Beyond the IPO: Ten Implications of a Public Facebook

By Susan Etlinger, Charlene Li and Rebecca Lieb

The run-up to Facebook’s IPO reminds me a bit of a wedding: everyone’s attention is on the big day (expected to be Friday May 18), without much regard for the weeks, months and years afterward. Charlene Li, Rebecca Lieb, and I sat down to discuss some of the implications of a newly public Facebook: on shareholders, business and Facebook itself. — SE  (Cross-posted from altimetergroup.com.)

Whether or not Facebook’s IPO ends up being one of the world’s largest (this Washington Post article places it 6th, between AT&T Wireless and Kraft Foods), it will certainly earn a respectable position in the history of the public markets, a lofty spot for an eight-year-old company in a relatively unproven business.

We identified ten areas where we are watching Facebook closely, as an indication of its success in the future.  We picked these topics because they intrigue us, because they provoke discussion and, ultimately, because we believe they are the issues most central to Facebook’s future.

#1. Leadership

 In a media frenzy in which anything (such as, for example, wearing a hoodie on a road show) can spark a news cycle, it’s to be expected that Mark Zuckerberg would have kept the lowest possible profile during Facebook’s quiet period. But now during the roadshow, on the first day of trading, and afterwards, he’ll need to step out, step up and set the tone for how he will lead this company into its next major phase. Can he pull it off?

The decision Zuckerberg must make, as a CEO who’s famous for his a “go away; we’re working on it” attitude, is whether he will use this milestone as an opportunity to cultivate his newest constituency: investors. As CEO, Zuckerberg needs to be accountable to his shareholders–not to a stock price per se, but to their faith in him. We will start to see clues to this decision during the first earnings call (a trial by fire for any CEO of any newly public company).

Of course, it’s all fun and games until there is a major hit to the stock price.  We know, generally speaking, what the triggers will be: a new, poorly received product, a privacy issue, slowing user growth–the registration statement is full of examples.  When this happens, Zuckerberg will have to demonstrate a completely new level of leadership. He’s chosen his executive team wisely in that both COO Sheryl Sandberg and CFO David Ebersman are strong, respected executives who have been through this process before. And, despite his youth, Zuckerberg has learned from previous missteps like member revolts, privacy, and Beacon.  If you still wonder if Zuckerberg is ready for prime time, imagine how you’d react if a major, highly unflattering motion picture had been made about you while you were still in your twenties. The issue isn’t if he can avoid controversy, but how well he can quell the concerns of skittish investors.

#2. Innovation

 Facebook has a hacker culture; its development mantra, “done is better than perfect,” is at the root of both its growth and its biggest failures. Given the massive number of monthly active users (901 million according to the latest released numbers) the strategy has been to release product to the market and learn as it goes.

But as a public company, Facebook will need to choose whether it will continue to release products the way it has in the past or take a more cautious approach.  How will it behave when it’s not just the pundits on Twitter, but the shareholders who react?

Although they’d hate the comparison, there’s a strong role model in Google, which, even as a public company has managed to maintain its agile development strategy. Granted, there’s always the risk of a Buzz (Google) or Beacon (Facebook), but Facebook has demonstrated considerably more focus from the start than Google.  Furthermore, the company sent a strong signal in its last quarterly statement that it will continue to make investments for long-term growth, even at the cost of short-term profits. It’s setting expectations that it’s investing for the future, not just for the quarter.

#3. Brands

 Will brands buy what Facebook’s selling? Facebook is, after all, a media company, and while it has other sources of income through partnerships, brand dollars are what will ultimately make not only the IPO, but the company itself, succeed or fail. With close to a billion users, Facebook is the biggest media company that’s ever existed, in any medium, ever. Advertisers go where the eyeballs are, which is Facebook’s undisputed advantage. After that, it gets a bit trickier.

Facebook is at the vanguard of developing products that merge and conflate advertising and marketing, that blend content, conversation, paid, earned and owned media with media buys. Advertising is media buying, but those other aspects: owned media (premium brand pages) and earned media (the conversations and comments and interactions brands have with their fans, users and yes, detractors) are part and parcel of what Facebook is working to monetize. It’s still experimental. Brands are still testing the waters and are far from establishing best practices or firm models in a “brand” new environment.

#4. Data

Facebook is also in a position, thanks to its staggering user base, to possess and be able to leverage data on a scale we’ve never before seen. Likes, affinities, social graphs, recent behaviors – it’s all there, together with the basic demographic information. Again, the ability to package, parse, productize, make understandable and actionable this vast quantity of data is as formidable a challenge for Facebook as it will be for the media agencies who buy against these very new models. Facebook’s potential as a marketing data juggernaut is very real, and can potentially take advertising to new levels, if the company succeeds in making that data useful.

#5. Mobile

 Most of the coverage around mobile has been focused on Facebook’s “lousy” mobile applications. But we believe this is a red herring – the core issue revolves around the slow development of mobile advertising and marketing. The S-1 says it best in the section on risks related to advertising:

§  “…increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content…”

But with 85% of revenue coming from advertising as of the end of 2011, the more effective Facebook is at appealing to its mobile users, the more it risks shifting revenues from the Web platform where it can monetize users, to the mobile one where it can’t — at least not immediately.  So the real question becomes how Facebook will balance creating mobile user value against driving shareholder value.

Facebook can’t risk waiting too long before moving aggressively into the mobile space, but also needs to buy time to help mobile advertising develop. Given this significant risk, the purchase of Instagram represents $1B of earnest money that Facebook is focused on the long term.  With the war chest Facebook will have accumulated post-IPO, building a great iPad app and upgrading the smartphone experience is a foregone conclusion. The bigger issue to watch is how well Facebook can develop the mobile advertising market with that experience, in a similar way that it created social media marketing.

#6. Investors

 The first earning call is always rough for a first time CEO, and Facebook will likely not be any exception. But what we are watching closely is if Facebook will develop a different kind of relationship with its shareholders. The company is, at its essence, about sharing: will a newly public Facebook use its own platform to share more information with investors?  Facebook has an unprecedented opportunity to change the way that it handles investor relations. Will it take this opportunity, or will it stick with the tried and true?  We’d love to see Facebook use its own platform as a way to engage with and provide greater transparency to its newest stakeholders: the public markets.

#7. Mergers & Acquisitions

 Thanks to Instagram, every venture-backed start-up has dreams of meeting with Facebook’s M&A team. Will Facebook focus on smaller acquisitions to acquire talent or smart ideas, or will it make major deals to really move the ball forward?

One of the more interesting areas of speculation lately is what would happen if Facebook were to buy Bing from Microsoft. With Google arguably its most formidable competitor, the addition of search would give Facebook advertisers a direct response medium they could not get before on Facebook. Google is, at its essence, a search company that has struggled with social. Facebook is a social company that needs search. A Bing acquisition would up the ante in a significant way between Facebook and Google.

Looks good on paper, but acquiring Bing would also be a huge distraction and a departure from Facebook and Zuckerberg’s legendary ability to focus on social sharing. A more likely scenario is that Facebook and Microsoft continue their long-term strategic partnership, integrating Bing deeply into the Facebook search experience.

Regardless of whether it buys Bing or another organization, few companies do the “merger” part of M&A well. We expect that Facebook will focus on smaller acquisitions that it can absorb and leverage quickly, while any large acquisitions like Instagram will be kept running separately, in much the way that Google ran YouTube as a separate entity for years. Again, a focus on the long term gives Facebook the ability to look at M&A in a very different way than traditional companies who much justify every single penny spent on a company.

#8. Culture

 Facebook is a private company in many respects (one of which is about to change dramatically), but the internal culture has always been very open. It has invested heavily to create this open culture, and it has slowly but surely been reducing the amount of information shared internally in the run-up to the IPO.

This will only increase, as the company will now be beholden to even more securities industry regulations intended to protect investors from selective disclosure. So again the balancing act, this time between employees (and openness) and shareholders (and fiduciary responsibility). Which leads us to…

#9. Talent

 Once it goes public, how will Facebook retain talent, especially top talent?  Expect to see the usual exodus as people wait to vest, then cash out (the Bay Area housing market is already bracing for impact).  But, again like Google, Facebook will retain its cachet for some time to come, and some will be motivated by the opportunity to change the world from within Facebook rather than from without. Where else can you find a platform of 900M people to try out your next great idea?

#10. Privacy

 Zuckerberg has said that increased sharing is core to Facebook’s growth. But with greater sharing also come increased pressures on and threats to user privacy.

Over the past eight years, Facebook has mastered the art of trial and error when it comes to privacy. There have been huge missteps (Beacon), significant improvements (to privacy settings) and escalating tensions as the company has continually pushed its users to share more, and more often, frequently beyond their comfort zones. The company has accumulated a great deal of resilience along the way, and has tried to balance giving people a granular degree of control (at the risk of confusing them) with offering a simplified experience (at the risk of alienating them).

The addition of Timeline, and the emergence of “passive sharing,” raise the bar yet again. A few months ago I installed the Washington Post Social Reader on my Timeline. Now I know that it involves social sharing, but one day when I was in need of a little “mental floss,” I clicked on a story about Snooki’s recent weight loss. I didn’t think anything of it until a bunch of friends and work colleagues started teasing me. There it was, along with comments: “Susan Etlinger read an article: “Snooki Finally Reaches Goal Weight of 98 Pounds – But Has She Gone Too Far?” I was, frankly, mortified. I’d forgotten I was “in public,” and I am someone who is supposed to know better.

Wherever your stance on Facebook’s privacy record, privacy will continue to be a litmus test issue for Facebook. User outrage is one thing; shareholder outrage is quite another. We will watch to see how Facebook balances continued innovation against privacy. Where will Facebook stand when and if privacy issues affect the stock price — will they pull back or forge ahead?

As always, we’d love your thoughts on these issues. What are you watching as Facebook heads into its IPO?

 

 

Facebook Timeline reveals the future of sharing

Leading up to Facebook’s f8 conference today, my biggest concern about the rumored new “Read. Watched. Listened” buttons was that Facebook was becoming more and more superficial in its interactions. This was especially the case when compared to the deep interactions and engagements found on Google+ (which suffers from the problem of not having nearly enough people on it to sustain those deep conversations, but that’s another post).

But Timeline beautifully solves this problem in two ways. First, Facebook automates the sharing of everyday, miniscule activities that most of us would never bother to expose. But because ALL of it shared as a feed, the whole becomes available and accessible, and thus interesting.  You don’t care that I listened to Billy Joel just now, but you may find it interesting that I listen to him any chance that I get.

Second, the items in the feed are seen in two ways, in the Tickler blended in with all of the rest of debris of our lives, and in Timeline where it’s laid out against the context of time.

It’s this second aspect of the announcements that I find so fascinating, that we now have the context of time to add to our sharing. To understand this evolution and put it in perspective, let’s take a quick look at the history of sharing within social networks. I have long contended that there are three things that make social networks unique: your Profile, your Relationships, and your Activities (see figure below).

SharingFutureOver the past few years, each of these components have evolved. When we first began on our online social journeys, who could have thought that we would be sharing photos of what they were having for dinner online? Yet people frequently not only check into restaurants but also post photos what they are eating, as well as who they are having dinner with.  Our notions of privacy and what we will share change with the perceived value of that sharing. We benefit from the people who have shared before us (you ordered the dish because of a review). We like reading about our friends culinary adventures, and so we reciprocate. The cycle continues to evolve as we expand the things we are comfortable sharing.

And the driving force of this evolution has been Facebook. More than any other company, Facebook has pushed the boundaries of what we will share and how share it. News Feed was met with derision and boycotts but in the end, people found it too valuable. Beacon in 2007 was pulled because it pushed the envelop too far, but that was also instructive to Facebook as they learned how far and how quickly they could push the limits of sharing. 

Now Timeline and auto-feeding of your activities is pushing the edge again. Understandably, people are uneasy about EVERYTHING in their lives being shared on Facebook. It feels like too much power being bestowed on one company. To ally concerns, Facebook is starting in safe territory. This first phase enables media content, which is rarely embarrassing, as long as you don’t stray into X-rated categories. The discovery benefits of seeing what my friends read, watch, and listen to are also evident – I want to find my fellow Billy Joel fans amongst my friends.

But how far will this go? Here are some future scenarios and applications that could take advantage of an activity auto-feed:

  • Location-based activities. I hate checking in, because it interrupts the flow of my activity at a location. Instead, I would give permission to be “auto-checked in” to a location. These are the places like my favorite restaurant that I patronize on a regular basis and would be proud to be associated with, especially if I can drive more business to them. So I’d willingly give permission to share that information. This goes beyond Like and moves into Love territory.
  • Interest-based purchases. There are specialty retailers that I frequent that are fairly “safe” where I would share detailed purchase information. Pottery Barn for housewares. Wine.come for new wines. Zappos for shoes. And I would benefit from discovering what else people with similar tastes also bought. But there are some retailers where it’s just doesn’t make sense, for example a drugstore or Victoria’s Secret.
  • Communication trends. As I previously discussed in a post about Google+, one of the key things Facebook is missing is who I email, text, call, and meet with on a regular basis. All of that information stored in my mobile phone is currently inaccessible and off limits to any application. But what if I could give permission to auto-stream that data so that I could make sense of it, to find the trends and highlights that make it relevant and useful to me?

How far are we willing to share our information and activities? Look no further than to our real lives because we do it all the time. Our credit card transactions are captured and resold to direct marketers. Our Caller IDs – which used to be private – are shared. Caller IDs in fact are a great example of how our notions of privacy get flipped upside down by utility. When Caller ID first came out, many people regarded it as a violation of privacy and were uneasy with the notion that people could see who was calling them. Today, what happens when you get the message, “Blocked ID” on your phone? You don’t answer it! That flip in privacy took about eight years to happen.

But Facebook doesn’t have the luxury of years to change our mindsets around privacy – it has weeks. It has put in place numerous controls to be able to manage the permissions around Timeline feeds, from what is included to who can see it. In the end though, what Facebook is investing in is Trust. Pew Internet recently released a report that showed that Facebook users are far more trusting that the rest of the Internet. “A Facebook user who uses the site multiple times per day is 43% more likely than other Internet users and more than three times as likely as non-Internet users to feel that most people can be trusted.”

Facebook is counting that this remains true, and that sharing will continue to expand at the rate it needs to in order to fulfill this vision.

Facebook’s New Profile Page: Good For People (And Yes, Advertisers Too)

Facebook announced the new profile page, updating how member profiles are shown. I was pre-briefed last week by Peter Deng, the product manager in charge of the project, about the changes.

In a nutshell, the profiles are getting a new look with a few new features that will not only make them more functional to read, but also easy to update. I’ll detail those in a minute, but some perspective first. Why the big deal?

First, anytime Facebook makes changes to the interface, there is usually a huge outcry. Expect nothing less this time, especially because this is a person’s expression of themselves on Facebook. Learning from past experiences, Facebook is not pushing this out automatically to people, but instead allowing people to opt-in (you can try it out on the new Facebook Profile “About” page. You can see my new profile too.)

Second, the freshness of profiles is vital not only to the experience, but also to Facebook’s business model. Facebook has innovated a great deal to add new things associated with a person, such as the Pages of which they are a fan or recent “Likes” they have indicated. But the profile page remained an island, infrequently touched, infrequently updated.

And that’s a problem when the advertising that Facebook offers is keyed off the explicit information included in a person’s profile. Advertisers can target off that information but if you’re like me, you seldom look at or update the Info tab on your Facebook profile page.

So Facebook has an incentive to encourage people to not only update their profile pages, but to also make it much more reflective of their interests and relationships, making it a real reflection of the people and things that are important to them. And in so doing, people are providing valuable meta data to Facebook and its advertisers. Deng took care to emphasize that a person’s privacy settings are unchanged with this update – so if they do not want their information to be publicly available, it will not appear thus.

So on to the three key features that I believe are going to make profiles more functional, updated, and thus, valuable to Facebook in the end.

Profile Summary

A synopsis of each person will appear at the top of the new profile page. It includes typical “conversation starters” that get people talking – things like where you work, who you’re married to, where you went to school, etc. In addition, the latest photos posted by the person will also appear – again, complying with existing privacy settings so you only see photos that you have permission to see. In the past, these photos were hidden behind a link on the profile page, so now they are made visible, typically “above the fold”.

Featured Friends

This is one of the most interesting and in my mind, controversial new features. Each person will be able to designate a small number of people to feature as friends. This isn’t necessarily a “top friends” feature, but one where you can specify special relationships, such as family, colleagues, or if you’re a believe that you are defined by who your friends are, celebrity friends.

This introduces a whole new social dynamic into Facebook. Why did you pick Friend A and not Friend B to be featured? What does it mean when you remove someone – did something happen?

But this area also adds greater nuance to friends and relationships within Facebook. Currently, the only designation of a different weight to friends is in the “relationship” field, where you can show that you are in a relationship with one other person. But now I can have a group called “Family” or “College” or “Work” or “Girlfriends” to designate not only the importance of a relationship but also the nature of that relationship.

This becomes valuable meta data to understand who is important in my life – and hence, how influential someone is, or how influential I might be to someone. And a person who is featured on many profiles can be seen as far more influential and thus earn a higher “friend rank” weight than someone who is featured less frequently. Again, this is all valuable information — if not actively used today, then potentially in the future.

Interface Changes

There are several interface changes that will feel disruptive at first, mostly because the information you normally would find in one place are either gone or moved to another place. Case in point: the tabs that appeared at the top of the page are now links on the left hand side.

But I believe those types of navigational changes will be quickly and easily accepted. There will be a backlash at first, but the fact that Facebook is not forcing the changes on to people means that adoption will come because people are seeing the changes on other people’s profiles first.

One of the biggest pull to shift people to the new profiles will be the richness available in the Work profiles and interests. Anything associated with your workplace, such as updates by colleagues, chats, Likes, will appear. Again, you can opt out of having these features show up in your profile, but it will have to be a setting that you control.

In addition, images will usually accompany your stated interests, making it much more visually appealing to browse. For example, my favorite artists, movies, and books will all have images associated with them.

But by far the most valuable and entrancing feature to be added is the Infinite Scroll. Rather than have to click on a link to see “more” photos, friends, and wall posts, I’ll be able to just keep scrolling down and down – and the page will automatically load more information.

Overall, an update to the profile page is long overdue and I personally like a lot of the new features — and this is coming from someone who detests having to update my page. I have basically left it the same since I joined Facebook years ago…until today. What remains to be seen is if by making it more visible, accessible, and feature oriented if I will be motivated to update it as often. I do expect there to be significant push back from Facebook members, both because of the interface changes as well as the new social dynamics that will need to be gotten used to. And of course, privacy will always remain a valid and pressing concern.

But Facebook remains committed to relentless change, something that I greatly admire. But there’s a greater sense of maturity in how it pushes through the changes as well, an acknowledgement and maturing of the organization as it takes into account the fact that rapid changes and advances aren’t always appreciated by the now-mainstream audience that’s on Facebook.

Facebook Messages challenges traditional email & portals

Facebook today announced its revamped Facebook Messages. But this is far more than than launching facebook.com emails or building a “Gmail killer”. After all, running a real email platform is fraught with security and spam risks.

What Facebook realized was that the world didn’t need another email platform but a better, more simple way to stay connected with the people who count the most in our lives – our friends. So Facebook boils messages down to just two things: friends and their messages. There is a simple idea behind this approach to communications:

Friends define priority.

There are three ways this vision is achieved by Facebook Messages:

1) Seamless messaging with messaging interoperability. The big news on the surface is that people will have an email address, me@facebook.com based on their registered Facebook username. In addition, users will finally be able to send emails to people outside of Facebook as messages will be fully interoperable with any email system. Even IMAP will be supported (eventually) so you can see your Facebook messages in your favorite client.

Just as important is what Facebook Messages does not do. It won’t be a replacement for regular email because many typical features – like cc’ing and bcc’ing – are missing. That’s because friend communications don’t typically require that. Attachments are taken care of in the form of links, photos, video attachments. Again, Facebook simplified the communications platform, including the fewest number of features needed to stay in touch with friends.

It’s basically chat with email interoperability added in.

But the biggest feature for me will be the early integration of chat, text, and email messages from anyone into one place.  I can already use Facebook Chat with people outside of Facebook as it’s interoperable with major platforms like Jabber and AIM. But now if a friend sends me a message and I’m signed into Facebook, the system will deliver it as a chat as it recognizes we can talk in real time. Ditto with text messages from friends – by linking my Facebook account to my mobile number I already get messages from Facebook friends.

Messages from my friends will thus begin to be centralized into one place, no matter where they originate. My friends and I won’t have to know or worry about where we each are – Facebook will figure it out. I’ll finally be able to say good-bye to that mental look-up table that I use to figure out the best way to reach someone.

So I can start having a chat with a friend but if they go offline, my message will still be captured in the inbox. Companies like Cisco and Microsoft for companies typically provide this approach to “unified communications”. Today, Google comes close to doing this for me with email, Chat, and Google Voice. Note that the exception to Facebook is voice communications, which I expect will be the next phase of innovation.

2) Friend-based conversations and archives. One outcome of unified communications is that I can now see all of the conversations I’ve had with a friend in one place. This is similar to the conversation threading that was a key differentiator for Gmail – except now I can see the entire history of messages I’ve had with a friend. This reflects the most common type of search I do on Gmail today – by a person’s name.

3) A real social inbox with friends as the filter. Facebook believes that messages from your friends should get priority treatment – and not appear between Amazon order confirmations and Groupon offers. In the new Facebook Inbox, there will be two folders – conversations with Friends and Other for everything else. The Other folder contains all bulk emails from companies, fan pages, notifications, etc. Gmail’s Priority Inbox has a similar approach, but it uses complex algorithms to figure what’s priority.

Facebook uses just one – that the messages are from Facebook friends. I expect that there will be refinements to this in the future, such as the ability to have separate folders for different lists of friends, but for now, it’s introducing this new metaphor in a simple, powerful way.

Implications of Facebook Messages

There are four major implications I anticipate will happen because of Facebook Messages.

- Migration away from traditional email starts a new portal war. It’s already a trend – communications is diversifying away from email, supplemented by chat, text, Skype, Twitter, Yammer, Chatter, and of course, Facebook. In effect, email is being nibbled into lower usage. Users who already center their communications on Facebook will migrate even more of their communications to Facebook. They won’t give up their Gmail, Yahoo, and AOL accounts, but they rely on them less and less as messaging shifts.

So today’s numbers look like this: 350 million active Facebook Messages users (not everyone on Facebook uses Messages. That’s compared to 363 million Hotmail users, 303 million Yahoo Mail users, and 171 million Gmail users.

The impact is significant. As one of the “front doors” for traditional portals, email is a mainstay as a starting point and locks in many users reluctant to change. It’s estimated that 45% of AOL’s network traffic comes from AOL Mail (AOL just announced an update).

My colleague, Jeremiah Owyang has written about the potential for email providers to become instant social networks (here and here). But attempts to make email inboxes social will face significant challenges. The problem is an email address and messages don’t denote a relationship or priority — even with an understanding of the people you email the most frequently. Without that social data, the billions of social connections lack context.

But more importantly, without the context of the social interactions that take place very day on Facebook chat, and other platforms, email alone simply falls short. The current spat between Google and Facebook over email address portability is just the beginning of this new portal war. But the war isn’t going to be just over the raw social data. Rather, it’s going to be a rush to see who can capture more of the overall consumer communications and that requires that they be more open in the infrastructure to integrate with other platforms.

Data, Advertising, and Privacy

By offering unified communications in one place, Facebook provides an elegant way to consolidate everything in one place. That also means that Facebook ends up being the beneficiary of capturing all of those interactions. The irony is that the ability of Facebook Messages to integrate and unify the messages means that it will also track everything that people share with each other.

Facebook already very effectively mines profile data to better place ads, but limits the data used to what the user already enters on their profiles. In the future, Facebook could (and I emphasize could) understand when people are asking for advice, and if they acted on it and thus mapping influence. While Facebook has not plans to do this in the future, privacy advocates are standing at the ready to understand how that data will be used.

The Importance of Good Friend Management

The underlying assumption to Facebook Messages is that you have a real relationship with your Friends. I expect that Facebook will keep refining how messages are prioritized within the Friends inbox (for example with Friend Lists, recency of interactions), but it highlights the importance of being someone’s friend in the first place

For example, if you want to gain access to a key person, becoming their friend now has tremendous value as it gets priority treatment. Anyone can send an email to charleneli@facebook.com, but it won’t reach my prioritized inbox unless you’re my friend.

But the opposite issue also arises. I may want to elevate and demote existing relationships to have higher/lower priority. Andrew Bosworth, the director of engineering on the project, explained that Facebook assumes that the friendships are “meaningful” and thus messages from them deserve to be elevated to this level. But in many ways, this goes against the appeal of Facebook for many people, which is to create casual connections with people they went to school with or worked with in the past.

At some point, I expect that Facebook will allow us to more accurately map out relationships in their many dimensions, behind the cumbersome friend lists that exist today. They will tap their excellent “friend algorithm”

Facebook Redefined

For me, today represents the day when Facebook truly becomes a portal on the level of Google, Yahoo, Microsoft, AOL. It’s escaped the bounds of being just another social network and is creating a nexus for lasting relationships. By centering communications on friends – rather than features and a simple email address – Facebook is creating a special kind of lock-in unavailable to other portals, your friends.

Social Search Propels Bing, Will Hurt Google

by Charlene Li

Microsoft’s Bing.com search unit announced today that it is integrating Facebook’s social graph information into some parts of its search results. This is the long-awaited “social search” that I’ve been talking about and waiting for for years.  I was briefed by Adam Sohn from Bing.com this morning. [Update: Danny Sullivan has an excellent deep dive into the new offerings from Bing, as well as implications for SEO and Google.]

Search algorithms have used different types of “signals” like location to figure out what it is that the person is trying find or do. By integrating Facebook’s social graph and the “like” data generated by Facebook members, Bing is adding social signals to its algorithms.

In a nutshell, Bing announced two new features that take advantage of this new social signal: Liked Results and Profile Search.

Liked Results

When you are signed in to Facebook (more on what exactly that is later) and do a search on Bing, you have the option of seeing search results that take into account what your Facebook friends have “liked.” For example, if I’m searching for “restaurant Napa Valley”, I’ll see the 10 blue links that Bing’s search algorithm normally delivers. But I’ll also have the ability to see results that have been “liked” by my friends as well that also match the query.

It’s a way to highlight search results that your friends have liked. The fact that many of my friends are wine-drinking parents who may have dragged their kids along for a wine tasting tour means that the Liked Results are going to be just slightly more relevant to my particular situation.

Where it gets interesting is when the Liked Results don’t show up in the first page of the search engine results page (SERP). Bing then suddenly becomes much more relevant because it is personalized to you because of your social graph. Sohn explained to me that in the future, they plan to include what they call “algo annotation” that will show the signals that are being used to rank the result. For example, you’ll be able to see how many friends liked a particular link. There’s also the possibility in the future of showing not only likes, but also check-ins, photos of food and people, or reviews from friends associated with a particular restaurant in Napa.

Profile Search

About 4% of searches on Bing are name searches, amounting to about 1 billion searches a month. The problem is if you’re looking for a particular person — especially if they have a common name — it’s hard to differentiate. By tapping into your social graph, Bing looks at your friends, your friends’ friends, and your networks to return results that have greater “social proximity” to you. These search results will also appear as a separate module.

Privacy and Permissions

The key to making all of this work is that the person using Bing is logged into Facebook and thus gives permission for Bing to tap into his/her social graph and data. Bing is taking steps to make sure notifications are clear and require explicit opt-in. Over time, the notifications will cease to pop up, because the assumption is that the user will no longer want the notifications to appear after repeated acceptances.

Even if you are not logged into Facebook in another tab but have clicked on the “Keep me logged in” check box, you’re setting your cookie to sign you in for a set period of time, which is approximately two weeks right now. This usually isn’t a problem — as long as I’m the only person using the computer. But on a shared computer — like the one that’s in my kitchen — I am frequently inadvertently logged in as my husband and have done things such as accepted friends and Liked items on his account!

Now with search being impacted, I’ll have to make double sure that I’m logged in (or not) when using Bing.

Surfacing social graph information like photos and check-ins will raise even further the cries around privacy and permissions on Facebook. For someone who has set their privacy settings as completely public — and is careful about not putting up private items — this isn’t a problem. But most people are much more nuanced about this, maybe posting photos from an evening out that will now have the possibility of being taken completely out of context.

I believe that having social data in search results will lead to some inadvertent and potentially embarrassing and explosive situations, which in the end will curb people’s appetite for sharing socially. In the same way that college students realize that Facebook posts and photos will follow them into their professional careers, Facebook members will be more circumspect about posting when they see their friends’ social information showing up in general search results.

Power Shifts With Social Search

The rise of social search means that the people using it — and the companies who know how to leverage it — will have an advantage over those who don’t leverage social technologies. There are three major implications:

  1. SEO will lose relevance. Search engine optimization (SEO) — where a Web or content person tweaks a web page to get higher SERP positions — will lose effectiveness as search results become more influenced by social signals. While a company could potentially manipulate “likes” for an item or Web page, marketers can’t SEO your friends. The result: better search results for people who leverage their social graph, because the search results will include more relevant data.
  2. Socially connected people will make more money. If I have a great set of friends, I’ll be able to make better decisions because of more relevant search results. People in my network will start noticing the benefits of likes from their friends and be motivated to be more socially connected as well. It’s the classic network effect, but rather than be driven by purely social incentives, there are clear monetary ones as well — getting better deals, finding things faster, etc.
  3. Bing’s social search hits Google right between the eyes. Google has recently been making noises that it wants access to Facebook’s social graph, calling for the company to be more open. That’s because Google realizes that unless it can harness social graph data, it will be relegated to traditional algorithmic search based primarily on the information on the Web page itself and scrapping what social data it can. You can see some of Google’s early attempts at social search at http://googleblog.blogspot.com/2009/10/introducing-google-social-search-i.html.

Because Microsoft’s Bing is the privileged search provider on Facebook, it enjoys special access to the social graph and data that no one else does. That’s going to be a huge competitive advantage in a social-driven world, where users and marketers (and their search dollars) will flock to the search engine that performs.

Does it seem unlikely that Bing could unseat Google? It’s happened before. Remember that Yahoo used to be the search leader until Google came on the scene because of its new approach to search. So look for this new phase to come with significant changes.