Facebook is offering two gifts to publishers/developers. One gift is data. That comes via the Open Graph. The other gift is traffic. That comes via the Like button (which replaces the Facebook Connect button).

One button comes with strings attached. The other looks like a free gift.

In the weird dynamics of competition between competing platforms, free lunches are occasionally available. But it is still important to understand why somebody is offering you a free lunch.

Read on to find out which is which.

Free Data Via The Open Graph API: Free Lunch

David Recordon is a man who knows how publishers think, as he used to work at Six Apart. Now he works at Facebook. OReilly Radar gave him a platform to tell his story about Open Graph. He clearly has a mission to spin his Facebook story, but also knows he needs to keep his credibility. He does a good job explaining how Facebook has lifted the restrictions on data and made it easier for publishers. This is the big one that matters:

“No 24-hour caching limit: Developers have found that one of the most annoying policies was only caching data from the Facebook API for twenty-four hours at a time. At Six Apart this meant that we had built infrastructure that allowed us to comply with this restriction in a way that wouldn’t impact site performance. Today developers can store data from Facebook’s API as long as they’re keeping it up to date and agree to remove it at a user’s request.”

Twitter offers their “firehose” but big search engines like Google and Bing pay a LOT of money to get it. So they cannot give it away to other publishers. Twitter have painted themselves into a corner. Facebook has exploited that weakness by giving away their Firehose. So why are they offering you a free lunch?

Facebook needs to beat Twitter as the primary source of status updates. Facebook started as a way to have private communication with close friends. That was very popular but is hard to monetize. You cannot sell ads to two people having a phone conversation. Facebook does sell some ads, but to do this really effectively will mean hitting the privacy wall. They cannot justify their nose-bleed valuation on this alone.

That is why Facebook has had Twitter envy. That is why they risk annoying their 400 million users by changing privacy settings so that more status updates go public. They have to do this.

How does giving away the Open Graph data help Facebook? It is about user motivation. There are (gross simplification alert) two main motivations in a social network:

1. Help me communicate better with people I already know. Facebook does this well but it is does not monetize well. And there are tons of alternatives – texting/SMS, mobile phone, email and Skype for example.

2. Help me communicate better with people I WANT to know. These are people who I don’t necessarily know, but I want to communicate with them because they know SOMETHING that I am interested in. This is where Twitter scores. This is why Twitter is a great tool for journalists and researchers who do this kind of thing for a living.

That motivation can be as simple as fame, being known as the taste-maker for music or restaurants or whatever. It does not have to be a professional motivation. Although the ones who really put the time into this are usually motivated either by money or by a cause they are passionate about. They are “conscious status updaters”.

If your motivation is # 2, you want to send updates to wherever will get the widest distribution. By distributing those updates through thousands of niche sites, Facebook wins the distribution game.

So, in this case, don’t worry about the free lunch. Facebook needs to give you that free lunch.

If you are a Facebook user, the story is very different. You need to master the privacy settings and be very conscious about which messages are private and which are public. Indications are that lots of Facebook users are trying to figure that out right now:

“Facebook password reset and privacy settings pages keep timing out. Guessing I’m not the only one making some changes right now.”

(Tweet from “sacca“)

But that is a problem for Facebook users. For publishers, you just need to abide by the request to delete any user data at a user’s request.

“Here is your lunch, sir. It is free. Enjoy!”

Free Traffic Via The Like Button: Strings Attached

Facebook is replacing Facebook Connect with a Like button. As a publisher/developer you want the 400 million and growing hoards from Facebook to visit your site, right? So a few minutes to bung in some Javascript so that they are motivated to engage with a your content is a no-brainer, right?

Not so fast. This is something that publishers/developers need to think about. You can be sure that Facebook has thought about it. If your site needs to make money, you may be sacrificing your future potential to do that.

To understand why, one needs to step back a bit and understand the changing dynamics of online monetization. This is clearly a huge subject. So please excuse the gross simplification:

Web 1.0: CPM. This lost gazillions in the bubble. Only brand advertisers pay via CPM, all the others want measurable results. CPM prices are falling to a level that few publishers/developers can rely upon this. AdBlockPlus is deleting ads and users are tuning them out.

Web 2.0: CPC. Launch a free service and bung in Adsense is not a business plan/strategy and that is now unraveling for thousands of sites. The CPC prices are too low, the pay out % is opaque and weak relevancy, click fraud and ad-blindness is reducing the relevant click. rate.

So, the hunt is on for something better. Publishers/developers may keep CPM and CPC for a long time to come, but they will become a smaller % of the revenue stream.

What will be the new revenue stream? In professional/business markets, subscriptions will grow. This is what SaaS is all about. This is why the FT/Economist/WSJ can charge subs.

But subscriptions only work for a handful of services in consumer markets. We would all love it to work for our site, but it does not. Consumers pay by buying stuff. And the social media revolution has reminded us that people buy based on recommendation of friends more than they do from ads (whether traditional or search based). That is intuitively obvious to everybody. What is different is a massively scalable way to deliver those recommendations to vendors selling stuff.

That is what Facebook is doing with Like. It is huge. It sounds like Affiliate 2.0 except that marketers avoid that term now as it got a junky reputation.

The king of recommendation engines and affiliate marketing today is Amazon. Do you think they will cede that position by putting Facebook Like buttons on their site? Chris Dannen at Bnet nails this issue when discussing Amazon’s recent earnings:

“One of its (Amazon’s) most valuable assets is under serious threat, and I’m not talking about the Kindle vs. iPad battle royale. No, I’m referring to Amazon’s vast database on customer purchases: the history of every one of its 114 million accounts, which it uses to recommend products (“you might also like…”) and to grease comparison shopping between its thousands of partner stores.

Amazon’s precious database is under attack on two fronts: by both Facebook and a new crop of startups.

Facebook’s new “Like” button (get the lowdown here) will be a way for the social network to collect the same kind of data that Amazon has: namely, what its users are buying and reading on partner sites. There is perhaps no more valuable metric on the Web, and Amazon is no longer its one and only mistress. A manager for Facebook Platform gave this example on the company blog:

For example, if I like a pair of jeans on Levis.com, my action will be shared with my friends on Facebook, where they can comment on it. I can also see which of my friends like the jeans on Levis.com.

Because Facebook’s Like-system (as I’m dubbing it) is so frictionless, it’ll amass valuable data at tremendous speed; the company expects to inhale as many as 1 billion “Likes” in its first 24 hours (the feature is live now). For Amazon to collect data about what its users like, the users actually have to purchase an item. In Facebook’s system, all a person needs to do is 1) press the Like button on a given retailer’s page and 2) be logged into Facebook. For every purchase Amazon needs to add to its metrics, Facebook merely needs a mouse-click. The social network already sells its data, which means that all this Liking isn’t staying inside some Facebook silo; it’s being made available to anyone, even Amazon’s retail competitors.”

Think about how valuable Likes ie recommendations will be to your site. If you are willing to give that up to get traffic, that is a trade-off that may work for you.

But understand that installing the Like button is a trade-off, this is not a free lunch.

Rally Around Open Like

What is the alternative? A bunch up upstarts in New York who understand the implications created OpenLike.org Amazingly they created this within days of the Facebook launch. Here is their simple mission statement:

“OpenLike is an effort to make it easy to share the things people like (or don’t like) across websites. As more and more websites include personalization, fan and recommendation features we think that people should have a choice in where their data goes and who has access to it.”

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