Facebook is Building the Commercial Graph

Facebook is well known for its work in building what it calls the “social graph”, a description of the connection between the users of its service, their content, and the relationships between all of these. It has mostly used this term in the context of the Graph API it shows to third parties, who can then create value from it. With around 1.5 billion monthly active users, Facebook’s social graph is by far the most complete and extensive of any service in the world. But it’s almost entirely a personal social graph, showing connections between people and other individuals.

Messenger and M are helping build the Commercial Graph

However, two recent moves by Facebook suggest it’s taking the concept of the social graph – connections between individuals – and extending it to the relationships between individuals and brands, something we might refer to as the Commercial Graph. These aren’t the first moves Facebook has made in this direction by any means. It’s had Pages for companies, brands, and the like for many years, but these products have been fairly basic in nature, and the “relationship” individuals have with these brands has actually become less important over time as Pages content has been filtered out of the News Feed.

The two recent announcements I’m referring to are the use of Messenger as a way for businesses to communicate with customers (made at F8 this year), and the announcement on Wednesday this week of M, a new assistant that will be built into Messenger. Both of these products give businesses new ways to reach consumers by more direct methods. The former provides a new channel for customer service, while the latter makes Facebook (and potentially, its contractors) the middleman in a range of possible transactions between users and businesses. In both cases, Facebook is facilitating and streamlining relationships between users and the businesses they actually want to do business with (as opposed to merely “liking” a brand, a far looser association with a business).

New business models for Facebook

Why is Facebook doing all this? Well, it’s both a continuation of and a break from Facebook’s past business models. It’s a continuation in that, essentially, all of Facebook’s revenue today comes from businesses trying to reach end users through the service, almost exclusively through advertising. But it’s a break in that this new model wouldn’t be about advertising per se, but rather about Facebook facilitating transactions with businesses and potentially taking a cut. Even though Facebook’s advertising revenue has grown from a low of 82% of total revenue in 2012 (in Zynga’s heyday – no pun intended) to 95% of revenue today, chances are the company’s revenue base will diversify significantly over the next few years as it continues to pursue these new business models (and others). Facebook has talked about how its model for monetizing Messenger will mimic its model for monetizing the News Feed — it will be centered around businesses paying to reach users. It seems as though Facebook is launching the services that will eventually provide new revenue streams, without necessarily turning on the monetization just yet.

Over time, there’s also the opportunity to start to tie this disparate islands of brand/end user interactions together into a more coherent set of services through which brands can acquire customers (advertising), push generic updates to them (Pages), engage in transactions with them (M), and provide customer service around those transactions (Businesses on Messenger). It’s possible straight-up commerce (the legendary “buy button”) might actually be one of the last puzzle pieces to fit into place.

The human element makes another appearance

One other interesting aspect of these moves from Facebook is they further a recent trend we’ve seen with Apple and others — the increasing involvement of human beings in what used to be purely digital business models.

Apple has recently increased its use of human curation for its Music and News apps and Facebook’s new assistant makes use of human beings as part of its concierge service. Both these moves are in marked contrast to Google, which appears to be ever more heavily dependent on purely algorithmic services including Google Now (and the Now On Tap enhancements showcased at I/O this year), self-driving cars, and so on. All of this raises important questions about the scalability of business models which rely heavily on human beings – curation at least has the benefit of doing the work once to benefit all users, whereas a concierge service typically requires the human element to scale with the work to be done. My guess is Facebook hopes to automate more and more tasks over time as its human “trainers” perform tasks frequently enough to establish patterns and processes which machines can then repeat for future transactions but, as the diversity of users and use cases grows, I’m not sure this repeatability will offset the need to scale the team.

More signs that owning users is enormously powerful

All this also lends further weight to the idea that, once you capture a really significant number of users and a significant portion of their attention, those two assets can be used to drive a huge number of other products and services. What’s fascinating to me is Facebook is not just using these assets in this way but also investing in entirely new business models like Oculus. However, in the short term at least, it seems the vast majority of Facebook’s new revenue opportunities will come from leveraging the same users – and businesses – who already use its service but in new ways.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

4 thoughts on “Facebook is Building the Commercial Graph”

  1. What a novel breakthrough idea! Facebook is going to leverage user’s attention to sell them things!

    What will they think of next? Yawn.

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