Better Than New

Seth Godin today diagnosed Facebook’s problem as it grows up and gets overvalued. He says they don’t have an effective business model, because its advertising isn’t connected to the activities people use Facebook for, the problem with Hotmail in his mind:

When someone goes to FaceBook, they’re not looking for stuff. They’re looking for people. But people don’t buy ads, stuff does.

That’s a problem.

Any platform that makes ads a distraction or a cost is always going to fail compared to a site where the ads are a welcome part of the deal.

Yeah, not sure I follow, but OK. Let’s assume this is true. How, then, does Google make any money? Because, let me be honest, I have never looked at the ads it serves, however relevant, as anything other than a distraction or cost. Same with ads on TV, radio commercials, newspaper ads, streaming video, and everything else that includes advertising. I recognize that it’s possible to deliver sponsored content that is useful, but if it’s truly paid for and ad-based, it’s going to be a distraction, in large part because the frames people hang on advertising — we resist it instinctively.

Moreover, Hotmail’s inability to profit has more to do with the fact that it never created a business model appropriate to its use. Seth says that using opt-in newsletters (up to a thousand!) would have made huge money for Hotmail. I doubt it. Being a member of several non-advertising driven opt-in newsletters that I can never bear to read, I can’t picture how dozens or hundreds of the monstrosities focused on selling stuff would work better. Hotmail blew it because the company figured out how to get viral — the program provided a link at the bottom of every e-mail it sent to register the recipient for Hotmail. Next thing you know, everyone has a free Hotmail account. Those same principles didn’t get applied to ads — Hotmail was too focused on replicating itself. By delivering additional ads in truly tangential locations, Hotmail missed the opportunity that Gmail has nailed.

Facebook has its model down — every time I browse a friend’s profile, it seems to inevitably pop up details about local real estate. I haven’t bought a home yet, but I’d kind of like to, and that’s an ad extremely tied into my life situation and age. I’m engaged, I live in a high-income and high-priced market, and I’m always curious. I might never buy a home in San Francisco, but I’m interested in the idea. Only Facebook really gets that.

The problems aren’t the same — and neither are the solutions.