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Posted on Harvard Business Review: March 11, 2011 8:27 AM
Upon reading the title of this post I suspect your reaction is, "Really? I didn't even know it was a news organization." And that reaction is precisely why many people look with disbelief at the extraordinary estimates of Facebook's value. Facebook is not some plaything. It is a fully fledged news organization on a scale we have never seen.
News organizations do two major things, commercially speaking: they use news to grab attention and then sell that attention to advertisers.
In the old chain of news production, a piece of timely information was researched by journalists, sifted through by publishers, and disseminated. It was a reporting of the facts rather than an expression of opinion.
As traditional news organizations faced the maelstrom of the digital revolution, many noticed that it was not just the stuff that editors had deemed socially important that was drawing in readers. Tailored, specialized news — the style and sport sections — that appeal to specific demographics pulled attention and therefore advertiser interest. Some hypothesized that tailored content could go further. Local newspapers, for example, could provide hyper-local content of interest to neighborhoods, like newsletters but with ads.
Facebook is what became of the "hyper-local" notion. It just turned out that it wasn't a geographic neighborhood but a socially connected one. Facebook provided a platform whereby individuals became reporters, editors, and publishers.
In this regard, Facebook is delivering on the first task of the news organization. Some Facebook friends might express opinions, but more often they are reporting facts. What is more, because these facts are reported to social connections, they are actually accurate. Nothing binds one to the truth more than the accountability of an ongoing personal relationship. Do you ever hear it exclaimed, "I heard on Facebook that your train broke down and that turned out to be an exaggeration"?
Facebook knows this. The company even calls it a "News Feed." And it is peppered with other news stories coming from mainstream outlets your friends have shared. You can read it like a newspaper (postpost.com) or a magazine (Flipboard for the iPad). Even the games, jokes, surveys, and other attention-grabbing activities on Facebook have a long provenance in newspapers, which are full of games (crosswords and Sudoku), jokes (the comics), and polls. These are a long-standing part of the news experience.
When Facebook emerged, many lamented, "Who would be interested in this trivia: the fact your train broke down, your coffee was extra-strong, your new job is a hassle, or that your kids had the flu?" The answer is: you. You have consumed this information for years by just talking to friends and coworkers. You are not interested in this kind of information from people you don't know, but you are interested in it from people you do know. But until Facebook came along, no one had figured how to sell ads while your friends and family were talking to you.
And that's the second task of the news organization and the crucial link in bringing in the dollars: converting attention into cash. What Facebook offers that other news organizations do not is magnetism. There is not a lot of content on Facebook. You are not likely to spend more than a few minutes a day on your Facebook news feed. But many people do it every day. This gives Facebook a compelling proposition to advertisers. If you want to be guaranteed to hit a large fraction of the U.S. population over the next few days, put your ads in Facebook and wait for the users to come. Big advertisers might still want to blanket the news media, but others will increasingly park themselves on Facebook and wait for folks to drive on by.
Not only that, if you look at Facebook's news page, you see another novelty — only a small amount of space devoted to ads. Just a couple per page, in view but not in your face. Supposedly, this was part of Facebook CEO Mark Zuckerberg's reluctance to harm the user experience. But magnetic news content and a limited supply of highly desirable space is a recipe for printing money. And voila — the largest news organization, ever.
News media analysts are making an error by not viewing Facebook as a core part of the industry, sharing exactly the characteristics of many of the traditional players. That's why they don't comprehend Facebook's apparent market value and its position at the top of the media pile.
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