Facebook money is not real money. Yet.

The dollar
Like ?

First off –  a little introduction on money. When you think of money, what do you see? I bet you picture some coins, maybe banknotes, possibly your credit card. Think about this: in 2011 cash (the things we physically picture as money) in the US accounted for under 16% of money currently available (broad money).

As debit card and credit card adoption increases, as eCommerce grows more and more, the need for “narrow money” (coins, banknotes etc.) decreases. Most of our money exists just as bits of information in the financial system. I presume that in the future most of the currencies will disappear as we’ll move toward a more globalized approach to money, a world with one single currency. We do have a world bank, we have an international monetary fund – we will have an international currency.

We will strip money out of all their symbolic value and give them just one purpose: to enhance human collaboration and trade.

We accept and trust the financial system, not money per se

What we need is a world-wide acceptance of a certain currency, the universal ability to use that currency and a integration with the legacy financial system.

Call me crazy but I believe Facebook credits, the monetary system Facebook imposed on game developers could one day do that. If you think about it it’s not the currency we have to accept. It’s the system that’s issuing it. We trust Facebook with our personal data, our likes and dislikes, to some extent our social life. We could one day trust it with our money.

One might be skeptic about the idea of a Facebook – ran monetary system. However, Facebook is dominating the internet in terms of share of time and number of users.  The Internet is dominating human communication and in the future – trade. It is a matter of time until the electronic currency will shift toward a more Internet – oriented form.

If so, maybe George Soros was not wrong to buy Facebook stocks.

What is Shopkick?

Physical stores have a greater conversion rate than online stores. Conversion rate for in-store traffic is 20% in fashion, 50% in electronics and 95% in groceries. Physical stores are therefore superior to online stores in terms of conversion rates where a 5% conversion rate is considered very good. Even though classic retailers benefit from a high conversion rate the traffic is way lower than online.

Shopkick gets traffic to brick-and mortar stores

Shopkick is a company based on a mobile product that works on iOS and Android mobile devices. It uses different in-store incentives (discounts, freebies) to reward potential consumers that choose to check in using the app in the partner stores.

The check-in, incentive redeem technology is quite impressive. It does not use, as one might expect, GPS features as these are not accurate enough. Founder Cyriac Roeding, explains just how accurate GPS on smartphones is: “It is so inaccurate that you could check into a Starbucks two blocks away”.

Instead Shopkick uses sounds inaudible to the human ear to check you into stores. The technology is patented worldwide and Shopkick founder says they are doing great with over 7000 large retail stores.

What is Shopkick after all?

Simply put Shopkick is a mobile based company. But if we think about it – Shopkick is much more than that. It is the bridge between online and offline retail. Its incentives increase real traffic in stores, increase revenue and all with a simple mobile solution.

Shopkick is doing way better than Foursquare in terms of growth acceleration and revenue per user. After all it has real, tangible discounts. While Foursquare offers you electronic badges and peer recognition (“Look buddy, I am the mayor of this place”) Shopkick’s incentives engage users and marketers even more. The numbers are clear on this: with 3 million  monetize – able users Shopkick is here to stay.

Behavioral Economics and Social Media

Humans are not usually rational. The neoclassical economists were wrong. We don’t make the best economic choices given more information. We do not plan for the future. We care about what others think of us. We act on impulse. All these things are the basis for Behavioral Economics Theory.

This (rather) new economics theory has caught momentum and is now one of the hottest topics in theoretical economics. Well… as hot as an economics theory can be. It blends psychology and neoclassical economics (the thing we generally call economics) to help explain why we act the way we act and to help policy makers increase the likelihood of better economic decisions.

There are many variables and a lot of information on the subject but for a better understanding we can look at some principles outlined by The New Economics Foundation:

  1. Other people’s opinion matters: we take great interest in what others think or do. We don’t usually get informed on economic topics. We usually copy behavior and decisions. Why? First of all we are a social species. We want to be socially acceptable and we can do that easiest by mimicking. It’s also easier.
  2. We are creatures of habit: even if what we do is economically wrong we will continue doing it out of convenience or because we have a habit that forces us to do what we do.
  3. We want to do the right thing: we have an innate sense of justice that leads our behavior. Most of us pay our fines not because we might go to jail but because “it’s the right thing to do”. We help others because it makes us feel good, not because there is any financial incentive in it. Actually such incentives may actually be counter-productive as they take out the primarily motivation – doing the right thing.
  4. We act according to our self image: we care about our commitments and we like to stand up for what we believe in. We see ourselves in a certain way – that leads us to certain kind of behavior in order to avoid cognitive dissonance.
  5. We are more loss averse than gain interested: we hang on to what we believe is ours. We treasure our possessions more than we value what we could potentially gain.
  6. We are not very good with data: we don’t really understand numbers, we’re bad at calculating probabilities and we take decisions based on how information is presented to us.
  7. We need to feel empowered to take action: too much information can lead to the inability to act. Too many options make us feel helpless. People need to have a clear understanding on how their actions affect the world around them to fully commit to any activity.

Behavioral economics in social media

Feelings, sharing, likes, friends, fans are not words we usually hear in business economics. We do hear them pretty often these days in social media. Business are starting to understand the importance of customers behaving socially. Social behavior is what drives companies to success or into the ground. There are no formulas in financial economics that can describe the feelings people have toward one company or another.

Classic economic behavior can be described in numbers on a spreadsheet but is not the way real people act. It is a flawed economic model in an economy that results in debt and frustration. The first result can be seen in the financial models we’re currently looking at. The second one cannot.

There is a growing media that helps express and amplify the principles of behavioral economics. That is the Social Media. With the growth of such social networking companies such as Facebook or Twitter, people started acting more and more connected. We now have an way of observing behavior with the help of social media. As it turns out all the principles of behavioral economics can be seen in social media. Let’s have a look at them:

Behavioral economics principles at work in Social Media

  1. Other people’s opinion matters: we care what our (Facebook) friends think of us. That’s why we share interesting quotes, we “like” only certain brands and we are very careful before posting something online.
  2. We are creatures of habit: first of all have a look at your behavior today. You have probably checked your Facebook timeline or Twitter profile at least once today. Why? Because you are accustomed to Facebook. You can’t give up checking the news, the photos your friends posted or the new products your favorite brand advertised on Facebook. Increase in mobile internet popularity is only enhancing this behavior.
  3. We want to do the right thing: people are sharing more and more social causes through social media. With over almost 1 bn users, Facebook acts as a catalyst for social causes. Social causes spread fast and users are very likely to share social messages. But that’s not all. Individuals as well as organizations now know that anything wrong-doing can have a long term negative impact on their life. Here is a video of a police officer pepper spraying demonstrators that quickly lead to a large negative social media response. If you were to search Google for the phrase “Sgt. Pepper Spray” you will find no less than 213 000 pages that frown upon his behavior. Eventually his email address and home address leaked to the internet. You can imagine the outcome.
  4. We act according to our self image: People have a certain self image that translates into social media behavior. For example: Barack Obama’s “Hope” presidential campaign was not really about the soon to be president. It was about the people that he represented. People found in the campaign a positive message for change. They’ve seen that the presidential candidate expressed a need for better people to run the country. People such as themselves. A lot of Obama’s success story happened on the internet where people expressed their views on “Change”. The messages they’ve spread were positive expressions of self image. People were not “like”-ing Barack Obama. They were “like”-ing themselves and the way they wanted their friends to see them.
  5. We are more loss averse than gain interested: Think about how often you see messages like “don’t lose the opportunity”. Why? Because they work. Groupon cashed in on the feeling people have regarding limited time discounts. So did Woot. Using loss-aversion works really well in online retail.
  6. We are not very good with data: If neoclassic economics theory would be true and if we really were rational beings, Groupon would never had caught on. Buying a discounted sky dive or a night lamp when we have ten already does not make sense economically. However, people did buy those things. Why? Because social media goes hand in hand with presentation bias. Suppose we see a 70% discounted offer on blue handkerchiefs that were already bought by 300 people. We think – “oh my, I must buy that handkerchief now or they will go out of stock. Look – 300 people already bought it”. The information has been framed (70%) and enhanced by other people’s behavior. We do not think whether we need the handkerchief or not, whether it is an economically safe behavior. We see the deep discounted price, we see that other have already bought this (see point number 1.) and we “need” to buy the handkerchief. Now.
  7. We need to feel empowered to take action: there are millions of products on Amazon. Billions of web pages indexed by Google. If we were to browse rather than search we would probably get frustrated and quit. However – we still use Amazon and we still use Google. Why? Because of targeting. Both companies dig through millions of terabytes regarding other people’s behavior to serve us the products and results we are most likely to buy or open. That makes our choices easier and we feel empowered to act.

I believe behavioral economics are here to stay. The kind of human behavior they explain has always been here. Social media is just acting as a catalyst to this kind of behavior. If we are to look deeper into behavior economics we need to use social media data to better understand the way we act and how can we get to economic results. The internet economy is growing at a faster rate than any other sector because successful online entrepreneurs already know the seven principles outlined here even if they’ve never heard of behavioral economics.

Mobile internet trends

It seems like everything goes mobile these days. Mobile phones get smarter, tablets get more and more popular and people use their mobile phones for much more than voice. Mobile internet usage includes news, entertainment, shopping, social networking and much more.

The Facts on mobile internet

First of all – what is mobile internet? It is the usage of internet on mobile devices such as handhelds, tablets, personal assistants, netbooks or laptops. It has become quite popular in the past 3 years growing growing from under 1% of total internet traffic in 2009 to more than 10% in 2012.

The mobile internet is expected to surpass desktop internet by 2014, as shown in the attached graph (source). Such a fast adoption rate is caused by:

  1. Decrease in PC sales (HP sales in the US decreased 12 percent in the second quarter of 2012 and Dell’s PC sales decreased by 9%).
  2. Increase in tablet and smartphones adoption (Apple alone has shipped over 60 million tablets in just 2 years from launch and more than 20 million iphones)
  3. Decrease in 3G connectivity costs (Idea Cellular decreased the costs for 3G connectivity in India by 70% )
  4. Mobile penetration is disproportionately larger than internet penetration. The global mobile adoption rate is now 86.7% . The global internet adoption rate is 32.7%. Mobile operators will grab out and reach the treasure that is mobile data traffic. They have the infrastructure, the clients and the distribution.
  5. Voice has been steadily declining compared to data traffic in developed countries.

Mobile internet plans are decreasing and adoption rate is increasing – what now?

With mobile internet plans decreasing we will see a clear increase in adoption rate. There is still a long way to go as mobile traffic accounts for only 10% of all internet traffic. Taking into account the fact that Internet has just 32.7% penetration we see that there is a huge opportunity there: mobile internet traffic is due to increase by at least 1000% in the next five years.

How can we benefit from mobile traffic growth?

Using this date one might think of this potential opportunities:

  1. Increase in cheap smartphones sales. As you can see in a previous article almost 75% of all mobile phones are owned by consumers in developing countries. This consumers need low-cost, decent performance, mobile internet ready devices.
  2. Increase in mobile operators revenue. The untapped potential of data traffic is even bigger than the one voice plans had. Mobile operators already have the client base, the mobile infrastructure and the distribution network to reach this potential market.
  3. Increase in mobile commerce: whether retail or paid apps distribution the mobile sales will increase in the future, even at a faster rate.
  4. Premium mobile entertainment: just like apps, paid entertainment will develop at an exponential rate in the future.
  5. Decreased market for desktop based software companies: Microsoft has already began to feel the surge in desktop sales as desktop based software such as Microsoft Windows, Microsoft Office will either adapt or fade away.

How is Facebook changing the Internet Economy?

By now you have probably heard of this little thingie called Facebook. You have also heard it has a bunch of users and these users are spending a lot of time on the platform sharing thoughts, news, photos, playing games or interacting with each other.

The Influence of Facebook on the Internet Economy

Right now Facebook accounts for roughly 30% of all internet users and is estimated that 20% of all pageviews on the Internet are on Facebook.

Facebook is big. It is so big that Internet World Stats added a special Facebook usage indicator to each country. As you can see there is no Google usage, no Yahoo usage, no Twitter usage indicator but there is a Facebook usage indicator. For good reasons too …

Using Facebook to increase online sales

In just 8 years from the 2004 launch, Facebook is expected to reach 1 billion users in 2012. That number is more than impressive. It is fastest adoption of any communication related technology.

Facebook related sales are a huge part of what lures giants such as Amazon, Apple, Ebay on the platform. From my experience Facebook seems to be the most profitable refferal for small and mid-size ecommerce companies and accounts for a large part of sales generated by larger online retailers.

While Facebook stores may not yet be the best choice (JC Penney, Gap and Nordstrom have opened and than closed their Facebook stores) there is a clear opportunity to be harnessed with Facebook related ecommerce.

Facebook creates jobs, has a  7.3 Billion Euro economic impact on Europe

A recent study by Deloitte states that Facebook accounts for a 7.3bn Euro economic impact and has so far, through the creation of Facebook pages and advertising , created more than 110.000 jobs in the EU.

Just like Europe many other regions benefit from the impact Facebook has had in the recent years. In the EU the country with the heaviest Internet Economy, the UK, has also the largest Facebook user base. Although merely a correlation and not a cause for the heavy impact the internet has on the UK economy it is easy to see that Facebook usage increases internet economy impact and many small and mid-sized companies can benefit from it.

Where is Facebook headed?

With such extraordinary growth and impact on our lives, both socially and economically, Facebook is sure to develop even more. Facebook is more than an website or application. It is a communication framework, a market that has already changed the life of its users. It will continue to do so. It will reach beyond extending the Internet.

I expect Facebook to cycle through some inherent changes but in the end it will probably be the biggest internet – based business in the world.

UK – the heaviest Internet Economy in the world

Internet has changed many aspects of our lives and will continue to do so. As people shift their attention more and more toward the internet so does the economy.

UK leads the way towards this new economy with a £82bn ($128 billion) internet economy. About 16% of this ecosystem is accounted for by mobile connections. The overall traffic is expected to increase each year between 2010 and 2015 by 37%. What does that mean? Having an ever increasing interest for mobile connections and ecommerce we might see three trends in the future:

  1. Mobile networks will need better infrastructure to handle the growing traffic.
  2. Mobile internet will increase in popularity which leads us to…
  3. Mobile commerce will set new challenges to retailers as consumers get more informed, faster deliveries and better deals

Data regarding these numbers has been put together on a study commissioned by Vodafone UK to ATKerney. You can find the study here.

It’s interesting to see that the internet economy reacts to people needs and wants as is stated in the graph bellow:

 

As you can see the internet is expected to be the most commonly used media in Europe by 2013, with 50% of all media consumption.

The other media (radio, print, TV) is expected to continue to decrease in the following years.

With smartphone usage doubled between 2008 and 2010 it is expected that smartphone terminals will be a major player in the internet economy ecosystem. Data is already used more often than voice. Mobile operators will adjust their market accordingly and that will increase the internet consumption even more.

Online retail (both web and mobile) accounts for roughly £45bn ($70bn) – approximately 6% of GDP, leading the UK to the 1st place in G20 countries as internet economy share of GDP.