Facebook watchers are reporting that the service is about to launch a new feature for merchants that will allow merchants to target ads to users based upon users' email and phone numbers. That's a little confusing. Let me explain with a hypo--
As I understand it, it might work like this: ABC Corp. has an extensive database of consumer email addresses, but is concerned that no one is reading the company's spam. So ABC uploads its consumer email database to Facebook, which identifies Facebook members who are customers of ABC. ABC Corp can then send its marketing through Facebook so that it lands in the Facebook Feeds of its existing customers.
The service has some privacy safeguards, because some hashing will be in place to stop Facebook from just copying the customer databases held by merchants (too bad they don't do this for address book scanning!), and because the targeting will be based upon phone numbers and email addresses already in possession of the merchant. Thus, the idea is that this is marketing only to people with a business relationship with the advertiser.
This is a great model for businesses trying to communicate with their existing customers. It lets them reach customers through a new channel (Facebook) that is very popular. It avoids the hassle of telemarketing and possibly the regulatory regime associated with email marketing.
The Enhancement Problem
But here's the catch--two core privacy assumptions are flawed. Merchants have difficulty getting phone numbers and email addresses from customers. Sometimes, instead of asking customers for personal information, they find ways to trick consumers into providing it, or they simply buy emails/phones/home address about a customer based upon whatever data they already possess. This practice is known as data enhancement, it happens where a company links more information about consumers to an existing database.
A recent case explored this practice at Williams-Sonoma: "After acquiring this information [zip code from Jessica Pineda at the register], the Store used customized computer software to perform reverse searches from databases that contain millions of names, e-mail addresses, residential telephone numbers and residential addresses, and are indexed in a manner that resembles a reverse telephone book. The Store's software then matched Pineda's now-known name, zip code or other personal information with her previously unknown address, thereby giving the Store access to her name and address." That's how you end up with dead trees in your mailbox.
The whole point of data enhancement is to get information about the consumer that she is otherwise unwilling to provide. It's really sneaky and it contravenes transparency and fairness principles. Enhancement obviates many attempts to protect privacy through selective revelation.
How Did They Get My Facebook?
There's a second problem here. Many people do not want to be contacted by the companies that they frequent. In a recent survey, I found with colleagues that 74 percent of Americans thought that a merchant should not be able to call them, even if they gave their phone number to the merchant! Consumers want specific permission controls over direct marketing.
Finding a new channel to contact people may be great for advertisers, but for users, contact through some new, unexpected channel, can be a bit unwelcome.
Perhaps Facebook could correct this problem by requiring merchants using this new service to guarantee that they collected email addresses and phone numbers directly from the consumer, with their consent that the information be used for marketing. Otherwise, this new service will create incentives for companies to engage in more enhancement, and it will further junk up Facebook.
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"This is a great model for businesses trying to communicate with their existing customers. It lets them reach customers through a new channel (Facebook) that is very popular."...It's also a great model for adding unneeded cost to a possibly inferior product that can't get sales any other way.
If a business really wanted to "communicate with existing customers" why not work on improving the product? That's a win-win situation for everyone. Improved products usually mean increased sales by the really old-fashioned method of getting a satisfied customer to refer his relatives, friends, and oher associates.
This is what's known as "Word-of-Mouth" advertising, and it's agreed by almost all business people to be the best advertising...and it's free. The only cost to the business is in providing a better or superior product.
Of course, as long as people respond to paid advertising then businesses will continue to pay for it!
AND the cost of that paid advertising will be bundled into the price of whatever you buy.
@ Jockaira - Businesses won't work on improving the product as long as it's cheaper to just pay to advertise. Having relationships with customers, figuring out what they want and then delivering that is much harder and more expensive than just blasting them with messaging. I agree with you that the businesses that figure it out are likely going to be the most successful, but until then...
@ Chris - The trouble with your "fix" is that it means less customers to feed to the advertiser, and therefore less revenue. I find myself in a strange state of outrage over this. On the one hand, I'm aware of how much of my data that social networks extract from me, and I give it up willingly knowing that those companies are using me to make revenue. I get a service that I enjoy for free, and I realize that the money has to come from somewhere. I also think that other people should be willing to make the same trade-off.
On the other hand, I know that most users are ignorant of how much of their data is out there, and they would be horrified to learn how it was being used, so I think that programs like this are underhanded (even though I don't mind if my personal data is used in that way).
Ultimately, it would be nice if people were informed about the services they were using and also given the ability to opt out y paying a subscription fee or something. Unfortunately, to explain why a subscription fee was necessary, we'd have to explain to people why the free services they have aren't actually free, and people would flip out. Ugh.
It seems that Mr. MacLuhan was only half right. In this case, the product is the message: it contains all of the information necessary for the consumer to decide whether this and future purchases are worth it.
Advertisers/Internet Marketers see this in reverse. They seek to turn the message into the product, preferably one with no material content. "We'll send you this thing, or service, or information, and you'll send us the money." Because the Dotcom boom was really about the monetization of various kinds of internet-based information exchange, they see this as the way forward to their ideal business model. Which is something like, "We have a database with all this information in it. It MUST be worth something to you, so just give us some money and we'll send you an agreeable message." Down the road, they may decide that if we don't give them their money, they might send that information somewhere else, unless we give them their money. The fact that people are willing to pay upwards of $1.50 each for ATM withdrawals (Canada) must keep them awake nights...
I notice that a Canadian bank (Toronto-Dominion: profits up 58% for the last quarter of 2011) is now my unasked friend on FB. They've already started sending me agreeable messages, even though I don't do business with them. What could be next, I wonder?