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7 November 2011
Monetizing and understanding Facebook Fanpages - An entrepreneurial perspective
Years ago I shared cubicles with Thomas Langenberg at the Kennedy School. Given the fact that he recently turned from researcher of social networks and innovation to social network entrepreneur for Facebook, the biggest social networking site around the globe, I thought its time to ask him for some insights.
Thomas, how has life changed and what are you doing?
In 2010, I founded Halalati, a self-service for Facebook promotion apps, together with two co-founders. With our service, companies can quickly and at low cost create their own Facebook promotion apps - without computer programming. Our vision is to help companies gain reach within social networks and monetize it. I really like this entrepreneurial work, as the daily business works at a much faster pace than research. To me, it feels really good to implement ideas and see in real life what works and what doesn't.
Has your PhD research provided direct value for your entrepreneurial activities?
Indeed, there are strong parallels between research and entrepreneurial activities. Research is much about building hypotheses and testing them. Entrepreneurial work as well. On a high level, you come up with a business idea and then you test it. This cascades down to operational work. For example, you create the hypotheses "if I invest x € in online marketing, revenues should increase by y€ ". Then you test it, always being aware that the decision has a direct impact on the fate of your business. Depending on your result you move on. Having been a researcher helps to structure work and progress that way.
What were the biggest challenges of starting your business and what are your challenges today?
Well, there were a lot of challenges. Initially, the biggest challenge was to take the risk to give up my job and start something completely new without knowing what this would result in. Another big challenge is on the one hand follow our course, but also stay open-minded enough, to see new opportunities when they appear. As we are growing, currently, our biggest challenge is to manage this growth properly.
Would you be interested in U.S. based investors?
We are definitely interested in U.S. investors. U.S. investors have gained significant experience with startups centered around social networks, in particular Facebook, already. Their expertise, their "personal network" in the industry could be really valuable for us
German laws and politics pay particular attention to data protection. Some politicians are frequently criticizing FB for its data collection and utilization. Users have also showed concerns (Europe vs. Facebook). Does this affect the development of your business? What's your general position?
Halalati provides apps that are conform to German data protection laws. Customers that choose to work with us can thus be sure to act according to these laws. This gives us an advantage in the German market compared competitors from the U.S.
How big is the market for supported by your Apps in Germany compared to the U.S.? How mature are these markets, in particular in Germany, Europe's biggest economy?
In general, every business can technically have a fan page. In Germany, we have around three million companies. But the market is much less mature than in the U.S. We saw a strong rise in demand in the beginning of 2011. Even today, many companies just launch their Facebook fan pages and use Apps such as those offered by Halalati and others as their first steps in Social Media Marketing. Many require initial guidance on the caveats and potential.
What kind of organizations use or need fan pages? Are there organizations which shouldn't have a fan page?
Organizations that benefit most from fan pages most are businesses that target the end customer with a very emotional product. Examples from Germany are the Magnum ice cream brand from Unilever, the global consumer good company, or Haribo, a German make of candy. These are extreme examples. But also companies with less emotional products can significantly benefit from Facebook. As soon as customers share their experiences with a product or brand, the brand benefits. Organizations with target audiences that do not use Facebook don't benefit from the platform. Companies with products for the elderly are an example.
What's the general value of a fan page for an organization?
In Facebook, organizations can meet their customers. The fan page is the presentation of an organization within Facebook. Fans of an organizations act as multipliers. If a company posts a message and a fan likes it, all his friends can see the message of the organization. As the average Facebook fanpage has 130 fans, Facebook is a great platform for viral marketing. This is the mechanism that our apps use to help companies gain reach within Facebook.
Is it possible to calculate the monetary value of fans?
It is definitely possible to determine the value of a fan. From a business point of view, there are only two levers that determine the value of a fan:
1. Sales/profit that a fan generates directly
2. Number of new customers that a fan generates and the sales/profit of these new customers
The following driver tree shows how an organization can quickly determine the value of a fan. The values in yellow boxes have to be determined by the organization, the values in the grey boxes can be calculated accordingly.
1. In short, the sales/profit that a fan generates directly can be calculated by the probability that a fan turns into a paying customer and the average sales/profit a customer generates. In addition, some people argue, that a fan generates more revenue than a non-fan. If this is a case, this difference in sales/profit can be added.
2. A fan is not only worth the direct revenue/profit. In addition, every fan has the potential to attract new fans via his/her friends, for example via comments he/she posts. The number derived in 1 should thus be multiplied by the number of newly generated fans (by this fan) plus 1 (original fan)
In the figure, I did the calculation for a driving school. Taking some basic assumptions, the driving school comes up with a rough value of 600 € per fan. Such rough calculations can give an indication of the value of a fan - and help companies decide on the value of Facebook marketing.
Isn't the value of Facebook fan pages in danger due to their sheer mass and an increasing number of offers to buy fans/likes?
I don't think that Facebook fan pages are in danger. Rather, companies will understand more and more that not all fans are equally valuable. This is why we believe contests and promotions work well to generate fans: If a price for a sweepstake, for example, is a product of an organization, participants of the contest are likely to enjoy the product - otherwise they would not enter the contest. Such fans are thus likely to be "loyal" fans. If fans are simply bought, this is not the case.
Are you sharing your data or lessons with researchers? Where would you like to see more research?
Being a social network researcher myself, I would love to see much more quantitative and generalizable research on the question "How being involved in social media affects firm performance". So what are the key do's and don'ts for firms on for instance Facebook or Twitter and what propositions can be made that truly helps firms. For instance, if you are a small brand in a big city, using Facebook Places does not make sense, but offering a flourishing Foursquare Place can boost your business by XYZ percent. I know this is hard to show, but right now the whole industry, especially in Europe, is really fascinated by social media, but only very little is known on the cause effect relationship between "activities in social media" and "business success".
If you could influence the future plans of Facebook and have an hour with Mark Zuckerberg, what would you tell him?
I would first congratulate him for staying on top of a business and a development that is truly changing the way we read, chat and exchange "stuff" online. Only 2 years ago I was not really convinced by the Facebook network, because I had a couple alternatives. But now, I think it is just a great new "ecosystem" that is going to develop. Especially from a business point of view.
Moreover. I would like to bounce ideas with him how he and his mangers plan to really get the open graph and timeline going in Europe. I think especially the open graph is on the one hand super powerful for firms to profit from it, but it is at the same time a great threat for the acceptance rate of Facebook among endusers. Even in our today "open and connected" world, there are some things in your life that you don't want to share with anybody. Hence, assuming all the classic websites and services are now picking up social apps or open graph apps, "senseless" browsing on the Internet would become a "nightmare".
In short, I would try to make it as clear as possible that continuous success of Facebook in Europe is a function of Facebook's ability to get aligned with European legislations on data privacy concerns. So I would wish they spend a lot of money on getting arranged with these dicussions.
Thank you for your time and insights. All the best for Halalati.
Dr. Thomas Langenberg is the CEO of Halalati and was a Fellow with the Center for Networked Governace in 2005/6. His PhD thesis "Information Exchange in User Communities: A Study of Individual Level Determinants and Firm-Level Effects in the U.S. Snowsports Industry" can be downloaded from his social media marketing blog. Thomas can be reached at thomas.langenberg@halalati.com.
Posted by Alexander Schellong at November 7, 2011 5:18 AM
