If there was ever a doubt about the strategic nature of data, it should be long gone now. Facebook has made a public spectacle of what happens when you get your data strategy wrong. An early read on four macro-level lessons Facebook teaches us about data strategy is provided below.
Lesson 1: Business Strategy Leads
The strength of your data strategy depends on your business strategy. Facebook’s business strategy, as interpreted from their actual behavior in the market, focuses on advertisers. Facebook is a media company. The Cambridge Analytica scandal involving data for 87 million users, and the subsequent revelation that most of Facebook’s 2 billion users probably had their public profiles scraped, demonstrates the low priority Facebook places on users and the high priority it places on advertisers. In his few public interviews, Mark Zuckerberg talks as if users are the true Facebook customer. We now see this is more fluff than substance. Facebook’s behavior reveals it is intensely focused on maximizing revenue and profits from advertisers.
The key business strategy question Facebook struggles with is: “Who are our customers?” The naïve answer is based on the axiom: “take care of the ones who pay the bills.” Advertisers pay Facebook’s bills, so they are the customer, right?
Facebook knows they need both users and advertisers, but they trivialize the business strategy problem of users versus advertisers with answers like: “We are a platform,” “We connect people” and “We don’t create content.” These answers merely disguise their true business strategy, which is to maximize revenue and profit from their B2B customers.
The “platform” is not an amazing new business model where a company can simultaneously be a B2C and B2B company. The magic trick just doesn’t work. Facebook’s B2B + B2C platform assertion is reminiscent of the dot com craze, where profits were deemed old school and first-mover market share was the new king. We eventually saw through the smoke and found a speculative bubble. Likewise, we now see Facebook’s platform strategy is actually a wolf in sheep’s clothing: private user data is being devoured by advertisers.
Facebook’s business strategy to maximize advertiser revenue drives their data strategy, which is to gather, store and serve up private user data to advertisers in all sorts of enticing and powerful ways. You can’t fault Facebook’s data strategy for directly and accurately reflecting its business strategy. Rather, the Facebook business strategy is flawed, which in turn leads to a flawed data strategy.
So, the first Facebook data strategy lesson tells us a company cannot find a good data strategy if its business strategy is flawed.
Lesson 2: The Problem with Governance
Not that long ago, the topic of corporate governance was consistently dismissed by most executives as liberal poppycock. All leading business schools in the second half of the 20th century worked on the assumption that shareholders are the only governance voice that matters, and the purpose of a corporation is to maximize shareholder value. Most business writers still hold true to the classical notion of corporate governance. For example, a recent article claiming to be a new version of corporate governance is nothing more than updated classical economic theory.
As articulated by Adam Smith back in 1776, an individual’s precious, hard-earned savings are invested in a business in exchange for a share of its profits. We must reward this economically essential act of personal risk-taking and give shareholders control over companies, require corporate directors to maximize profits, and award shareholders an exclusive claim on profits. Classical economic theory asserts its approach to corporate governance ensures a healthy economy, and everyone wins.
No less than three major components of the classical theory are false. First, in today’s economy, banks play the dominant role in corporate formation and growth funding, not shareholders. Stock buybacks dominate balance sheets, not cash infusions from issuances. The primary role of stock is to reward executives and speculators, not investors in the classical economics sense. If stock investors are largely irrelevant to economic funding and growth, then classical theory and all of its attending assertions on board structure and profit maximization are on shaky ground.
Second, shareholders are not the only relevant corporate stakeholder. The Facebook saga proves that customers and governments are powerful and crucial stakeholders. Deny their voice in your governance at your peril. Now many executives and business experts wonder: How can one of the largest companies in the world with a $464 billion market cap be controlled by a single human being? How can users have no formal governance representation in a company with 2.2 billion monthly active users? Based on what is being written in the business press over the last month about Facebook, it seems that more experts conclude the system is broken when it allows a company as large as Facebook to be governed by a single individual.
Third, very few actually win in classical economic theory. Billions of users clearly drew the short stick with Facebook. More broadly, tremendous income and net worth inequality is increasingly seen as a threat to overall economic health. The rising US economic tide lifts a few boats far higher than others. The USA’s Gini is increasingly a point of contention domestically and a source of embarrassment globally. Studies consistently point to the deleterious impact of extreme inequality on a country’s overall economic health and individual happiness.
Another way to state Lesson 2: Companies have multiple critical constituents, and you place the company at serious risk if these parties are not well represented on the board and in the C-Suite.
FROM OUR SPONSOR:
Lesson 3: Brand Trust Is Social
The consequence of claiming to love one customer but actually cherishing another is devastating on two levels. First, you underserve the group you pay lip service to. Second, and far more importantly, you betray their trust. It is like having an affair while you are married, it rarely sustains everyone involved. The losers in the deal eventually extract revenge.
Today, revenge is often extracted socially. Users are more powerful than ever before. They can access a global megaphone, and they know how to use it. Emma González, the Parkland Florida high school student, now has 1.6 million Twitter followers and David Hogg has .7 million. In several months they acquired more followers than the NRA, and they launched marches across the US that attracted record numbers of attendees.
The #DeleteFacebook tag started trending immediately after the Cambridge Analytica scandal broke. Prominent actors such as Will Ferrell have deleted Facebook, and Newsweek recently asked on Twitter: “Is this the end for the world’s most powerful social network?” Google Trends tells us in the last 30 days, the leading searches associated with Facebook are: “facebook cambridge analytica” and “download facebook data.” Of course, neither of these searches were detectable in 2017.
Government revenge is also social. Much of the EU’s consideration of consequences for Facebook is guided by citizen anger over their sense of betrayal. They gauge this anger, in large part, by tracking social media.
Many brands realize the high importance of trust, not only in the product itself, but also in the company’s moral, ethical and social orientation. Many corporate brands now intentionally integrate broad, important social issues into their business strategies, not just their ads. They do this because their employees want to work for a company with a social mission, and their customers want to connect and affiliate with brands that take a stand on social issues.
Marketers know they must segment, which means they can’t be all things to all people. To build trust, companies see they must take a social stand. What was once apolitical is now taking a stand for the status quo. Today, when a company avoids social issues, they are perceived as conservative if not cowardly.
As we realize brand trust now has a powerful social dimension, we must accept that building trust with today’s customers involves taking some type of social stand. That stand cannot merely play lip service and sound nice. It must be genuine. If not, the backlash could be exceedingly painful—Facebook painful.
Lesson 4: Company as Data Butler
As marketers have been saying for well over a decade now, customers are in control. They have the power over the purchasing process. A company like Facebook may have a momentary edge in the buyer/supplier power equation and exploit it for tons of profit, but the party will be short-lived. If a company or its owners want to exploit a fleeting advantage over users, then they bear the risks associated with the eventual consequences associated with user revenge.
The EU’s parliament approved the General Data Protection Regulation (GDPR) in 2016. It asserts individuals have a fundamental right to data privacy, that this right is regularly violated, and that the EU will now protect its citizens against encroachments of this right.
Regardless of whether one thinks the GDPR goes too far or not, the fundamental business truth is that customers want their personal data to be treated as private and only used in a way that serves them, not someone else.
- If a company gathers and retains customer personal data without their knowledge or permission, then customers will feel stalked by the company.
- If a company irresponsibly lets a third-party steal customer personal data, then customers will feel betrayed by the company.
- If a company uses customer personal data in a way that does not serve them, those customers will feel assaulted by the company.
Add these negative feelings and judgements to the fact that customers are in control of the buying process, and a reasonable business person can only reach one conclusion: to run afoul of customer data privacy preferences is to assume massive business risk.
A great example of being smart about the use of customer data is provided by Ana Andjelic and Rachel Conlan of Havas. They embrace the strategic move “from stalker to butler.” Or, as John Deighton wisely asks and answers:
“But just what is the difference between being helped and being stalked?
The answer requires a lot of experimentation across methods and across individuals.”
In other words, good old-fashioned marketing that focuses on serving customers is the framework that can lead a company to the right policies and practices for serving customer needs around data privacy. In fact, doing a great job of it can create a competitive advantage.
So what sounds better: Pushing the data privacy envelope and inviting the wrath of customers and governments to rain down upon you and your company as you exploit their data, or crafting a data strategy that strengthens your competitive advantage with customers?
Frank Grillo is the CMO of Harte Hanks. He is a passionate advocate for bringing the human back into marketing by better understanding and facilitating customer journeys.