Facebook to backtrack on Beacon?

BusinessWeek is reporting that Facebook executives have been contemplating a backtrack on the social networking site's new advertising play, Project Beacon. The system automatically publish interactions users make on any of the 44 participating sites (from Blockbuster, Joost, to Overstock.com) onto their Facebook mini-feed, so that Facebook “friends” are able to track those interactions, such as making a purchase or renting a movie. As it stands, however, users are opted into Beacon by default, and only have the option to opt-out on a per site or per interaction basis. In the face of mounting criticism and a growing user backlash (particularly from the tech community), BusinessWeek says that Facebook is likely to make the system less aggressive, balancing the scales a little more towards users and a little less in favor of the advertisers who pay Facebook to be included in Beacon.

The more I think about Beacon, the more it wreaks of desperation on Facebook's part. Mark Zuckerberg is the ultimate "network effects entrepreneur", whereby you create a web service that attracts eyeballs with strong "network effects". As more people join, the greater the utility for users, and as a result it becomes harder to leave (unless everybody does so). However, running in parallel to this strategy, is the web 2.0-ism of grab users first and work out how to monetize later. Beakon's privacy invasion is an unfortunate symptom of both elements of Facebook's business plan.

On this note, BusinessWeek hits the nail on the head.

Any move that weakens Beacon's appeal to advertisers leaves Facebook under pressure to find other ways to lure marketers and justify the lofty $15 billion valuation bestowed by Microsoft in October, when it purchased a 5% stake for $240 million. Users of social networks are typically less responsive to standard ad formats, such as the posterlike banner ads commonly seen on the Web, than to newer, more interactive or personalized advertisements. Some marketers say that when they place banner ads on Facebook, the so-called click-through rate, a measure of user responsiveness, is one-fifth the rate for the larger Web.

Beacon, as part of Facebook's newly launched ad platform, was hailed by Zuckerberg as the "Holy Grail" for advertisers, whereby users become willing co-marketers by making "trusted referrals". The mistake Facebook seems to have made is that users aren't so willing after all, especially if they are coerced into such a role. In that sense, Beacon may turn out to truly be the "Holy Grail" for advertisers, never to be found.