Implications of Public User Generated Data on Public Company Investing

With the emergence of platforms such as Twitter, Blippy, Gowalla, Facebook, UStream, Flickr, TwitPic, Foursquare, Meetup, Digg, Brightkite, etc, there is now an explosion of public user generated content marking the events of one’s life. Through these lenses, we can now easily see where a person is every day and where he or she visits and spends money. We have a window into one’s stream of consciousness and a record of some of the digital content consumed. We can see one’s new friends and videos and photos. While diaries and memoires used to tell the story of a life well lived, the breadcrumbs left from these above services are now leaving digital footprints for everyone.

In previous posts, I wrote about the value of this user activity data (UAD) with regards to targeted marketing and local search, but there are a number of other implementations. For example, if a service was able to aggregate and make sense out of daily UAD for an individual, employers could use it to better screen candidates. Dates could use it to better screen their mates! A most interesting implication and one that I often think about relates to public market investing (in a past life I was a research analyst for internet stocks). Specifically, if I was able to aggregate and make sense of all of the UAD around key employees at public companies, I believe I could predict things like when a company was in the process of selling itself or working on a key business development deal.

On Wall Street, information is everything and even having just a slight edge can result in excess returns. Now imagine if UAD was able to give you significant proprietary information. I’m not sure about the legality of all of this, but since most UAD is publicly available, my guess is there is nothing wrong with leveraging it to benefit in public market investing. After all, if I can derive conclusions from the information in a company’s public filings that others can’t, it is perfectly legal for me to benefit financially from that analysis.

I’m sure there are hedge funds already doing this type of thing and I am excited to see services that aggregate UAD to create robust profiles of individuals. In the words of the immortal Gordon Gekko, “You stop sending me information, and you start getting me some”.

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How user actions in social media will change the loyalty marketing landscape

Yesterday I saw the following post on Twitter from @lavidalibre:

Just won a $25 BART card from @SFBART for checking in on @foursquare!

While the idea of idea of rewarding loyalty has always been with us, the number of places where people are now able to publicly profess their loyalty to a brand or location is exploding. And this does not have to take the form of someone gushing about a particular restaurant or pair of jeans via Facebook or Twitter or their blog, but instead can be as subtle as someone following a brand on Twitter or becoming a fan on Facebook or checking in at a store via foursquare. What to many seems like a bunch of unrelated, inane actions are likely going to become the data backbone behind some of the most influential digital media services of the next decade, in my opinion.

In my post yesterday, I wrote about how I thought this data could be aggregated and leveraged to help individuals discover new and interesting places/locations (click here if you missed it www.ow.ly/SH5k). Today, my post is focused on how all of this data might be used by marketers to more efficiently reach their most loyal customers and the potential of this data to create an entirely new digital ad network.

Let’s take a look at the Gap to see how this might work. It has 503k fans on Facebook, 18k followers on Twitter and approximately 100 people checking in via fousquare at its stores here in NYC. It also has thousands of people adding Gap products to lists on social shopping sites such Kaboodle. I think it is a pretty safe bet that all of these people are big proponents of the brand. That said, the Gap rewards these loyal customers mainly through mass blasts on Twitter and Facebook that come across very impersonally and don’t feel all that different from other couponing programs.

With the advent of social media and the explosion in the number of user generated loyalty actions (e.g. checking in, becoming a fan, adding products, etc.), I believe that tying the marketing message to the action holds significant promise. Not only can it create a scenario where businesses’ most loyal customers feel as though they are being treated special, but also it can allow these companies to reach even more people at the point of purchase. The foursquare example that I kicked off this post with is a great example of this new type of loyalty marketing.

As we head into this next decade, I believe that this type of event-based, loyalty driven advertising will become main stream. So rewarding someone for checking in on foursquare or following you on Twitter or becoming a fan on Facebook or adding a product to a social shopping site will become more prevalent. However, with the fragmentation and number of platforms where users are taking actions, I expect it to require an ad network to consolidate the market in order for this type of model to really take off. Not only would this provide much needed scale for marketers, but also there is tremendous value in tying all of the actions together. So instead of rewarding someone for simply checking in on foursquare or following you on Twitter, how about giving an even more special offer to one of your Twitter followers who just checked in via foursquare? Or how about enticing someone who added a product of yours to a social shopping site to become your fan on Facebook?

Leveraging the aggregate data and scale is where this type of marketing gets really exciting and the challenges are significant enough that I believe a single ad network or technology provider will eventually come to dominate the space.

One of the things that I’ve been spending time looking into recently is the potential of the Facebook ad platform and the implications of that in my job as an venture investor. To the former, I recently ran two campaigns on Facebook with the purpose of increasing the number of fans to the associated fan pages. Campaign 1 was for a reasonably well known Hearst brand while Campaign 2 was for an unknown business that I created just for these types of tests. Here are the aggregate results:

• Dollars spent: $148.56
• Impressions: 486,426
• Clicks: 135 clicks
• Actions (fans): 31 actions

While the average CPM of $0.31 was attractive from a branding perspective, the cost per click (CPC) of $1.10 and cost per fan (CPF) of $4.79 were much higher than I anticipated. Obviously the ad copy and type of business that I was promoting played a role. That said, it was interesting that the campaign promoting the Hearst brand performed more poorly on most metrics, including the CPC ($1.29 vs. $0.82 for campaign 2) and CPF ($6.95 vs. $2.77 for campaign 2).

Copy for campaign 2:

I strongly believe that Facebook fan pages are under leveraged by most brands (and small businesses) and I expect these pages to become even more popular with companies and users. In my opinion, Facebook will benefit most significantly if it can get these businesses to advertise on the platform to drive more users and fans to their fan pages where they can then be monetized. In many ways, this is a similar strategy to what it is being deployed by the social gaming companies (i.e. Zynga, Playdom, etc.) who have tailored their content to the Facebook platform and are spending tremendous amounts on Facebook ads to drive usage.

With better copy, offers and optimization, my guess is that I could achieve a CPC and CPF somewhere in the $0.50 and $1.00 range, respectively. Leveraging the viral characteristics of the Facebook platform, these costs would ultimately be lower as fans and visitors would promote the page to friends. At these CPC and CPF levels, I believe the Facebook ad platform becomes a viable competitor to Google. Instead of diverting dollars from search, however, I expect businesses to take money from less effective forms of advertising, including online display and traditional media.

Getting to how this test adds value to me as a venture investor, I believe that companies that can help businesses make their fan pages more viral and engaging will play a key role in the ecosystem since, by doing so, they lower the effective CPC and CPF. Companies such as Involver, Buddy Media and Wildfire are already making real money doing this and I am bullish on these types of businesses. I also think that companies that can better optimize Facebook ad campaigns present compelling investment opportunities. I have yet to find anyone doing this well and think a comparable in the search industry is Efficient Frontier.

In closing, I don’t think this type of advertising is exclusive to Facebook and expect Twitter and other social platforms to benefit in similar ways. As such, ecosystem companies that can solve businesses needs across these platforms will be the ones that build the most scalable and defensible businesses. Should multiple social ad platforms develop, efficiency players also become interesting (think Clickable but for social media advertising instead of search).

There are obviously lots of other implications as well (including new content brands specifically tailored for social media platforms-Zynga, Playdom and Playfish have already done this for gaming), but I’ll save that for another post. Thanks for reading and I’d love to hear your thoughts.