Corporate May 28, 2012
Many years ago, a factory called Hawthorne Works conducted a number of experiments to improve the productivity of its workers. The factory tested different level of illumination - increasing or deceasing light to arrive at optimum levels for the production in the factory. And they got some astounding results. However, as soon as the experiment was over, the productivity of the workers slumped back to pre-experiment levels. This gave rise to a very interesting phenomenon called the Hawthorne Effect - we modify our behaviour when we know we are being observed.
Jump to 2012, according to TCS, the Indian Youth spends hours on social networking; so much so that they detest TV, which was the mass form of entertainment not too many years ago. They go to the social networking platforms to interact with their friends, to seek opinion on buying the new smartphones or to get the word on the latest movie before they move to a ticketing site to book tickets for the weekend. As one interacts with the social networking platforms like Facebook and Twitter one leave behind patterns - of interactions, and of data. These patterns of data which when spotted can lead to accurate and useful predictions - to get users to spend more time on Facebook or to get users to click more on ads, thus generating more money for Facebook.
In the past few days, Facebook has added more ad units like the popular Sponsored Stories. These ads appear next to the news feed because they are relevant to our interests (read likes). To understand it better, if Firstpost decided to spend some money to promote this article, Firstpost's Facebook page could post one of the stories and pay Facebook to "promote' the post to all its followers. If you liked the Firstpost page previously, you might see with this story in the feed.
However, when one goes beyond interpreting data one begins to realise something students of music have always known - feedback creates loops just as you did one while playing the guitar. And this is something, which had happened earlier in Hawthorne factory. Seeing behaviour changes behaviour. What started off as a mechanism to track and understand what one in doing online on a platform begins to change our behaviour on the platform - and we learn to perhaps, 'trick' the system like steering away from clicking on ads thus affecting my worth as a user to Facebook. And then our behaviour begins to influence others around us because it's a social world.
There is a need for Facebook to strike the right balance between managing the advertisers and enhancing the experience for the user. If Facebook shows more ads, it may put off the users thus hurting the revenue. Over the years Facebook has learned from users and have made changes to the social network giving way to users' wishes in most cases (like apologising for the Beacon incident.) Also most changes are first tested with a small set of users before they become universal.
But then the balance may just go awry now - not just because user behaviour may change like in the case of Hawthorne Works but also IPO listing may make the Facebook watch the bottom line all the more carefully. The bottom line derives a direct impact from users either clicking on more ads or buying more sheep in Farmville. So imagine a scenario where the business model, which works on users sharing more and more, begins to change and has many implications on the ecosystem. GM decided to suspend advertising on Facebook because the ads didn't perform well, just a few days before the IPO. If it was not just the botched-up pricing of the IPO which has been a sore in the throat for investors, it should get users of Facebook to think some more as well.
Will Facebook's balance tomorrow tilt in favour of the advertisers? What will Facebook do to lure back advertisers like GM? Will it sell you out?