Monday, October 29, 2007

Social Networking and Customer Acquisition costs

I was infected with a virus this week. After a few futile attempts to fight ghosts being thrown at me and offers of beer, I succumbed and installed SuperPoke! and to get even, sent a few vampires after those people. Nicholas Carr talks eloquently about vampires and social networks and observes that we welcome these social networks to be part of our lives.

Many blogs and news articles have commented on how Facebook would be able to use profile information to target ads more effectively than ever. While this may certainly be true, I think that peer pressure and peer recommendations are going to drive the next generation of marketing efforts far more effectively than super-targeted campaigns using profile information. This approach is currently far cheaper than other means of customer acquisition, and stickiness is likely to be greater because it is enforced softly by the your peer group.

First, for most of the population the need for affiliation is far more than the need for power or achievement. Analysis of qualitative information around us (I can't seem to find quantitative data with nAff, nPow or nAch scores for US subjects using McClelland's Thematic Apperception Test and inexperienced in conducting such a test. If anyone has some information, please post in comments below or email me) like houses in a sub-division, dress codes, cars in a neighborhood etc. look alike not only because of formal rules, but also because of informal social pressure.

Additionally, cost of web-traffic is growing. For adwords, or paid search, the most used keywords are fairly expensive, and less used search keywords need a marketing specialist to manage a campaign. Affiliate marketing rates for traffic are anywhere from 4%-15% of revenues. With shrinking margins, this cost is often prohibitive for product companies.

Firms have already realized this, and product companies are increasingly moving to own communities (Johnson and Johnson's purchase of Mayasmom and Reliance's launch of are some examples). BuyCostumes has benefited by this trend by writing a Facebook application and saving significantly on costs of customer acquisition.

All this leads me to think that the next logical step for Facebook is offer a valuable service to product companies–set up Owner Clubs for products and charge product companies for this service.

No comments: