A Friend, Is A Friend, Is Sometimes More Than A Friend...

INTRODUCTION

According to the recently filed S-1, Facebook earned $1 billion in net income for fiscal year 2011.  Facebook's revenues are driven primarily by advertising, comprising 85% of total revenues in 2011, with payments and other revenues making up the other 15%.  Notable within the payments and other revenues number, is that, assuming that the vast majority of those revenues are payments related, and assuming that ~94% of Zynga's revenues come from online gaming, then ~77% of Facebook's payments fees is driven by Zynga.  This may be the reason Zynga is mentioned twenty four times in Facebook's S-1.[1][2]

Facebook's S-1 notes that virtual goods revenues is projected to grow to $15 billion globally, while worldwide advertising was $588 billion in 2010.  Clearly, the big game, for Facebook, is in advertising.  The multibillion dollar question, though, is how is Facebook going to win their fair share of the global advertising pie?

The answer, lies, interestingly enough, in a book which Chief Executive Officer Mark Zuckerburg referenced himself as part of his letter, nested within the S-1, through his statement "Today, our society has reached another tipping point."  The Tipping Point is a best selling book by Malcolm Gladwell, and, by my estimate, is the inspiration for Mr. Zuckerburg's line.

SCM SUMMARY

Gladwell's book makes a number of insightful points, which have become a part of the modern day lexicon.  The phenomena most pertinent to Facebook, which Gladwell describes, though, are his descriptions of people "with a particular rare set of social gifts."[3]  These people are known as Salesmen, Connectors, and Mavens (SCMs).  

Salesmen are people who have a presence, charisma, and an ability to match the thousands of subconscious nonverbal clues that take occur anytime two people meet.  Gladwell gives the example of a wildly successful financial adviser, Tom Gau, who operates on the West Coast[4], and Peter Jennings, the late ABC news anchor.

Connectors are those people who love people.  They truly enjoy getting to know meet people and then are disciplined about staying in touch with those people.  Connectors bring the world together and are often responsible for introducing people from different areas of society due to "their ability to span many different worlds is a function of something intrinsic to their personality, some combination of curiosity, self-confidence, sociability, and energy."[5]  

Mavens specialize in being experts of their particular vertical field.  Mavens have an intense desire to solve others problems by solving their own problems, often starting "word-of-mouth" epidemics in the process.  "Mavens are really information brokers, sharing and trading what they know."[6]

Gladwell explains that the truly exceptional people, who have a tendency to change the world, usually have a combination of two of these three already rare skill sets.  One example Gladwell gives is Paul Revere, who was a combination Connector-Maven.  Revere was a maven from intelligence related to British military movements, as well as a connector knowing the important people in every town between his famous ride from Charlestown through Lexington.  Knowing the right people was critical to getting the message out that the British were on the move on an April night in 1775, as dozens of riders traversed throughout Middlesex County.

THE SCM RELEVANCE TO FACEBOOK

So, how does this relate to Facebook?  Well, to answer that question, one should ask, "What does Facebook have that the global advertising industry wants?"  

Or, even better, ask "What does Facebook have, that no one else on the planet has, that the global advertising industry desperately wants but may not have even realized they want?"  (In 1995 did anyone desperately want an iPod?  I mean, of course, other than Steve Jobs.)

You've almost certainly guessed the point I am getting at in this post by now, but just to clarify:  Facebook, at a deep below corporate conscious level, knows they have something special, something valuable, not just for their users, but for the entire consumer industry.  That special something, buried deep within their servers, is who, exactly, on the planet is a Salesmen, a Connector, and a Maven.  Overlaying this information with regional, financial (personal), and group(educational alumni, career history, friend circles) information, will add a "Z" axis to the traditional "social graph."

    

The social graph, therefore, is not a graph, but a collection of polyhedrons.  Each person is at the center of a wheel, connected to other people, through spokes(relationships), and each person's wheel is connected to a number of other wheels.  The people who find themselves connected to the most wheels with the strongest spokes will most likely be the world's Connectors.  

SCM SCORE

Once Facebook's analytic team has mapped out who the Salesman, Connectors, and Mavens are, these individual should be assigned a score based on these three talents.  Each of these unique individuals should then have four scores:  a score for their level of talent based on being a Salesman, Connector, or Maven, and another score based on  core competencies and then an overall score.[7]  

Creating a catchy phrase for each score might be a good idea, in order to explain the value of this system to advertising and corporate marketing executives.  A bland version of this name for the over all score could be a person's "Global Influence."  Other scores, which would be useful to advertising agencies, public relations firms, and consumer product corporations, would be scores such as "Regional Influence," "City Influence," "Campus Influence," "Team Influence," "Corporation Influence," "Industry Influence," "Party(political) Influence," "Female 30 and under Influence," to name a few examples.

How would Facebook's internal ranking be different from Klout?  First, Facebook has more data than Klout.  Klout is an opt-in service that, while has more than 100 million users, pales to Facebook's 845 million monthly active users. Facebook also has data on people, who are currently not active users.  Finally, the true value-add, and why Facebook is in the best position to execute this ambitious undertaking, is the almost $.943 billion in Free Cash Flow being generated annually.[8]  This number is expected to grow, in the near term, and will provide resources for the super computers necessary to run the algorithms to come up with a viable data set of SCMs.

Facebook has data, which, to my knowledge, likely remains untapped, but would give a glimmer of a hint of an insight into whose an SCM and who is not.  The data which I am thinking of are raw figures such as, who gets the most private Facebook messages sent to them?  How many messages are sent to them?  What is the ratio of the amount of text someone receives in Facebook messages versus the amount they send back?  Who gets poked the most?  Who gets invited to the most Facebook events and parties?  Who gets the most invites to play Facebook games?  I am sure the "wicked smart" people at team Facebook have looked at these statistics, but perhaps, now they have a new lens from which to view this data.

SCM PARAMETER:  THE RULE OF 150

Why are our brains so big?  Tracking relationships is terribly complex and, apparently, relationships are important.  Likely vital, in fact, to human survival.  It only takes one person to track a herd of wooly mammoths, but more than one person to scare a group over a cliff, or take them down with spears.[9]  The average person normally can only have meaningful relationships with is 150.  Gladwell calls this the "Rule of 150."  

First proposed by British anthropologist Robin Dunbar, he theorized that "this limit is a direct function of relative neocortex size, and that this in turn limits group size ... the limit imposed by neocortical processing capacity is simply on the number of individuals with whom a stable inter-personal relationship can be maintained."  This rule has been deployed with success in the military and companies such as W.L. Gore and Associates.[10][11][12]  

The number of spokes, therefore, that Facebook should deploy, would need to be set at a limit by Dunbar's number of 150.  This will help filter out true influencers vs. people whom a lot of people follow on.  For instance, your best friend from college, who happened to be student body president, treasurer of his fraternity, and now is Chief of Staff of Senator so-and-so is more likely to influence your buying habits than the star basketball player from your school now playing in the NBA.    

SCM DARK MATTER

The main stumbling block/value-add opportunity that Facebook will run int in this endeavor is that, due to Facebook's relative newness (having launched in 2004), is that a substantial portion of the most valuable SCMs will not have actual online social identities, unless they are executives in the technology industry.  (Think your average investment banking or consulting partner.)  A number of the people who are currently truly "moving and shaking" the world (Fortune 500 executives, government officials) have online identities managed by their investor relations team, or staff members.
  

Gaining as close to 100% user penetration for all 2 billion plus and growing internet users worldwide is imperative for this distilled SCM social polyhedron.  For these Salesman, Connector, and Mavens, or some combinations of the three, who are not on, or are not active users of Facebook (likely the >40 years age group) incentives, in the form of freebies(iPads, trips, gifts) and personalized consultants(walk them through how to create a professional, secure, online personalities) will help provide the catalyst to get over their initial aversion publicity.

Penetrating all the black spots in the photograph above (Latin America, Africa, South and East Asia) will, also, clearly be the other challenge, and is referred to in Facebook's S-1.

CONCLUSION

To recap, the advertising industry, and the companies who make real products which people consume and which drive the global economy (Procter & Gamble, Johnson & Johnson, Nike, Unilever), wants to, or should want to, create targeted campaigns to not everyone, but to those special people who drive Gladwell's "The Law Of The Few."

Does this strategy have undertones of elitism?  Perhaps.  Will the people identified by Facebook's SCM filtration be offered perks and amenities beyond the wildest dreams of those(us) without a barest modicum of influence?  Most likely.  Will us normal people still pattern our own behavior consciously or sub-consciously over these now super elite friends of ours even though we mildly resent the special attention big companies are now showering all over them?  Definitely.

But then, a friend, is a friend, is more than a friend, whether we admit it or not.   

[1]  http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm

[2]  http://www.sec.gov/Archives/edgar/data/1439404/000119312511341923/d198836ds1a.htm

[3]  Gladwell, Malcolm.  The Tipping Point:  How Little Things Can Make A Big Difference.  (Little, Brown, and  Company, March 2000)  p. 33.

[4]  West Coast of the United States

[5]  Gladwell, p. 49.  

[6]  Gladwell, p. 69. 

[7]  Facebook should utilize all information sources possible, such as University Professor web pages, LinkedIn, Twitter and traditional media sources (magazines, Forbes, Fortune, Public Relations firms) to complete the polyhedrons .  Facebook would also be well served by hiring professional talent scouts to rate potential Salesman, Connectors, and Mavens on looks, which, for better or worse, makes a difference in the influence any given individual has with other people.

[8]  I am defining Free Cash Flow as Cash Flow from Operations - Purchase of Property and Equipment.  The major cost in extracting this information from the Facebook data set will, by my estimates, be purchasing super computers, which would fall under Purchases of Property and Equipment, giving them $1.549 billion to invest, in 2011.

[9]  Note:  I have never tried any of these activities. 

[10]  Gladwell, p. 179.  

[11]  http://online.wsj.com/article/SB119518271549595364.html?mod=googlenews_wsj

[12]  Dunbar, Robin.  Grooming, Gossip, and the Evolution of Language.  (Harvard University Press, 1998).

PS:  Once the SCM Polyhedrons are in place Facebook will be able to incur a recurring, annual, multibillion dollar profit stream.  To learn more about this business development model one would have to talk to the author in person.