Facebook, Commercial Radio, and Loyalty Cards

I’m occasionally amazed when people complain about Facebook’s policies. Facebook sells personal information that is freely given to it. What business do these people think Facebook is in?

Most people don’t understand the business model at all. So here is an explanation of Facebook’s business model and why Facebook does what it does.

You know about commercial radio, right? You listen to some top 40 music for free with periodic breaks for the local furniture store’s obnoxious “Going Out of Business” ads.

Most people think the commercial radio station is in business for the listeners. But that’s never been the case. The listeners do not pay money to the radio station. The listeners are not the customer. The listeners are the product.

Got that? Let me say it another way.

Radio station sales people go door to door to local businesses and say, “if you advertise on our radio station, we will guarantee 20,000 sets of ears during this time period, with 37% of those being suburban white female, stay-at-home-moms, 42% white males, employed with a salary of at least $40,000 per year or more, and 21% others.” If your business caters to suburban stay-at-home-moms and their employed husbands, they will sell you access that audience (in 15 second slots) for a fee. Or the sales rep may say, “we have predominantly urban audience with 87% African-Americans, 10% white, and 3% Latino/Asian/other”.

The radio station is in business for the advertisers, who are their customers. They sell a product, called an audience (you) to their advertisers. They have a lot of information on that audience, mostly the demographic breakdown such as race, gender, and income.

Loyalty cards work in a similar manner, except it’s a little more personal. You sign up for a loyalty card at your grocery store and you get discounts for shopping there. In this case, you are the customer because you pay the money. But with each swipe of the loyalty card, your grocery store knows everything you purchased that week. And next. And they have your phone number, address, race, gender, age and all the other information you gave them with you signed up. So they may know that you are a 35 year old, white male who buys Morningstar frozen chicken patties. They can use that information to target sales and coupons toward your specific needs. If that 35 year old male is buying Morningstar chicken patties, maybe he’ll also buy the Morningstar sausage if we give him $1.00 off. Maybe Morningstar is introducing a new flavor and wants to target a coupon campaign to existing buyers to try it out. Sounds fairly harmless.

Except, they sell that information to marketing partners. Did you notice that your Kroger Plus card now gives you discounts at Shell gas stations? Now Shell Oil knows that the 35 year old male who buys Morningstar chicken patties drives a vehicle that has a 15 gallon tank and takes 87 octane gas, and he fills up about once a week. At a specific gas station near the address registered on his loyalty card.

Kroger also prints ads on the back of their store receipts. They’re not targeted ads…yet. But I’m betting they will be soon.

So again, your loyalty card is giving you something for free (discounts on what you’re already buying), and they sell you as a demographic – complete with shopping habits – to their marketing partners.

Now here comes facebook. Poor old Facebook, plagued with privacy complaints that they are taking all this personal information and selling it to everyone.

What did you expect? This is the nature of their business model. They give you access to a free service, and then sell that demographic information to advertisers, application developers, and the others who are Facebook’s *real* customers. They are doing nothing that hasn’t already been done.

There is absolutely no difference between Facebook, a commercial radio station and loyalty cards. When you give your information to a third-party in exchange for a free service, you can trust that they intend to use it for their monetary gain…every time.