Thursday, February 23, 2012

Conflicting Natures of User Growth and Privacy Protection, and how companies must exercise caution to maintain business integrity and brand reputation

As social networking fast becomes the theme of burgeoning tech start-ups, user growth has been adopted as the standard metric for forecasting success. Major social networking sites such as Facebook have shown incredible user growth, currently owning more than 800 million registered users and projects to surpass the 1 billion mark by August 2012. Pinterest, the most talked-about social networking site in the recent months, has achieved the unprecedented 11 million registered users within the first year of its launch.

Pinterest has recently faced questions and challenges for not being completely forthright with its users. Pinterest swaps out the links behind product pins, using a third-party service called Skimlinks, with its own affiliate links. A pin that points to a product on Amazon, for instance, passes the clicker through to the product page with a Pinterest affiliate code thrown in for good measure. And should that person go on to make the purchase, Pinterest pockets the affiliate money. This type of affiliate marketing is commonplace; however, Pinterest makes a strategic error by not disclosing it to the public, and worst of all, getting caught for it. (Pinterest has since dropped the Skimlinks service within a week of exposure, a a testament to the vulnerability of brand reputation).

Pinterest’s story is an example of how user growth has an inverse relationship with user privacy. As user base of a social networking site like Pinterest grows, its user data becomes exponentially more valuable and more susceptible to marketing manipulation. Pinterest most likely did not anticipate the explosiveness of its growth, and probably did not fully foresee the marketing potential of its expansive user base. (it was founded by an architecture major from University of Chicago that has an keen eye for UI aesthetics, not a MBA graduate from Harvard). Now imagine the amount of purchasing behavior data Pinterest is able to collect judging from its already incredible user growth, and it’s not difficult to position Pinterest as another eBay or Amazon. In other words, who knew?

Lockerz is another social ecommerce site that leverages its users to execute social networking marketing for various retailers. The company recently announced its new “Locker” look, which allows users to curate “decals,” or the equivalent of a Pinterest Pin, on its website. Those decals can be categorized into groups such as makeup, clothing, and gadgets to be shared around Lockerz and other social networks. The incentive to share these decals is to get points. These points are similar to an arcade ticket. The more you earn, the bigger the prize you can buy at the gift shop.

The difference is that Lockerz announces its monetization model to its users from the get-go, and users are incentivized to share the products they purchased to earn reward points and discounts. Lockerz never claims to be merely a socializing site, like Pinterest does, where you simply share galleries of arts and crafts with others. While Pinterest has done a tremendous job on creating an unique, pin-board style user interface that gains fast appeal amongst those aesthetically-inclined between the ages of 25 and 44, it did not establish a solid business model from the outset, and invited criticism for its seemingly deceptive marketing tactics.

CybEye aims to stay clear of the dubious path that Pinterest had taken by clearly stating its business model : $99/year for premium membership including features such as importing bulk contact list to event follower list while expanding its user base through FB and Twitter log-ins without compromising user privacy. As CybEye’s user base expands, it might face the same temptation that Pinterest experienced to take advantage of its user volume for financial gains, it still recognizes users are the most precious assets of a social network, and it would be disastrous for the ever-so-fragile brand reputation to lose the confidence and trust of its customers.

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