Another privacy storm erupted on Monday when Instagram, the wildly successful user photo sharing application recently acquired by Facebook, released an update to its user agreement, unleashing a backlash across the interwebs. Sound familiar? It probably does, with Facebook at the forefront of repeated accusations of user privacy violations. Why do social media companies repeatedly stumble into the same PR potholes and attempt to defy the power of their own media?
There are three distinct camps in this issue. The first is the outraged user characterised by an ignorance of the voluntary terms under which their use of such services is governed. They are generally poorly informed about rights, privacy and intellectual property and have a penchant for alarmist claptrap. They also have a habit of creating and perpetuating dramatically mythical reactions based on misguided assumptions of the developers’ intent. These users are also typified by their low levels of awareness of free myth-busting sites such as snopes.com and are the first to bombard your inbox or timeline with messages of impending catastrophe should you not immediately and faithfully multiply the message to your entire network.
The second camp is typified by a somewhat callous and decidedly capitalistic attitude of “it’s a business, not a bleeding heart charity”. They stoically defend the right of developers to monetise their effort and for shareholders to make a healthy return on their investment. They get the business principles, have unfettered admiration for the developers, and accept the trade-off of free use against commercial intrusion.
The third camp makes up the vast majority of users of such applications or services, dwarfing the other two in number. They are characterised by bored apathy and continue to post, share, like and generate content without a care for the consequences. It is this group that the corporate owners of these services rely on not to give a toss, and thus survive the onslaught of a mass exodus of users that might otherwise threaten the stability of their business model.
It so happens that I fall mostly into the second camp. Massively popular services like Facebook and Instagram require hundreds of millions of dollars in infrastructure to reach the scale they’ve achieved, and many millions more to maintain their services. Not only does someone have to pay for that, but the inventors deserve a handsome reward and the investors a handsome return. That’s free market economics. The problem is that the Internet generation is desperate to avoid the dreaded curse that is commercial interruption, aka advertising. Developers spend years honing “pure” interfaces devoid of advertising, give their product away for free, and make it available for sharing via other major social platforms only to sell it to someone else who spends years trying to back integrate advertising models to monetise the damned thing.
This is a bit of a re-run of Facebook’s various attempts at creeping user privacy invasion, an excellent if slightly outdated visualisation of which can be seen here. Some commentators have been quick to point out that Facebook is testing the legal and user tolerance boundaries with its new acquisition, just to see what it can get away with. There’s fire to this smoke for sure, as Systrom’s denials ring relatively hollow.
What puzzles me is why they bother with the obfuscation in the first place? Why do major media owners – because, let’s face it, Facebook and Google are more media owners than tech companies once they’ve passed the monetisation tipping point – attempt to subvert the inevitable? While half the media world is in a tailspin over declining circulation/ viewership/ listenership/ readership (in short, attention), the other half is trying to figure out how to make money from the deluge of new users they’ve just netted. As any experienced media owner will tell you, there are only two meaningful revenue streams, subscription and advertising. Many media players run hybrid models containing both, but the Internet generation has been raised on free content and so it tends to balk at being asked to part with money for access to that content. This has fundamentally undermined the industry’s sustainability – whether you’re an old school newspaper publisher or the founder of a shiny new Internet toy. A false schism has been cast in an “old versus new” mould to the detriment of everyone. The old world behemoths like Warner, Disney and Murdoch are being recast by new world challengers like Page, Brin and Zuckerberg. It’s a brutal battle of old, established capital against new, venture capital for a share of the attention of the world’s 14 billion eyeballs, and the stakes are enormous.
In the new world corner are the new media and technology giants striving to create new revenue models from the same material that the old giants did. There is no alchemy here, as both Google and Facebook have proven. Google is an advertising driven business model: $36.5 billion of its $37.9 billion 2011 revenue came from advertising. Facebook’s revenue pales in comparison at $3.7 billion, which highlights the conundrum of building a giant user base on a free platform and then trying to get those users to part with some of their cash. The difference is that Google didn’t build a social application, but rather a highly sophisticated search engine that annihilated everything else in the market. The business model was designed from the outset to generate advertising revenue, wisely eschewing any form of cost to the user. Only later did it add social capability with its acquisition of YouTube and various attempts at social networking through Google Circles and latterly the more successful Google+. I would venture to suggest that this largely accounts for the reason Google’s revenues are 10 times those of Facebook. Twitter, with 500 million users, faces a similar struggle to Facebook in trying to push water uphill. After dabbling in advertising experiments the six-year-old company realised just $140 million in advertising revenue in 2011 and predicts $260 million in 2012. That’s a paltry revenue stream for a service with half a billion users, so how long will it be before the “pure” Twitter interface is littered with ads like any other medium?
The Internet generation may be desperate to avoid the curse of commercial interference, but the simple truth is they have little choice in the matter unless they’re prepared to pay handsomely for services and content they’ve grown up getting for mahala. Without advertising (including sponsorship and all other forms of commercial messaging) the world wouldn’t see much by way of major sports events, have unlimited access to search engines, catch movies on television or ply their beloved social networks. The sooner they get used to this the better, and, more importantly, the sooner the purveyors of these services make it clear that the experience comes at some cost to the user (whether direct or indirect), the quicker we’ll bring some balance to this schism. As long as guys like Systrom peddle language such as “Our main goal is to avoid things like advertising banners you see in other apps that would hurt the Instagram user experience” the longer it will take to actually monetise their services and stabilise their businesses. These new media moguls repeatedly create an expectation of continued free use of a “pure” experience before abruptly abandoning it once they find a buyer. No social media is sustainable in its “pure” form unless it charges a premium to a smaller user base or creates some hybrid version thereof – for example, stratified account types from “free but ad populated” to “user pays and ad free”.
For every public relations gaffe they commit, every retraction, clarification, re-wording or re-statement, they lose credibility and damage their precious brand. They appear to ignore the fundamental power of their own media – the ability to reach hundreds of millions of users almost instantaneously – and believe they are somehow immune to it. Perhaps it’s arrogance rather than foolishness, but this crop of new media players appear to me to have a large blind spot for the power of the very media they own. A cup of coffee with Rupert Murdoch or Tony O’Reilly might help them, but I somehow doubt they have the humility to engage the auld enemy. DM
Recovering Mad Man, occasional writer, wine enthusiast, coffee addict and unpredictable wildling, Justin is a lifelong student of behavioural economics, politics and the irrational human psyche. Commercially he focuses on the intersecting stacks of media, marketing and technology, particularly in the telecoms, consumer technology, retailing and media sectors. His opinions represent no organisations or interest groups and he receives no recompense save for namedropping. He also likes nuts. Follower discretion @justininza is advised.
"Have no fear of perfection - you'll never reach it." ~ Salvador Dalí