Why You’re Not Like Facebook (But You Could Be)

This is about two companies: 

One is a current client of mine, a company which has defied the odds by remaining profitable (and even growing a bit) through the Great Recession, basically by doing what it does very well despite the economic pressures.  Alas, it’s slipped a bit in recent months, as several of the markets in which it operates are feeling the (thus far) little-discussed second wave of the recession, a wave prompted by recent layoffs of state and county employees as federal support funding is cut back.  Still, this client boasts higher average traffic counts and margins than most of its peers, and will survive, thrive and grow as it finds a way to reach out to other, less government-dependent markets.

The other is Facebook, a company which has made itself the center of most market discussions for the past several months.  Unless you were in a coma (or solitary) for a prolonged period, you’ve probably heard that Facebook went through its IPO recently.  There are a raft of stories which will be told about the screwups -- and possibly worse -- around the IPO, but you’ll read about them elsewhere.  What I want to point out is the difference between Facebook and your company, or my client.

My client, like most restaurant companies and many others, is built off the quaint notion that income comes from providing a product and/or service to each customer.  Restaurant companies are a bit unique in that they provide both a product AND a service in most instances.  Whether the product is ordered a la carte, served as a buffet, or as a prix fixe menu, the base service cost is factored into the price.  Social convention, and economic reality, have established the practice of the customer adding a service surcharge (tip) in many circumstances, and the restaurateur will keep that surcharge’s existence in mind when setting prices and allocating costs.

Facebook’s model is different, and in many ways very clever: it provides a free service to its users.  The users, in return, provide personal data, references (friends), and examples of behavior (click here if you like ____).  Facebook then absorbs and analyzes this data and sells it to the parties who intend to make use of it for advertising, cause marketing, or the sale of games and other virtual products tailored to the Facebook audience.  The underlying premise of this business model, dating back long before Facebook, is that a sufficiently large user group must be worth something, and the more data which can be collected, the greater the value per user, as that data provides advertisers with an ever-more-precise way to reach the exact target consumer they seek.

So ... every day, my client’s consumers cast a vote for its continued success -- or against it.  Every day, the restaurateur tailors his or her operation just a bit based on those votes.  Restaurants may seek to add customers, or not, depending on the results; sometimes they’ll conclude it’s better to raise the prices a bit in order to cut down on the crowds or manage against limited supplies.  (I know, most of you haven’t said that lately, but at other points in the cycle it’s been a very practical choice.)

On the other hand, the Facebook model has tended to reward companies for giving away more (new features, primarily) in order to constantly add new users and hold existing users for just two more minutes during each visit.  Again, the theory is that the more visitors, and the more visits, the more value that must equate to for SOMEONE.

There are now internet companies trying to break out of this model.  Many newspapers and magazines are limiting access to certain features, or permitting only (gasp) paid subscribers access to certain features.  For them, the volume model hasn’t translated to profits.  It’s an open question how it’ll all shake out, although there’s clear evidence that there’s at least SOME value to large user lists.  The question which won’t be answered for some time is whether that value reaches $38 per share.

Interestingly, no company which actually provides concrete (as opposed to virtual) products has expressed any interest in exploring the Facebook model, simply because they must recoup all the cost of the product and affiliated service before trying to mine the customer relationship for other value.  I don’t count the Panera “pay what you like” stores as a form of this model; there’s a clear explanation, and expectation, that while the store is providing a public good, it also requires the support of at least most of its patrons to keep the experiment alive.

I’d also recommend an interesting piece by Ross Douthat of the New York Times, on May 27, which explores this question from a different angle.  It can be found at The Facebook Illusion.

Views: 69

Tags: expenses, profit_model


You need to be a member of FohBoh to add comments!

Join FohBoh




Social Wine Club for Craft Wineries


Report: Consumers want more protein, need more education

A majority of U.S.  -More

California Walnut Beet Carpaccio Flatbread
Jump start their appetites with this fabulous flatbread appetizer topped with beets, goat cheese, arugula and California Walnuts. For this and more great recipes, visit http://www.walnuts.org/food-professionals/trending-recipes/.

Vegetables take over dessert menus

Top pastry chefs in the U.S.  -More

Rising takeout demand drives new Mama Fu's footprint

Austin, Texas-based Mama Fu's Asian House debuted a smaller footprint unit focused on feeding a growing demand for takeout an -More


Posting a job or finding a job starts here at FohBoh. Call us about special $25 posting packages to syndicate across all major jobs boards.

National News

Souplantation & Sweet Tomatoes Certified As Nation's Largest 'Green' Restaurant Chain

National Group Salutes Country's Only Large Restaurant Group to be 'Certified Green Restaurants®'

National Restaurant Association and EatStreet Release Online Ordering Guide

The National Restaurant Association and EatStreet have released a free educational guide focusing on online ordering and emerging restaurant technology trends.

Boyd's Coffee Launches Single-Cup Coffees For Retail And Foodservice

The coffees come in a variety of roast levels and include organic and Rainforest Alliance Certified™ options: French No. 6®, Red Wagon® Organic Coffee, Good Morning™, Hi-Rev® (delivers more caffeine), and Lost Lake™ Decaf Organic Coffee.

Arby's Announces Development Deals With New And Existing Franchisees

ARG recently sold 14 company-operated restaurants in Tampa, FL to Mosaic Investments, Inc. (Mosaic), a fully integrated investment firm based in Atlanta. In addition to remodeling existing locations slated to commence at the end of 2014, Mosaic has committed to build 13 new Arby's restaurants in the Tampa area over the next nine years.

Smoothie King Appoints Vice President Of Business Development To Drive Brand's Expansion Across The U.S.

Prior to joining Smoothie King, Bruno served as vice president of retail sales, operations and franchise development for Fannie May Fine Chocolates, a division of 1800Flowers.com, where he oversaw a $69.5 million retail division that included 100 corporate stores and 45 franchised stores.


If you are looking for capital to start or grow your restaurant, create the next 501c3, develop and launch the next app for the restaurant industry,or want to help your peers in some meaningful way, we want to know about it.


TED: Michel Laberge: How synchronized hammer strikes could generate nuclear fusion - Michel Laberge (2014)

Our energy future depends on nuclear fusion, says Michel Laberge. The plasma physicist runs a small company with a big idea for a new type of nuclear reactor that could produce clean, cheap energy. His secret recipe? High speeds, scorching temperatures and crushing pressure. In this hopeful talk, he explains how nuclear fusion might be just around the corner.

TED: Sarah Lewis: Embrace the near win - Sarah Lewis (2014)

At her first museum job, art historian Sarah Lewis noticed something important about an artist she was studying: Not every artwork was a total masterpiece. She asks us to consider the role of the almost-failure, the near win, in our own lives. In our pursuit of success and mastery, is it actually our near wins that push us forward?

TED: Matthew Carter: My life in typefaces - Matthew Carter (2014)

Pick up a book, magazine or screen, and more than likely you'll come across some typography designed by Matthew Carter. In this charming talk, the man behind typefaces such as Verdana, Georgia and Bell Centennial (designed just for phone books -- remember them?), takes us on a spin through a career focused on the very last pixel of each letter of a font.

TED: Jeremy Kasdin: The flower-shaped starshade that might help us detect Earth-like planets - Jeremy Kasdin (2014)

Astronomers believe that every star in the galaxy has a planet, one fifth of which might harbor life. Only we haven't seen any of them -- yet. Jeremy Kasdin and his team are looking to change that with the design and engineering of an extraordinary piece of equipment: a flower petal-shaped "starshade" positioned 50,000 km from a telescope to enable imaging of planets about distant stars. It is, he says, the "coolest possible science."

© 2014   Created by FohBoh.

Badges  |  Report an Issue  |  Terms of Service