Social media for the Paranoid

I have been looking at the valuations ascribed to the new social media players and feel like it is the year 2000 all over again.

Cheap money has that effect on activity, but ironically is not (I believe) a long term driver for social media – it is too fungible.

I really admire the ideas behind ThePoint - the idea of facilitating effective group action by helping people find like-minded individuals and giving them the tools to put action behind their feelings is very clever. The currency is Feelings – that is what drives people’s involvement in an social campaign.

Of course Friends is supposed to be the metric that drives Facebook – you join to find and communicate with your Friends. But do people come back time and time again for the Facts about their friends (Joe had a new baby), or the Feelings (Joe had a new baby!!!)?

The most interesting example is dating sites. The early sites were essentially all about Facts (tall blonde, blue eyed, lives in Chicago, and wants kids) and that is still the dominant mode – but eHarmony really make a conscious drive towards “chemistry” in other words – Feelings. The problem being that particularly guys want to browse and that is not the eHarmony way. OKCupid (OKC) has my absolute favourite blog for insight into what people do as opposed to what they say they do. How do they know people’s Feelings? Well through user submitted questions. The clever part is that in order to find out whether your potential new friend likes making out in a graveyard you have to reveal that Fact to the system first. Lots of emotionally biased questions equals a pretty good insight into your Feelings.

So how to get  a fact based network to a Feelings based one? That is hard. Clearly when ThePoint evolved into Groupon they left behind the Feelings part and embraced the money motive.

Of course OKC has the problem that after getting people to divulge a huge amount about their inner thoughts and Feelings they then find their soul mate – and leave. Actually they don’t – what is striking is how many profiles stay up after the initial goal has been met because of the community.

So if you are starting a Fact based service – how do you get to Feelings?

Its much harder than getting to money, but if you can do it you have a much more robust offering.

Is Groupon worth $5billion?

That is the figure that the Financial Times was suggesting this weekend.

So what do we know about the business? 35 million users in 300 markets such as Boston, Washington, etc.

So what do we know about the business? Well besides the numbers in the FT there are much better numbers in the comScore blog.

35 million users in 300 markets such as Boston, Washington, etc. Revenue of $2 billion in two years.

Groupon claims that they have sold 16 million deals and saved $730 million.

So that is an average “saving” of $45 a deal. That does not match the $10 to $30 range that comScore suggests and I agree with . I guess this means that when someone buys they actually buy several coupons from the same vendor.

So lets say two coupons per deal per person on average. That makes 32 million coupons and $23 a coupon in savings.

If the average discount is still 60% I would be surprised – they seem to be all 50%.

If Groupon makes 50% of the revenue that means around $11 per coupon

So that means $730millon in revenue to Groupon, which does not match with the $2billion in revenue.

What I really think is going on is amazingly growth. As comScore reports in October 2010 6.4 million people visited Groupon.com, up 657% from 894,000 a year ago.

Six hundred percent growth for another year would put them at over 200 million people.

Is that likely? Well Facebook is at 500 million and valuation of $33billion, and Twitter is at 190 million and a valuation of $4billion.

But Groupon  has a real robust revenue model, which is more than most can say.

So is this defendable?

I think the answer is a surprising yes, even if the margins shrink alot. Because if someone is going to sign up for a local deal (Groupon, BuyWithMe, SocialLiving) then it makes most sense to first sign up with the best known.

Could Google compete? Well only if they break their search model and promote their own service above all others irrespective of the reality, and even that is not certain. Paid Ads won’t catch up with a social growth driven company.

The equation is not the same for the local vendors. Groupon wants them to promote a lot of coupons and that can be killing for a small vendor that has a real Cost of Goods (COGs) sold. So Groupon has a real problem finding good deals. It becomes much easier to strike a deal with a chain – or even better a vendor with a near zero such as a online company.

So Groupon is going to end up having to move away from the small local vendor in order to fuel their growth.

Ironic really.

So I spent this weekend seeing how hard it is today to pump out an application. Particularly a mobile one such as the ones you see in the Apple App Store.

The actual activity was Start-up Weekend Boston held at Microsoft’s NERD offices in Cambridge.

The basic game is  anyone can pitch an idea, then everyone votes, and then the top ideas are supposed to assemble teams. I will discuss this process and the implications in another post, but the process of selection is much closer to the process that people use when they decide whether to make something “go viral” eg recommend it to their friends, than any VC pitching competition.

I decided that I wanted to see what development on steriods was like, so I picked a team (StopGoStopGo.com) that was simply focused on writing a simple Windows Phone 7 application to show Boston MBTA train delays, but with the analysis performed on the Microsoft Azure Cloud.

To my surprise we had a working application by Sunday night. What was also surprising is that in the process of building the application we had check that it was working correctly. What stunned us was that our little model (with no historic data) was already predicting the actual delays way ahead of the MBTA’s alert system. Suddenly we had a competitive advantage over the other mobile applications in this space.

The process of writing the application was far more akin to using a combination of Photoshop and a very benovelent word processor.

I am sure that there we lots of things that we should have worried about – but all the old pain around memory management and garbage collection (Tuesday’s mornings at my house) has gone with Microsoft’s c# language.

And the business model?

Well we found that after we had built the v1.0 product.

Now Microsoft is promoting us on their Bizspark site – and we have more coverage less than a week than I have ever managed with a “real” startup in a year.

What do I conclude?

Well if you are a software Entrepreneur then you need to be able to code – just like you need to be able to create a Powerpoint presentation. Don’t say “I’ll outsource that to India” or “I’ll find someone to do that” because coding is becoming part of the creative process in the same way that you crystallize your ideas when you are creating that PPT file!

It is easy to get drawn into the minutiae of regulators actions with respect to social media, and miss the big, over-arching concern – namely “fair and balanced”.

The medium is irrelevant – it is the message that counts. Consumers are supposed to be able to get all the relevant facts in a fair and balanced way.

Novartis tried to use social media to spread the word about one of their drugs “Tasigna”,and got it wrong enough that the Division of Drug Marketing, Advertising, and Communications (DDMAC) of the U.S. Food and Drug Administration (FDA) issued a notice of violation letter on July 29th 2010 to them. This is a big deal because it was the first time the FDA has ever mentioned social media in one of their violation letters, and because lawyers use these letters to determine what the FDA will allow.

So what did they do wrong? Simply by embedding a third party sharing button (just like the one on this website) on the Tasigna page. If you pressed the Facebook button within the ShareThis toolbar then it created an entry on your Facebook wall, which I’ve included in this post as it has been removed from the site.

It does not really matter whether it is Facebook or LinkedIn, or any of the other social media sites – they all work in the same way. There is a section where the content is dictated by the site hosting the button (the Novartis Tasigna website), and there is a section where the owner of that page can add their comment (in reply to “What’s on your mind”). The fixed content is passed as “meta-data” to the social media site. There has been alot written about meta-data by commentators on this FDA warning, but all you need to know is that you can’t see the content until it is written on your social media page, you can’t edit it, AND the social media site limits its size (in the case of Facebook to 420 characters).

The problem for Novartis was two fold – they did not realize that they owned the space on the user’s page because they wrote it (via meta-data) and the user could not alter it. So it was no different from an advertisement in an paper magazine that they should have submitted to the FDA, and did not. Secondly they chopped down the displayed message so it fitted within 420 characters and hence missed out alot of vital information that made the advertisement “fair and balanced”.

It is easy to get wrapped up in all the medical related language – but the basic issue would be the same if this was a British financial services advertisement that used Facebook in the same way – there is insufficient information (or too much, if you look at it another way) to be fair and balanced, and the fact that there is a “one-click” link to the website with all the information needed to make it fair and balanced does not matter.

So if “one-click” does not save you, is social media beyond medical salvation?

In a word “no”.

I think that the best way to see these advertisements is like political yard signs (small signs stuck in people’s front gardens). All they say is the name of the candidate and their slogan – plus some contact details. But they are more powerful than a simple advertisement because they are endorsed by the owner of the yard. When you see your neighbour endorsing a candidate it says something about the candidate, and also something about your neighbour.

So simply building a community that points people to your website is powerful in itself.

Now if the rules change and “one-click” is enough to satisfy the “fair and balanced” criteria then I think we will see social media take off as an advertising medium for healthcare in just the same way that Direct To Consumer (DTC) advertising did in the 1990s.

Facebook is marching across the world – displacing more local social networks, like Bebo, as it crosses the half a  billion members watershed. At first glance this seems like a huge success for social networks, but if users are so willing to swap social networks, into which they have ploughed so much time and personal data – why do we think that they will be loyal to their new network? If they are not then what do they switch to next? I am going to argue that many of the “sticky” characteristics of Social Networks in general, and Facebook in particular are actually caused by the incredibly fast adoption rate of the technology and not by the technology itself. I’m also going to argue that competition to Facebook will come from a very different direction than people expect.

First a little geeky diversion into the science of “adoption curves” – this is the science of determining the rate of adoption of a new idea or technology. Grossly simplified the rate of adoption of a new technology (social networks) depends on the availability of the underlying technology (Internet access), the cost (free),  how many people tell you about it, and the value it brings you (finding your High School sweetheart – priceless). So Facebook has spread quickly because it is free, Internet penetration is very high in the developed world (and growing in the developing world), and the media is all abuzz about it.

While early adopters had a choice of social networks,  the late majority (which is probably where we are with social networks) really only have heard of one – Facebook, and so that is the one they have adopted. So the more news about Facebook – good or bad, the higher the rate of adoption. Bad news really does not matter because at this stage of the adoption curve there is no obvious alternative for the type of people who are now joining.

If the adoption rate were slower then people would have more time to pick and choose between the different offerings before deciding – rather like the way they selected different TV delivery systems (cable versus satellite). But the fact that they have made a shotgun decision does not mean that this is the solution they will stick with.

The risk for FB is that it will end up like attending a college reunion – the pleasure is in the re-discovery of old friends, but once you have found your old High School Sweetheart what are you going to do – particularly if they live half a continent away?

Well that depends on what sort of person you are – for those that love to communicate social media becomes another tool alongside emails, phone calls, and even written letters. For those that  are stumped for something to say when they get the collective “good-bye” card to sign then it is unlikely that they are going to invest alot of time. Unless there is an immediate reward, which is the prize that drives so much online activity on dating websites, or even job hunting on LinkedIn.

So it seems to me that the social media world is going to divide into two – task and pleasure. Pleasure social media is essentially FB today – it is all about the pleasure of online discussion with your friends and family. It involves sharing alot about your personal life – if you don’t then there is not enough grist to drive the conversation. Perhaps you are comfortable sharing this sort of information with hundreds of people – perhaps not. My guess is that as people pass through life events (marriages, new children, deaths) people will consider what information about these banner events that they really want to share. So If you are getting married and only want to invite a select group of friends – do you really want to post every detail of the marriage? And more to the point do the uninvited guests want to be constantly reminded? Perhaps more importantly do you want to share that cute picture of your kids in the bath with people that are not in your core group of friends? So either you self-censor, in which case, what is  the point? Or you slim down your circle.

For task based socializing the focus is very different. You want to have the largest possible group of people because you are relying upon that circle to help you. So two obvious tasks based social media sites are dating and job finding. Are there others? Yes, group buying sites like Groupon are actually an example of an anonymous social media site, where everyone has the same aim (getting bargains).

Another interesting category is  social media based around physical social groups – such as schools, sailing clubs, and youth soccer. Facebook has clearly aimed at these groups – the question is whether organizations see Facebook as one more communications channel, or as the core of their communications?

So can a single social media site like Facebook do all of these things? I think the answer is no – which is why dating sites are still very successful and LinkedIn is growing fast. Can  Facebook persuade physical social groups to more exclusively to their platform? In most cases no – unless Facebook provides a “white-label” solution. Why? Because most clubs require rough agreement among their members in order to function, and social media is a hot button issue.

So Facebook is going to continue to be very successful, and is clearly going to wipe-out similar sites (like Bebo) simply because it is hard to differentiate the product offerings and Facebook is the obvious choice – I simply don’t believe that the investment people have made in inputing personal data is a barrier because as I said at the beginning of the article – it has not protected MySpace or Bebo.

The next generation of social media sites are going to be around task based social activities.  After all – FourSquare is the ultimate task based site – it enables you to find your physical friends when you are out on the town. Do you want your boss to know where you are? Probably not.

So now you have three or four social networks to manage.  How are you going to do that? Probably via an application running on your cellphone or laptop. Firefox’s Identity Manager is a small step in that direction.

If I was a cellphone company – or a cellphone manufacturer – I would be running as hard as I could in this direction – after all the SIM in your cellphone is a pretty secure way of proving who you are.

Apple v  Facebook – the next great identity war.

The Financial Services Authority (FSA) in the UK is a Quango. This glorious name is an acronym for “quasi non-governmental organization”, in other words its regulation at arms length from the Member of Parliament. FINRA in the US is a private organization and only regulates Broker-Dealers while the FSA also covers banks, insurance, and mortgage providers – but the two are quite similar.

On June 15th 2010 the FSA published their opinion on social media – called “Financial promotions using new media”, that on first reading puts considerable barriers on the use of social media by the UK insurance, banking, and brokering industries. There are some ways forward as I will try and outline below.

The FSA has the laudable goal that all financial promotions are “fair, clear, and not misleading”, irrespective of the medium. There is an except for “image advertising” (basically the advertising you see that the airport which shows a picture of an elephant on a surfboard, or whatever along with the company name and web address), but this does not apply to insurance companies according to COBS 4.  (accenture is not a typical firm covered by this regulation – but their Ad is such a classic that I could not resist. How many minutes do you think it took to create this Ad in Photoshop?)

The problem with social media is that “fair, clear, and not misleading” is a pretty tall order for 140 characters – on a par with surfing elephants. But what about Facebook and LinkedIn?

Well probably the best way to analyze the problem is to use the FINRA 10-06 framework. FINRA regulates broker-dealers in the US and it has basically the same goal as FSA (stop non professional customers getting bamboozled). But FINRA makes a significant differentiation between Profiles and Communications. Profiles are the static bit of the Facebook and LinkedIn pages that say who you are, and can basically be as long as you like. Communications are basically Tweets and Status Updates.

If you consider Profiles then FINRA requires that every change is approved by a “registered principal” – which in the UK probably means the compliance department. This is doable as a firm’s Facebook page is probably very similar to its web-page. The problem comes with employees. If they state that they are employed by the insurance company, do their pages also have to be approved?

For Communications FINRA basically wants the monitoring but not pre-approval. On the face of it FSA does not see Twitter as a viable channel for regulated industries at all, but on June 15th 2010 they are quoted by The Register as saying:

“OUT-LAW asked the FSA if promotions on Twitter that provide a link to further details are likely to fall foul of its rules on stand-alone compliance. An FSA spokeswoman said the FSA would not be prescriptive on that point.”

So perhaps they would allow Tweets as long as they are linked to a disclosure page – the so called “one click” doctrine in the states (basically all the legal blurb needs to be one click away at all times)?

So what should a firm regulated by the FSA do?

Well, probably PCPAL! Panic, Catalog, Proscribe, Approve, Clarify.

Panic - clamp down on all use of social media. They have got to be seen to be taking the rules seriously if they are going to start a good faith dialogue with the regulator.

Catalog - find out what is being done – both officially and unofficially.

Proscribe - put in place a social media policy that that is in line with the FSA guidelines.

Approve - streamline the approval process so that the Profile section of social media can be rapidly updated and approved.

Clarify - start a dialogue with the regulator in order to clarify how the rules would apply in particular circumstances such as Tweets.

Is it worth it? Absolutely – recommendations by people you trust has always been the prime way to select a complex product or service. Social media is all about personal connections while you surf, and even if you are not an elephant it is a good idea to surf in style.

“Relationship banking” is a favorite  phrase in the world of banking – Citibank even offers a “Relationship Package”. I am not entirely sure what it might contain – beyond chocolates, champagne, roses, and perhaps some supplies – just in case the relationship gets a little hot. But when it comes to using social media to build a relationship, banks that sell stock and bonds to their customers have a hard time because they are chaperoned by Finra. As a result their efforts are way behind organizations such as Dell and Starbucks. If they could overcome the constraints imposed by Finra then they may well become the largest business driver of social networks because it helps maintain the relationship long after the chocolates are eaten and the champagne has gone flat.

Finra is a private company that currently self regulates 5,100 US brokerage firms. Banks do not need to join Finra unless they offer brokerage services (stocks and bonds to you and me).

On January 25,2010 Finra told its members what to do about social media (Regulatory Notice 10-06). It basically differentiates between customers and prospective customers, and between Friends and the general public.

So, for example, sending an Twitter DM (Direct Message) to a thousand customers is correspondence, while sending the same DM to 26 prospective customers is considered sales literature. Sending the same message to a private group (no public access) of 26 Followers who are customers is also considered correspondence. Unless the social media site changes its privacy settings and makes that message public, in which case it becomes sales literature.

Just to add to the confusion Finra differentiates between static and interactive parts of a social media page. So the Facebook profile is static and hence requires approval by a Registered Principal (a manager who has passed the relevant Finra exams), while the status messages, wall messages, and other interactive communications are seen to be an “interactive electronic forum” – which only need to be supervised. Supervision is a complex task in itself with a complex set of rules.

Even getting a posting by  third party on a broker’s Facebook wall can cause problems if the firm in anyway appears to endorse it.

The Finra document refers to technology solutions for all these issues. If these problems can be solved then expect alot more virtual champagne from your broker.

Next week I co-chair a session at the MassTLC Social Media Summit 2010 on overcoming internal resistance to social media. The idea of the session is to provoke a discussion on how to overcome people’s fears and doubts. The problem with this sort of session is that everyone there is a believer, and so the push back tends to be second-hand while the evangalism is up close and personal. So in other words – how do you play without an opposition? I think the answer is role-playing, but we will see.

So the core issue I see with Social Media adoption or rejection revolves around people’s mental models.

We all have mental models. They are internal representation of the surrounding world which we use to anticipate events. There is the game of Peek-a-boo where adults play with a baby’s mental model of object permanence. Babies under 9 months do not have a mental model that includes the idea that when they don’t see an object it can still exist. So every time they see the object they are surprised and laugh. As adults we have that mental model deeply ingrained and so are surprised when an object does not follow those rules – which is why we love magical shows.

So with any mental model there is a period of learning the new model – and that often requires unlearning or adapting a prior mental model. This is the process of learning – and there are many model of learning.

One of the first mental models that parents teach their children is the difference between family and strangers. “Stranger Danger” is a core topic in Pre-K education, and re-enforces that divide between friends and strangers.

Both individuals and organizations have mental models – half the books in an airport bookshop are about changing an organization’s mental model.

Embracing Social Media involves both individuals and organizations changing that mental model of what constitutes family, friends, colleagues, partners, and colaborators.

Most people who embrace Social Media do so from a personal perspective. They are comfortable with sharing something about themselves with strangers. It is no surprise that my talented c0-presenter, Amy Black, in addition to her professional life in marketing, is the lead singer in the band Amy Black and the Red Clay Rascals.

But there is a reason why most people do not stand up on stage and sing. Mine happens to be that I am cr*p at it, but for for many people it is the fear of failing in public. I am used to failing in public.

Well the first part of that sentence is fact (I am cr*p at singing), but the second, about other people, is my opinion – based on my mental model.

We often regard opinions as facts  because they fit with our mental model, and so we have a hard time understanding the objections of people who do not regard those opinions as facts at all.

Facts about social media in organizations include uncomfortable realities like regulation (HIPAA, FINRA, SOX, FSA) – and active litigation. But these are easier to deal with because there are often technology solutions and best practices.

Opinions are far harder because they are not facts and so every time they are treated as a fact with a clear solution the objection shifts because the the core issue is the mental model and that does not change when confronted with facts.

These opinions about social media in organizations range from the negative “poor cultural fit, not a priority, uncontrollable, negative comments” to the positive –  ”direct communications with our customers means that they will love us because we love them, social media will mean that everyone is able to expression their opinion”.

The problem is that there is very little data to back up any of these opinions, while there is alot of data to back up facts like being sued.

The other key reality is that social media policy within an organization reflects that organization’s personality. It is really hard to change the organizational culture – and it does not happen over-night.

So it seems to me that the way to overcome internal resistance is to first understand and articulate the internal mental model in use (as opposed to the politically correct version).

“We are the best bank in the world. We only employ the best and the brightest. We know we are the best because we make the most money of any of our peer group (we only include banks not hedge funds because they don’t do the range of things we do). We don’t care what people outside our industry think of us because they don’t understand our world”.

“We are the best public radio station in the world. We are way better than the commercial stations because we care – but not about money. Our audience is like us – clever, articulate, and engaged’.

Nether of these little pen pictures is particularly flattering – but the true mental model of any organization is not very flattering because it represents some very real human characteristics such as hubris, fear, anger, jealousy, and desire”.

But if the pen picture is accurate then you can predict how social media will be seen. In the case of the bank it will get the best reception if social media is aimed at other banking professionals and it basically re-enforces the internal message.

Hence there is no surprise that McKinsey (that sees itself as the premier strategic consultancy) publishes the McKinsey Quarterly – a scholarly guide to strategy. Nor that they charge for it because they regard their services as very valuable. So a social media strategy for McKinsey is going to be best received if it is aimed at a niche audience – and even better if there is a price for access (even if the desired audience is given free access, and so the price is really a way of selecting an audience).

That may seem to be rather underhand and not true to the ethos of social media – but that is your mental model at work.

In other words – “he who pays the piper, calls the tune”. Over to you Amy.

Greek mythology is all the rage at the moment with the success of the Percy Jackson Books. Sirens were seen as mystical women who lured sailors to their deaths. Status updates are doing the same thing to friend centric social networks, like Facebook, and Google Buzz. It is going to end badly for them as they end up on the rocks of legislation.

So what is the siren attraction of Status Updates? Well none until Twitter demonstrated meteoric growth in its provision of Public Status Updates, otherwise known as Tweets.

If you are a successful Social Network then you have been through some pretty bruising fights with other Social Networks as you fought to overtake Myspace or Bebo. So you look over your shoulder frequently and try hard to emulate the feature that is propelling the guy who is coming up rapidly in your rear view mirror. In this case  Twitter.

So the obvious response is to provide Public Status Updates from your members. After all you have alot of them, and writing 140 character updates can’t be that hard, especially if you throw in a bunch of “lol”.

But these Updates have to be public or else you don’t have an effective response to Twitter.

The problem for Facebook and Google is that the public image of those services is essentially private, while Twitter has always been a public service. The easy way to see this is to go to the front page of Twitter – full of status updates, and Facebook- a log-on screen.

If Facebook really wanted to change perceptions they would put their user’s Status Updates on the front page. But they don’t.

Instead they publish them indirectly – via the search engines, or addictive sites like OpenBook – which allow you to see such wonderful status updates such as a young lady (complete with baby on her profile photo) telling the world that she has secretly got a job at Hooters (a restaurant whose customers have the same fixation as young babies).

Now people have two choices – they can change their mental model about Social Networks and accept that everyone is letting everything hang out, so they should too. I can this the nudest camp model. Or they can get upset that they have been duped. Which way they jump is probably influenced by the media they read or watch.

The media know a good story when they see it. Being a voyeur is one thing, but writing about being a voyeur is completely different. You too can type all sorts of phrases, like “going to a strip club” into OpenBook in the name of research. So the number of stories about Facebook privacy is growing like crazy.

So users are being herded into the privacy matters camp, and Facebook can’t fight back because they are fundamentally a technology company, and being soft and fuzzy does not come easily to people specialized in technologies with such attractive names as “Ruby on Rails” (a competitor to Thomas the Tank Engine?), or CRUD (Create, Read, Update, Delete – if you really want to know).

So they will eventually be forced out of Public Status Updates for the vast majority of their users. Does that matter? Probably not. What matters is that they have shown that they have allowed their ship to be drawn dangerously close to the rocks by Siren calls. The Sirens had fun, they will do it again.

So Flanders is an area that includes Belgium, and in particular Brussels. It is also where the great armies of Europe fought many of their wars literally stuck in the mud of that region.

Brussels is the home of the European Union, and the home of Data Privacy. Europeans care alot about privacy – probably because of the various wars that they have fought against regimes that publicly labelled people with yellow stars.

Facebook clearly does not realize what Microsoft, and more recently Oracle have found out. What the European Union thinks really does matter. OK it only matters for European citizens, but it is hard to have a global domination plan if it excludes Paris. Yes you can keep your servers out of Europe, but if your plans include financial services then not having a presence is going to be hard.

So what will the EU do? Well nothing for a very long term, except make polite requests. Then one day, probably, as you are filling documents with the SEC the EU will want to talk to you.

People’s first reaction is to throw mud. Lets see where that leads. The first world war spent five years in the Flanders mud.