How Facebook Turns 'Likes' Into Dollars Right Down to the Local Level | Street Fight

How Facebook Turns ‘Likes’ Into Dollars Right Down to the Local Level

How Facebook Turns ‘Likes’ Into Dollars Right Down to the Local Level

Facebook calls itself a technology company, but it builds community, and very effectively, in ways that local news providers can’t.

The social platform’s mission is “to bring the world closer together.” I do believe that Facebook founder Mark Zuckerberg means every word of the mission, which he announced this past June. But it’s no accident that in acting to bring the world closer together, Facebook gathers more and deeper data about its 2 billion-plus subscribers, and this information lets it target audiences that can be as finite as 300 diners who say they “like” a particular restaurant in Maplewood, N.J.

When that restaurant wants to open a second establishment in Maplewood or nearby, the owner would be able to buy that “like” data as part of its expansion marketing strategy. The price – based on “cost per click” (CPC) – could be less than a hundred dollars per month, depending on the number of clicks. Overall, the cost of Facebook ads is consistently lower than what other media charge, including newspapers and “pure-plays.”

Local news publishers typically know many of their community restaurateurs on a first-name basis, and are regular diners at the establishments. But they can’t offer the precise targeting capability of Facebook, whose services are, in most cases, fully automated, which greatly lowers their cost.

The astonishing power of Facebook “likes” to predict a user’s personality and launch her on the advertiser’s coveted “customer’s journey” attracted wide attention with a study by researchers at Stanford University published in 2015.

The study, which involved 86,220 volunteer subjects, found that a “computer could more accurately predict the subject’s personality than a work colleague by analyzing just 10 likes; more than a friend or a roommate with 70; a family member with 150; and a spouse with 300 likes.” (See chart below).

“Given that an average Facebook user has about 227 likes (and this number is growing steadily), artificial intelligence has a potential to know us better than our closest companions do,” wrote the researchers.

One of the lead researchers, Michael Kosinski, came to this startling conclusion about his and his colleagues’ findings: “The human-computer interactions depicted in science fiction films such as Her” seem not to be beyond our reach.” Bear in mind that Kosinski is a professor of computational science at Stanford’s Graduate School of Business.

I went to digital media strategist and researcher Grzegorz Piechota, who was featured in Monday’s Q & A, “Deep Dive Into Facebook Finds Dim Revenue Hopes News Sites,” for more detail on the implications of the impact of the Facebook business model, especially how it competes so effectively against local news publishers who typically have many real-life relationships with community merchants:

How does Facebook begin to gain its advantage?
If you’re a merchant in a local shopping center, you start your relationship with Facebook by getting a free “Page.” Facebook is just collecting data about you and the people coming to your page. But then you pay Facebook to reach more customers, targeting in any way you wish. That brings you more customers, which you pay for, and it gives Facebook more data from your new customers expressing their “likes.”

Compare that situation to the merchant and the local publisher. The publisher may have a review of restaurant written up or sell an ad, but he’s not going to give anything for free, a policy that has helped to deliver 6 million advertisers to Facebook.

How wide can Facebook go to collect profiles about users?
It collects data from all interactions on its platform as well as from other sites that use Facebook coding.

But not all or even most of those other sites are at the community level. So how can Facebook, which operates out of Menlo Park, Calif., be so effective collecting detailed profiles locally?
Facebook aspires to have the same level of data about people on the community level. That’s why it has begun engaging with local publishers more closely through its Journalism Project.

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Local news is not about to go “extinct.” But when highly regarded operations like the sister sites DNAinfo and Gothamist go out of business, that’s a sobering reminder that local news remains an endangered species of the media business. Local providers have options. Marginally, they can make better use of Facebook’s tools, which are offered through the Journalism Project’s “Local News Partnerships.” But more consequentially, they will have to develop a serious subscription strategy. As Piechota pointed out in his Q &A, a digital subscriber is up to 75 times more valuable to a news publisher than a non-paying visitor.

Converting a non-paying visitor into a digital subscriber, even at a monthly rate that is often less than the cost of a coffee and scone at Starbucks, is not easy. This column will be talking to local publishers in coming weeks to find out what they’re doing to stay in business long term and how they’re succeeding.

Tom GrubisichTom Grubisich (@TomGrubisich) has written “The New News” column for Street Fight since 2011. He is also working on a book about the history, present, and future of Charleston, S.C.