Wired, By Vasant Dhar, Jun 11, 2012
As the dust settles around the Facebook IPO, the important question becomes not what went wrong, but rather, how will Facebook create value to justify its lofty valuation?
Internet platform businesses can scale very rapidly because adding customers is virtually costless. While there are several possible business models for Facebook to create value, each with its potential risk and reward, I propose that Facebook create the world's first information market. This market-based model would pay Facebook users in exchange for permission to provide selective information to businesses looking to reach specific types of people.
Facebook can leverage its huge base of "sticky" users and monetize its unique and unprecedented access to the largest base of global data on human behavior. Instead of trying to coax its users into clicking on ads or to try gimmicks that risk their ire, Facebook can create an efficient market in which its users, businesses, and ultimately shareholders benefit. Facebook is in a unique position to capitalize on this disruptive idea.
Facebook has little brand loyalty or aspirational value, unlike Gucci or Apple, but leaving Facebook involves large switching costs. Even if a much better social network platform emerges, it will be costly for people to shift their entire social network seamlessly onto the new platform, which means they're not going anywhere else for the foreseeable future. This stickiness provides Facebook with options for creating relationships with its users and monetizing them. As its user base grows, Facebook's data becomes its primary asset.
Vasant Dhar a Professor, Head of the Information Systems Group, and Director for the Center for Digital Economy Research at the Stern School of Business at NYU. He has been on the NYU-Stern faculty since 1983.
Gregory PS, Editor: Selling your data is not a new idea. A startup called Personal want to help users put a price on their personal data, NYTimes, Feb 12, 2012. Another start-up with a similar idea is Singly.
See also A Stock Exchange for Your Personal Data, MIT Technology Review, May 1, 2012
What's Your Personal Data Worth?, which gives these estimates
- Your social security number is worth $240.
- your credit card info: $150
- Your demographic info: $3.0