Every organization has what I call a strategic customer. It’s the target market that, if lost, creates peril for the business. For an advertising agency, it’s the businesses that consider the agency their agency-of-record, as these customers cover fixed costs.
Many companies, like Amazon, have dual-sided business models: it has two customer groups, buyers of products from its platform and suppliers of those products. Is one more strategic? At Amazon’s start, providers of products and services ranked higher. Why? If publishers and authors had refused to sell their books through Amazon, we’d still enjoy visiting Borders stores. Over time, as Amazon became a required channel for most manufacturers, the company wisely changed its strategic customer to the consumer. Local stores, Prime, same-day delivery, Alexa, and other solutions to better serve us are proof points of the strategic shift.
Facebook, like Amazon, has a dual-sided business model. Users supply not just network postings to other users but also volumes of data that Facebook then monetizes. How? It sells access to and data about its users that buyers use to advertise to us and (we discovered too late) sell to others.
Facebook’s public communications and recent apologies suggest that we, its users, are Facebook’s strategic customer. Don’t be deceived. You can unearth the strategic customer by looking at how a company acts, not what it says. It’s not unlike when a company states, “We care about our employees,” then ends up with a caustic workplace due to leaders who care little about their associates.
Zuckerberg argued before Congress, “We did not anticipate these problems.” Please. We don’t have similar privacy problems at Amazon because Amazon places consumers first. Facebook, if it placed users first, would ask the following question before accepting any advertising or app developer’s offering, “What would our customers want?” Political advertisements without authorship? No. Give away friends’ data without friends’ knowledge? No.
Facebook argues that monetizing the data lets the network remain free, attracting more members and therefore providing more value for its users. This strategy — making the advertiser and app developer the strategic customer — made sense at the start to build a vast network and create barriers to competitors’ entry. But, we are learning, Facebook is not free. Privacy is lost and social problems, especially among teens, are rising with social media use.
As times change, so often must the strategic customer, as Amazon models. But companies can miss the required shift, and when they do, the mistake can be deadly. An auto glass-replacement business viewed the individual driver as its strategic customer. When auto insurers elected to offer free glass replacement to insured drivers, they dutifully followed insurers’ directives to use a list of pre-approved vendors. Unable to convince potential customers they had the freedom to select any glass supplier (a fact, but expensive if not impossible to communicate), the multi-generation family business lost significant market share to glass replacement vendors who contracted with the insurers at discounted prices. The business’ value plummeted, and the company was sold.
Facebook is trying to backpedal and appease users. But until Facebook gives us much more control over what we see — e.g., I will opt in for show ads only from Stuart Weitzman —Facebook’s strategic customer will remain the payer, whatever Zuckerberg states publically. The real truth rests with Facebook’s head of marketing services who recently indicated her company has no interest in changing its business model.
Is it any wonder that a free resource — like user information on Facebook’s platform — is overused, or, in Facebook’s case, abused? We have environmental laws to protect nature, which had historically been a free resource. Parallel regulations are coming to Facebook unless it pivots its business model and makes users the strategic customer, not the advertisers and app developers who access user data. Europe is leading the way.
As for Facebook investors? Expect FCC and European fines, which Facebook deserves. Also, expect a loss of talent. And somewhere in Silicon Valley, Pittsburg, Madison, Austin, or other IT hub, look for the Facebook disruptor at work.
Should you change your strategic customer?