{"id":152,"date":"2018-06-14T19:04:40","date_gmt":"2018-06-14T19:04:40","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch08-9\/"},"modified":"2026-02-05T19:21:37","modified_gmt":"2026-02-05T19:21:37","slug":"ch08-9","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/bus3060\/chapter\/ch08-9\/","title":{"raw":"8.9 One Graph to Rule Them All: Facebook Takes Over the Web","rendered":"8.9 One Graph to Rule Them All: Facebook Takes Over the Web"},"content":{"raw":"
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Learning Objectives<\/span><\/p>\r\n\r\n<\/header>\r\n

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After studying this section you should be able to do the following:<\/p>\r\n\r\n

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  1. Describe Facebook\u2019s efforts to integrate its service with other Web sites and the potential strategic benefit for Facebook and its partners.<\/li>\r\n \t
  2. List and discuss the potential benefits and risks of engaging in the kinds of intersite sharing and collaboration efforts described in this section.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

    In spring 2010, the world got a sense of the breadth and depth of Mark Zuckerberg\u2019s vision. During the firm\u2019s annual f8 Developers Conference, Facebook launched a series of initiatives that placed the company directly at the center of identity, sharing, and personalization\u2014not just on Facebook but also across the Web.<\/p>\r\n

    With just a few lines of HTML code, any developer could add a Facebook \u201cLike\u201d button to their site and take advantage of the social network\u2019s power of viral distribution. A user clicking that page\u2019s \u201cLike\u201d button automatically would then send a link to that page to their news feed, where it has the potential to be seen by all of their friends. No additional sign-in is necessary as long as you logged into Facebook first (reinforcing Facebook\u2019s importance as the first stop in your Internet surfing itinerary). While some sites renamed \u201cLike\u201d to \u201cRecommend\u201d (after all, do you really want to \u201clike\u201d a story about a disaster or tragedy?), the effort was adopted with stunning speed. Facebook\u2019s \u201cLike\u201d button served up more than one billion times across the Web in the first twenty-four hours, and over fifty thousand Web sites signed up to add the \u201cLike\u201d button to their content within the first week (Oreskovic, 2010).<\/p>\r\n

    Facebook also offered a system where Web site operators can choose to accept a user\u2019s Facebook credentials for logging in. Users like this because they can access content without the hurdle of creating a new account. Web sites like it because with the burden of signing up out of the way, Facebook becomes an experimentation lubricant: \u201cOh, I can use my Facebook ID to sign in? Then let me try this out.\u201d<\/p>\r\n

    Facebook also lets Web sites embed some Facebook functionality right on their pages. A single line of code added to any page creates a \u201csocial toolbar\u201d that shows which of your friends are logged into Facebook, and allows access to Facebook Chat without leaving that site. Site operators who are keen on making it easy for friends to summon friends to their pages can now sprinkle these little bits of Facebook across the Web.<\/p>\r\n

    Other efforts allow firms to leverage Facebook data to make their sites more personalized. Firms around the Web can now show if a visitor\u2019s friends have \u201cLiked\u201d items on the site, posted comments, or performed other actions. Using this feature, Facebook users logging into Yelp can see a list of restaurants recommended by trusted friends instead of just the reviews posted by a bunch of strangers. Users of the music-streaming site Pandora can have the service customized based on music tastes pulled from their Facebook profile page. They can share stations with friends and have data flow back to update the music preferences listed in their Facebook profile pages. Visit CNN and the site can pull together a list of stories recommended by friends (Valentino-DeVries, 2010). Think about how this strengthens the social graph. While items in the news feed might quickly scroll away and disappear, that data can now be pulled up within a Web site, providing insight from friends when and where you\u2019re likely to want it most.<\/p>\r\n

    Taken together, these features enlist Web sites to serve as vassal states in the Facebook empire. Each of these ties makes Facebook membership more valuable by enhancing network effects, strengthening switching costs, and creating larger sets of highly personalized data to leverage.<\/p>\r\n\r\n

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    Facebook: The Bank of the Web?<\/h4>\r\n

    Those with an eye for business disruption are watching the evolution of Facebook Credits. Credits can be used to pay for items, such as weapons in video games or virtual gifts. Facebook shares credits revenue with application developers but takes 30 percent off the top for acting as banker and transaction clearing house.<\/p>\r\n

    There are real bucks to be made from digital make-believe. Analysts estimate that in 2009, virtual goods racked up $1 billion in U.S. transactions and $5 billion worldwide (Womack & Valerio, 2010; Miller & Stone, 2009). Facebook currently isn\u2019t much of a player in virtual goods, but that may change. Many expect Credits use to grow into a thriving standard. Users are far more likely to trust Facebook with their credit card than a little-known app developer. There are also an increasing number of ways to pay for Credits. Facebook\u2019s App2Credits effort lets firms offer Credits in ways that don\u2019t involve a credit card, including getting Credits as part of a card loyalty program, converting unwanted real-world gift cards into Facebook Credits, or earning Credits for shopping or performing other online tasks (Kincaid, 2010).<\/p>\r\n

    Credits were rolled out supporting fifteen international currencies and multiple credit cards. Transaction support is provided through a partnership with PayPal, and a deal with mobile payments start-up Zong allows users to bill credits to their phone (McCarthy, 2010).<\/p>\r\n

    All this banking activity leaves some wondering if Facebook might not have grander ambitions. The Financial Times<\/em> has referred to Facebook as being on the path to becoming \u201cThe Bank of the Web\u201d (Nuttall, 2010). Could Facebook morph into an actual real-currency bank? A site that knows how to reach your friends might offer an easy way to, say, settle a dinner tab or hound buddies for their Final Four pool money. This might also be a solid base for even deeper banking links between users and all those firms Facebook has begun to leverage in deeper data-sharing partnerships. This may be something to think about, or perhaps, to bank on!<\/p>\r\n\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

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    More Privacy Controversy<\/h2>\r\n

    The decision to launch these new features as \u201copt-out\u201d instead of \u201copt-in\u201d immediately drew the concern of lawmakers. Given the Beacon debacle, the TOS controversy, and Google\u2019s problems with Buzz (see Chapter 14 \u201cGoogle: Search, Online Advertising, and Beyond\u201d<\/a>), you\u2019d think Facebook would have known better. But within a week of Beacon\u2019s launch, four U.S. senators contacted the firm, asking why it was so difficult to opt out of the information-sharing platform (Lardinois, 2010). Amid a crush of negative publicity, the firm was forced to quickly roll out simplified privacy management controls.<\/p>\r\n

    Facebook\u2019s struggles show the tension faced by any firm that wants to collect data to improve the user experience (and hopefully make money along the way). Opt-out guarantees the largest possible audience and that\u2019s key to realizing the benefits of network effects, data, and scale. Making efforts opt-in creates the very real risk that not enough users will sign up and that the reach and impact of these kinds of initiatives will be limited (Lardinois, 2010). Fast Company<\/em> calls this the paradox of privacy<\/em>, saying, \u201cWe want some semblance of control over our personal data, even if we likely can\u2019t be bothered to manage it\u201d (Manjoo, 2010). Evidence suggests that most people are accepting some degree of data sharing as long as they know that they can easily turn it off if they want to. For example, when Google rolled out ads that tracked users across the network of Web sites running Google ads, the service also provided a link in each ad where users could visit an \u201cad preferences manager\u201d to learn how they were being profiled, to change settings, and to opt out (see Chapter 14 \u201cGoogle: Search, Online Advertising, and Beyond\u201d<\/a>). It turns out only one in fifteen visitors to the ad preferences manager ended up opting out completely (Manjoo, 2010). Managers seeking to leverage data should learn from the examples of Facebook and Google and be certain to offer clear controls that empower user choice.<\/p>\r\n\r\n<\/div>\r\n

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    Free Riders and Security Concerns<\/h2>\r\n

    Facebook also allows third-party developers to create all sorts of apps to access Facebook data. Facebook feeds are now streaming through devices that include Samsung, Vizio, and Sony televisions; Xbox 360 and Wii game consoles; Verizon\u2019s FiOS pay television service; and the Amazon Kindle. While Facebook might never have the time or resources to create apps that put its service on every gadget on the market, they don\u2019t need to. Developers using Facebook\u2019s access tools will gladly pick up the slack.<\/p>\r\n

    But there are major challenges with a more open approach, most notably a weakening of strategic assets, revenue sharing, and security. First, let\u2019s discuss weakened assets. Mark Zuckerberg\u2019s geeks have worked hard to make their site the top choice for most of the world\u2019s social networkers and social network application developers. Right now, everyone goes to Facebook because everyone else is on Facebook. But as Facebook opens up access to users and content, it risks supporting efforts that undermine the firm\u2019s two most compelling sources of competitive advantage: network effects and switching costs. Any effort that makes it easier to pack up your \u201csocial self\u201d and move it elsewhere risks undermining vital competitive resources advantages (it still remains more difficult to export contacts, e-mails, photos, and video from Facebook than it does from sites supporting OpenSocial, a rival platform backed by Google and supported by many of Facebook\u2019s competitors) (Vogelstein, 2009). This situation also puts more pressure on Facebook to behave. Lower those switching costs at a time when users are disgusted with firm behavior, and it\u2019s not inconceivable that a sizable chunk of the population could bolt for a new rival (to Facebook\u2019s credit, the site also reached out to prior critics like MoveOn.org, showing Facebook\u2019s data-sharing features and soliciting input months before their official release).<\/p>\r\n

    Along with asset weakening comes the issue of revenue sharing. As mentioned earlier, hosting content (especially photos and rich media) is a very expensive proposition. What incentive does a site have to store data if it will just be sent to a third-party site that will run ads around this content and not share the take? Too much data portability presents a free rider problem<\/a><\/span> where firms mooch off Facebook\u2019s infrastructure without offering much in return. Consider services like TweetDeck. The free application allows users to access their Facebook feeds and post status updates\u2014alongside Twitter updates and more\u2014all from one interface. Cool for the user, but bad for Facebook, since each TweetDeck use means Facebook users are \u201coff-site,\u201d not looking at ads, and hence not helping Zuckerberg & Co. earn revenue. It\u2019s as if the site has encouraged the equivalent of an ad blocker, yet Facebook\u2019s openness lets this happen!<\/p>\r\n

    Finally, consider security. Allowing data streams that contain potentially private posts and photographs to squirt across the Internet and land where you want them raises all sorts of concerns. What\u2019s to say an errant line of code doesn\u2019t provide a back door to your address book or friends list? To your messaging account? To let others see photos you\u2019d hoped to only share with family? Security breaches can occur on any site, but once the data is allowed to flow freely, every site with access is, for hackers, the equivalent of a potential door to open or a window to crawl through.<\/p>\r\n\r\n

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    Social Networking Goes Global<\/h4>\r\n

    Facebook will eventually see stellar growth start to slow as the law of large numbers sets in. The shift from growth business to mature one can be painful, and for online firms it can occur relatively quickly. That doesn\u2019t mean these firms will become unprofitable, but to sustain growth (particularly important for keeping up the stock price of a publicly traded company), firms often look to expand abroad.<\/p>\r\n

    Facebook\u2019s crowdsourcing<\/a><\/span>localization<\/a><\/span> effort, where users were asked to look at Facebook phrases and offer translation suggestions for their local language (see Chapter 7 \u201cPeer Production, Social Media, and Web 2.0\u201d<\/a>), helped the firm rapidly deploy versions in dozens of markets, blasting the firm past MySpace in global reach. But network effects are both quick and powerful, and late market entry can doom a business reliant on the positive feedback loop of a growing user base.<\/p>\r\n

    And global competition is out there. Worldwide, Facebook wannabes include \u201cStudiverzeichnis\u201d (German for \u201cstudent index\u201d); Vkontakte (\u201cin contact\u201d), Russia\u2019s most popular social networking site; and Renren (formerly Xiaonei), which is said to have registered 90 percent of China\u2019s college students.<\/p>\r\n

    China is proving a particularly difficult market for foreign Internet firms. Google, eBay, Yahoo! and MySpace have all struggled there (at one point, Rupert Murdoch even sent his wife, Wendi Deng Murdoch, to head up the MySpace China effort). And don\u2019t be surprised to see some of these well-capitalized overseas innovators making a move on U.S. markets too.<\/p>\r\n

    While global growth can seem like a good thing, acquiring global users isn\u2019t the same as making money from them. Free sites with large amounts of users from developing nations face real cost\/revenue challenges. As the New York Times<\/em> points out, there are 1.6 billion Internet users worldwide, but fewer than half of them have disposable incomes high enough to interest major advertisers (Stone & Helft, 2009). Worse still, telecommunications costs in these markets are also often higher, too. Bandwidth costs and dim revenue options caused video site Veoh to block access coming from Africa, Eastern Europe, Latin America, and some parts of Asia. MySpace already offers a stripped-down Lite option as its default in India. And execs at YouTube and Facebook haven\u2019t ruled out lowering the quality of streaming media, file size, or other options, discriminating by region or even by user.<\/p>\r\n

    Making money in the face of this so-called \u201cInternational Paradox\u201d requires an awareness of \u201cfast and cheap\u201d tech trends highlighted in Chapter 5 \u201cMoore\u2019s Law: Fast, Cheap Computing and What It Means for the Manager\u201d<\/a>, as well as an ability to make accurate predictions regarding regional macroeconomic trends. Ignore a market that\u2019s unprofitable today and a rival could swoop in and establish network effects and other assets that are unbeatable tomorrow. But move too early and losses could drag you down.<\/p>\r\n\r\n<\/div>\r\n \r\n\r\n<\/div>\r\n

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    Key Takeaways<\/span><\/p>\r\n\r\n<\/header>\r\n

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