Back Seat Marketers

Summary
Facebook is the new WalMart and will need to think of how it can deliver branding experience and profit optimization for it and its users. Much as WalMart developed a national brand allowing for operational efficiency while leveraging deep pools of consumer knowledge to quickly adapt choice and selection, Facebook must take on a mission of leveraging mass customization beyond brand building in its widgets focusing on profit return per pixel block above the fold, which will develop into the web’s version of category managing retail shelf space.

Background
A meme recently occurred on the frustrations of web metrics tracking. I personally found it quite interesting in that these frustrations occurred before: retail POS tracking. Even more compelling in its parrallel is the fact that one of the leading players in the web tracking industry, Magid Abraham of comScore, was one of the leaders of the retail POS industry, IRI. This train of thought provides insight on how widgets should be monetized by social networks using a parallel to retailer best practices: Category Management.

During the 1980’s and 1990’s, retailers grew more competitive by expanding geographic reach and then squeezing costs out of supply chains. As a result, the winning retailers grew efficient and stayed profitable by using four key elements:
1. Standardization of store fixtures, field operational practices and store selection/offering.
2. Nationalization of branding and leveraging of operational components including purchasing and back-room elements.
3. Development of performance metrics where leading players could leverage their data and consumer knowledge into better and faster decisions (=powerful got more powerful, the small had to develop strong niche positions)
4. Mass customization became possible as large, national retailers could now leverage operational efficiencies and large pools of proprietary information to deliver better selection to subsets of stores under a national umbrella

Moving into Web Metrics
The new retail space is social and viral - Facebook, last.fm, MySpace, Technorati, Netvibes, leading blogs. Unlike retailers, the amount of available space is limitless, but the space “above the fold” at key leading networks is limited, and will benefit from assessing operational efficiency metrics in managing space.

For example:

Even a leading website, like TechCrunch, needs to balance ads v. content delivery. Based on an initial measure of ads v. content above the fold, TechCrunch current has roughly 55% of its page containing ads (see red blocks noting ad space). This isn’t a dig against TechCrunch specifically, clearly the demand for ads on the blog are high enough and users aren’t complaining about the lack of content or difficulty reaching it.

Isn’t there more to TechCrunch than a one-way push of blogger opinion and advertisements combined with a second push back of responses by readers? The addition of Forums slightly changes the TechCrunch experience, but beyond some community interaction, a large audience of invested people seem interested in more, but what? Previously, I covered thoughts on how social communities need to focus on industries they serve over ads they should run.

User Interface Realization
Jakob Nielsen’s Alertbox notes screen size for about 60% of all monitors is 1024×768. While this size will change over time, a web page “above the fold” will continue to have limitations.

Result
A web page has limited primary web space beyond the social elements. Fred Wilson astutely suggests that he would like to virally receive and give purchase suggestions of all kinds. Facebook has developed its API to begin to deliver on that promise. While Facebook has a strong social network, it will have to assess how its widget platform becomes an profitable venture, much in the way WalMart leveraged the “store of the community” concept by not reducing or restricting choice, but expanding it to the limits of profitable choice and efficiency.

Shelf space above the fold is limited and a standardized platform (of widgets) allows users to customize uniquely through use of host-approved API programs. While customization rules, space will still matter and players along the social network value chain will need to develop a new set of compensation and performance metrics. Jeremy Liew has taken a crack at assessing the four key metrics of performance for widgets (=feels a lot like the security or cell phone business). While valuing an individual widget is important, the means for a social network to assess its value is also important for players like Facebook as well.

Web Performance Metrics for Social Networks
Many retailer metrics used in category management can apply into the new economy, including:
* Brand enhancements - not directly for profit, but for image and user experience
* Revenues/profits per square pixel area
* Placement optimization (A, B, C)
* Variety within a category v. across categories
* Loyalty programs to grow user affinity

Ning recently took a full year to build its platform of social networking turnkey solutions which demonstrates that even a well funded team requires time to develop a strong set of tools. While web platforms are becoming more scalable and cost less, user effort is still required to customize the experience to a specific community niche (just like a retailer needs to focus product selection and store layout for its consumers). Social networks, like retailers before them, will have a similar opportunity to focus on valuable users and how to ensure key segments continue to be rewarded over time.

Concluding
Savvy brands and companies investing into 3rd party hosted communities and portals have the potential to create value for sizable and loyal audiences. These investments will require retailer-like emphasis on customer loyalty, content variety/depth and segment profitability. User engagement offers as an added intangible benefit of faster and more accurate feedback for those companies that can effectively and credibly manage this medium