscribe to a brand in what we are calling “Fan-Sumers” (an evolution of the consumer). As consumers share their affinities, brands can advertise using trusted social relationships.

Data: Highest trust comes from friends or acquaintances

(Left Graph: Consumers trust their friends and acquaintances far more than any other sources –Report: Leveraging User-Generated Content, 2007)

Trust is and will continue to be one of the most important attributes in the decision making process. 

Communities form online, trust develops
How we get information continues to evolve as communities form online organized by individuals with similar interests. Just like in real life, we identify our interests, and are often influenced by opinions and experiences of trusted peers in our communities. For many, social networking sites embody these relationships and influence how trusted decisions are made.

MySpace: Brands have a home and can hyper-target ads
The already active MySpace platform is leveraging their already active member profile pages, encouraging the many small and medium businesses to setup a online storefront and providing tools to make it easy to self-serve advertisements to their customers. It’s easy to make the case that demand and inventory are present.

Webmaster not needed: MySpace profile for businesses
Small businesses can continue to build their online profile on MySpace (many of them already have), but now, because of their familiarity with self-marketing (restaurant, nightclub, and other local businesses and their customers) on Myspace.

Self-service ads remove middle man
When friction is removed, efficiency is created. With MySpace’s “Self-Service” ad network small businesese can target ads across a variety of affinities (over 300) and deploy ads on users’ profile pages. These ads, which should (by theory) be relevant and contextual to a user who has self-populated their profile page will have these ads displayed.

Advertising balance required in already busy MySpace
With marketers already with a strong presence in MySpace this could continue to erode away at early adopter “cool kids” from embracing MySpace. But as cycles have shown, where communities form, marketers follow.

User experience continues to be free-form
These ads, which will conform to IAB advertising standards (sizes) will give advertisers the freedom to create the ads in the style accustomed to the network. Yes, expect more blinking text.

To watch: OpenSocial
As OpenSocial starts to be deployed across MySpace and other partners, expect profile ads to be tied to widgets and vice versa; a fabric of links. I’ve already outlined How to explain OpenSocial to your executives.

Inaccurate user profiles could result in mis-targeting of ads
We know that many members do not make their profiles accurate which could yield inconsistencies in how and where ads are displayed. While MySpace has assured they’re accounting for rogue outliers, expect some inefficiencies in advertisements.

Our Call: Sheer mass will yield success
We think this to be a win for MySpace, given their great reach, there are millions of users with active profiles, and there’s also plenty of inventory as many small and local businesses that are present will be comfortable deploying ads where their community already exists.

Facebook: Rise of the Fan-Sumer
Going beyond just profile matching of advertisements, Facebook allows consumers to self-identify with brands and becoming fans. In turn, brands can use these “Fan-Sumers” as endorsers to their own trusted networks, resulting in trusted word-of-mouth. Brands can also self-manage their own campaigns, and there’s some unique opportunities for eCommerce widgets or applications to be part of this formula.

There are three major components to today’s announcement, they include the following:

1) Facebook Pages: Brands get their own profile
For the first time, businesses will legitimately be able to setup profile pages, much like MySpace’s business profiles feature. Next, Facebook members will add these brands as ‘fans’ (much like friends) and this will produce a connection between the parties. Members will self-identify with brands in what we are calling “Fan-Sumers”. Furthermore, this service, called “Beacon” gives third parties the ability to share information on the newsfeed and provides lots of unique opportunities. Sponsored groups will start to evolve into this new form brand profile as this system gets adopted.

2) SocialAds: Endorsements at the friend level lead to eCommerce
Once a member has indicated they are a fan of a brand, that brand can choose to purchase SocialAds (from Facebook Sales or via a self-service platform). A unique endorsement of a product or brand will now appear on that individuals news feed or banner or skyscraper ads. Advertisers can purchase social ads target by profile demographics and profiles, as well as by activities done in Facebook. Payment is an auction-based system available to marketers via both CPM and CPC pricing.

3) Use “Insight” for control and flexibility
This self-service dashboard called Insight gives the marketer detailed knowledge how their advertising campaign is working on Facebook. It’s expected that advertisers will have flexibility, control over the type of ads they deploy, in what quantity, and the demographics they want to target.

A likely scenario:
Shauna, who enjoys Revlon products, indicates she’s a fan of the brand and becomes a Fan-Sumer. Marketers at Revlon can then purchase SocialAds, which will then display on Shauna’s newsfeed or on ads on her profile. If Shauna purchases Revlon makeup from Amazon, her newsfeed could indicate an eCommerce links recommending it to her 100 trusted friends, resulting in further sales.

Implications for Facebook:

Members have more control over ads
Facebook users can opt to turn off social ads, and friends of that user can ‘dial down’ endorsements they see using preferences. We believe that Facebook is attempting to respect the rights of users by giving control to members to ‘opt-in’ to become a Fan-Sumer.

Quest for Fans will cause brands to beg
Since social ads only work if a member has indicated they are a fan, brands will be working to earn and buy fans to accept them as members. Expect a lot of noise to be generated from this activity as brands run campaigns to encourage members to add them as fans through discussion boards, banner ads, and special offers.

Hard to qualify a “business”
Facebook is limiting these features to ‘real’ businesses and organizations. Expect an entire team to be crawling and dealing with this qualifying the issue. As recent member accounts have been disabled from Facebook, expect businesses and organizations to encounter same issues.

Limited ad supply to raise prices
Because Facebook members will see only two social ads per day, we expect the supply of ads to be in scarce supply and thus raising prices and not matching the value. This could shift ad buying to large brands who have experience buying and managing search and direct response ads.

Our Call: Brand affinity leads to community endorsements and more trusted marketing.
We see this as a win for Facebook, this highly targeted system isn’t just about web advertising but about brand affinity and hooks into what’s really important, trusted endorsements from people in a network. This truly is the next generation of advertising. Facebook tells us that the worst case it will be 2 times click through rate over the performance of (existing is 4-26%)

Next Steps For Brands

Experiment: Because of the control and flexibility, we recommend to brands that are currently on either of these social networks to experiment and test.

Learn how to efficiently manage your campaigns. There’s clearly a trend towards self-service, which provides efficiencies for both businesses and the platforms.

To know: Marketing has changed, advertising is no longer a sole-solution. Marketers must also learn how to be part of communities, engage with them, and be part of the conversation.

To know: Marketing is now distributed, brands must embrace communities where they currently exist, rather than solely driving them to their corporate website.

This digest not only explains what is happening, but why it matters to you. If this was helpful, please pass it on. Love to hear your thoughts, please leave a comment, even if you don’t agree.

by Charlie Golvin

(Note: My colleague, Charlie Golvin, covers wireless devices and services, and he was kind enough to provide his insights on Google's latest mobile announcements - Charlene)

The Android platform that Google and its partners in the Open Handset Alliance announced today will significantly impact the mobile market — eventually, but the time for this impact to play out is lengthy.

Android is most impactful on handset vendors because it provides a very cost effective software solution that can reduce their licensing, development, and maintenance costs. The greater the portion of their portfolio that Android makes up, the more true this is.

Android holds a similar promise for developers, reducing the complexity of their development efforts that currently span multiple platforms and multiple versions within those platforms. Paradoxically, Android will increase complexity for developers initially since it represents yet another platform to support. But the platform also promises more flexibility in distribution and business models, more akin to the Net today.

Carriers have the opportunity to benefit by virtue of the innovation among developers Android will help spawn. Also, carriers now in search of business models that extend beyond subscriptions and pay per use have a greater chance of succeeding with partners that bring the necessary skills to make ad-based models succeed (try to think of one).

But there are some things Android won’t change — like the distribution model for handsets in markets like the US where carriers are in control. Those of you dreaming of low-cost unlocked handsets sold at retail along with flat rate access plans should sit back, take another hit off your bong, and mellow out. Not gonna happen, not just by virtue of Android’s presence, anyway.

Oh, what’s in it for Google? Reach to an audience that is larger than Net users on the PC, and growing larger, plus relevance for the next billions of Net users, the majority of whom will only experience the Net on a mobile phone, not a PC. And the opportunity to sell ads to anyone who wants to reach them, on any of these new Net-powered mobile apps or just on the mobile Internet through a browser.

(Note this goes nicely with the OpenSocial effort, since all those widget developers won’t have the tolerance for the complexity of today’s mobile environment but definitely want to be able to extend out to phones.)

Tags: Google, Open Handset Alliance, Android, mobile,  Forrester Research, Groundswell

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By Charlene Li

I was preparing for my Graphing Social Patterns speech on Facebook marketing last night and decided to try out Facebook Flyers, which allows members to create their own little display ads that shows up in the left navigation bar. You can see the ad to the left, and in the ad is a request that people let me know if they saw the ad.

I bought the minimum, 2,500 flyers to run in one day for $5.00 with no targeting at all.

Just now, I received a flood of emails in my Inbox -- at first, I thought I was being spammed until I realized they were all responses to my ad!! The ad ran at 3:26pm PST and I received 67 responses over the course of two minutes. That's a 2.68% response rate. My first responder came from someone in Jordan, the last from a transplanted Nigerian in London. And yes, I'm going to be responding to each and every one of those 67 kind folks who bothered to click on my ad to thank them for their participation.

So this is just one small test that I thought I'd share about advertising on social networking sites. The vast, vast majority of ads that are "run of site" are the typical media buy that you see on many media sites - untargeted, undifferentiated. If you're going to market on social networks like Facebook, then you need to understand that this is a community where communication is paramount. Impersonal ads that shout and don't listen won't work.

If you've had experiences with Facebook Flyers, please share them in the comments below, or email me.

(Also, my presentation from the Graphing Social Patterns conference, "Big Brands & Facebook: Case Studies and Best Practices" is available online at SlideShare.)

Update: Didn't realize it, but I also got two pokes. That ups the response rate to 2.76%.

Tags: Facebook, online advertising, charleneli, Forrester Research, Groundswell

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by Charlene Li

The New York Post and WSJ.com just came out with stories of a rumored merger between Yahoo! and Microsoft. On paper, the deal makes sense for the following reasons, but in the end it's going to be so hard that I don't think it will happen.

First, let's take a look at why it makes sense:

- Audience combination. Yahoo! and Microsoft have two of