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INTRODUCTION
Market segmentation1 of Facebook users2, as a topic of research, raises intriguing
questions in relation to the fact that Facebook is a multi-sided platform (MSP).
Research studies on this topic (Brandtzaeg & Heim, 2011; Bernoff, 2010; LorenzoRomero & Alarcn-del-Amo, 2012; Lee & Sutherland, 2011; Foster & Francescucci,
2011 ) classify users of social media and specifically those of social networking sites
(SNSs) like Facebook into segments based on variables such as rate and type of use,
benefits sought, motivations and demographics and so on. But, current literature largely
assumes that the task of segmentation strategy for Facebook is limited to helping drive
1
Segmentation (Smith, 1956) is based upon developments in the demand side of the market and
represents a rational and more precise adjustment of product and marketing effort to consumer or user
requirements (italics added). In the language of the economist, segmentation is disaggregative in its
effects and tends to bring out recognition of several demand schedules where only one was recognized
before.
2
I use user for personal users as opposed to business users; namely affiliate marketers or businesses
and developers in addition to Facebook Co itself. Though I often use the term affiliate marketer or just
marketer, one may choose to call them businesses or affiliate business users because they are increasingly
doing activities such as social care, crowd-sourcing, and so on that go beyond marketing/advertising.
the use of online social networking service (OSN). It largely ignores the interests of
Facebooks sources of revenue; mainly affiliate marketers, and partly affiliate
developers. The segmentation schemes for Facebook in these studies, therefore, are not
aligned with the overall strategy of the Company. The literature on strategy for multisided platforms (MSP) (Hagiu et al, 2011; Rysman, 2009; Eisenmann, Parker, & Van
Alstyne, 2006; Evans & Schmalensee, 2005; Rochet & Tirole, 2006; Weyl, 2011)
addresses platform pricing and product strategies, and in fact, explains why Facebook
freely offers its OSN service to users, the side that has greater network effects. But
implications of MSP based business models for market segmentation strategy is yet to
be addressed directly. To address this gap in research, I model market segmentation as a
3 dimensional problem at the MSP level for Facebook to factor in the interdependent
interests of Facebook company, its affiliate marketers as a group, and developers as a
group. Making use of an empirical study in addition to secondary research, I develop a
comprehensive framework of analysis to aid the task of segmentation. Based on the
analysis of the study, I put forth a set of propositions addressing (a) the causal
mechanism for response heterogeneity the prime basis for segmentation (b)
interdependence of services (OSN, marketers fare and developers fare) on the MSP (c)
basis for comprehensive segmentation, and (d) the integrality of the low rate users for
further validation through research.
Facebooks MSP (Figure 1) has a diverse range of offerings for users today. For reasons
of tractability, these may be broadly categorised as (a) online social networking (OSN)
from Facebook company, (b) marketers fare3, and (c) developers fare. Facebooks
business model (Hagiu & Wright, 2011; Enders, Hungenberg, Denker, & Mauch, 2008)
suggests that Facebook would benefit from identifying, growing and reaping from
segments that respond to marketers and developers also rather than segments that limit
themselves to use of OSN only.
Facebooks MSP and Business Model
Facebook Users
Facebook MSP
Facebook Co.
Marketers
Developers (apps/games)
Figure 1
3
However, one must not overlook the fact that use of OSN makes possible the
interactions of marketers and developers with users4 and as a consequence, the earnings
for Facebook. Though many people use only the OSN offering on Facebook, and hardly
respond to marketers; i.e. .05% CTR for advertisements (Lee, Jarvinen & Sutherland,
2011) and developers; i.e. only 10% revenue in 2013; they still do enhance the value of
the Facebook platform and earnings on it through network effects (Eisenmann, Parker &
Van Alstyne, 2006). They help bring in, retain and engage other users who choose not
to limit themselves to using OSN only, and respond to marketers and developers.
Facebooks current business model5 based on its MSP architecture shown in Figure 1
makes it primarily depend on advertising revenue from marketers today. 90% (2013
figures#) of revenue is from advertisements by marketers and 10% from developers in
the form of fees. Facebook provides a system that enables affiliate marketers to leverage
reach, relevance, social context, and engagement. Facebook users may choose to
interact with affiliate marketers by connecting to a marketers business page on
Facebook by liking the brand or the marketer. The latter mode is often used by
marketers to drive engagement (Van Doorn, Lemon, Mittal, Nass, Pick, Pirner, &
Verhoef, 2010) through a range of activities. Many marketers are driving awareness and
engagement with their key brands of products/services and using Facebook as a
listening post. Facebook earns revenue for advertising and also for facilitating posts
from marketers to users who have liked them on Facebook. Facebook makes money
from developers mainly through its share of 30% of value transacted between
developers and users. Most of the money from developers is based on purchase of
virtual goods and services that accompany the use of apps/games.
In sum, to segment Facebook users, I make a contention in this paper to recognise
differing demand schedules of users for the offerings of marketers and developers in
addition to that for OSN.
1
LITERATURE REVIEW
SNS like Facebook constitute a growing segment in the social media space. I review
five research studies that classify or segment Facebook/SNS/Social Media users below
in this section. This is followed by relevant details from research literature on MSPs.
1.1 Socialisers, debaters, lurkers, sporadics and actives
A very elaborate classification study (Brandtzaeg & Heim, 2011) of SNS users is based
on an analysis of the survey data from 5,233 respondents in Norway in four major SNS:
Facebook, Orkut, LinkedIn, and MySpace. Based on rate and type of use, the study
found five distinct user types: (a) socializers, (b) debaters, (c) lurkers, (d) sporadics and
(e) actives. The sporadic constituting 19% are occasional users with little initiative.
They seek information from time to time. Lurkers making up 27% are also passive users
contributing little content, but they use SNS for recreation. Socialisers at 25% incidence
are younger; have greater participation; follow up and comment on pictures of friends,
4
5
http://bmimatters.com/2012/04/10/understanding-facebook-business-model/
http://marketrealist.com/2014/01/facebook-revenue-advertising/
and even seek out new friends on SNS. Debaters at 11% participate as much as
socialisers, but are more intellectual in their pursuits. Actives at 18% have the widest
range of activities such as community events and publishing music or videos.
1.2 Introverts, versatile and expert users
A more recent segmentation study (Lorenzo-Romero et al, 2012) made use of latent
class segmentation technique to arrive at 3 segments that differ in rate, type, and
motives of use. Introverts (41%), with less than 50 friends, use SNS at most once a
week for less than an hour largely for email. Versatile users (47%) use several times a
week for a total of 1-5 hrs. They young and have a wide range of use. Keeping in touch
and entertainment are dominant motives. Expert users (only 12%) use it more than once
in a day for the widest range of activities on SNS including informing others about
brands or products they use. Dominant motives are making new friends, experiencing
the novelty of SNS, and pursuit of professional interests.
1.3 Social technographics ladder of social media savvy
Social Technographics (see Table 1 below) by Forrester Research (Bernoff, 2010)
profiles social media users into 7 types that overlap to an extent. Type of use and extent
of savvy are the basis of classification. The savviest users of social media at the top
rung create content and upload or publish it on the web. These 24% of creators contrast
with spectators who mainly consume content read, listen or watch content but do not
create/upload/publish it. The other roles are as shown below.
Creators
24%
2
3
Conversationalists
Critics
33%
37%
4
5
6
Collectors
Joiners
Spectators
20%
59%
70%
Inactives
17%
Table 1
1.4 Middle of the road, social interactors, maximizers and information seekers
A study that addressed response to marketing stimuli (Lee et al, 2011) in some measure,
found five segments on the basis of general and feature uses of SNS as well as
motivation factors. The maximizer segment (26%) is the highest on rate of use and also
on all four gratifications sought - social interaction, entertainment, self-expression and
information seeking. A maximizer is likely to be a fan of a company and send out mass
messages. The social interactor (15%), information seeker (20%), middle-of- the-road
(32%) , and laggards (7%) were other segments. Motivations for using Facebook did not
appear to influence responses to advertising on Facebook. No significant difference in
advertising avoidance was found across the five segments (p >.05). Opinion leadership
showed no difference across four out of five segments though it did differ for the
laggards segment. Interactors and laggards were significantly lower on market
mavenism than the other segments. All five segments showed medium to high deal
proneness. Social interactors (15%) were found to be low on use of apps/games and
lowest on using coupons or promotions.
1.5 The MSP context
A multi-sided platform (MSP) may be defined (Hagiu & Wright, 2011) as an
organization that creates value primarily by enabling direct interactions between two or
more distinct types of affiliated customers. A MSP can have a range of business models
to choose from and strategy (Eisenmann et al, 2006) for the platform provider is a
function of the business model. The basic models for generating revenue in case of SNS
(Enders et al, 2008) are advertising, subscription and transaction. Facebook mainly uses
advertising and transaction. As a MSP, Facebook has two types of network effects
(Hagiu et al, 2011; Rysman, 2009; Eisenmann, 2006; Evans & Schmalensee, 2005);
same-side (also called direct) and cross-side (indirect) effects, each of which can be
positive or negative. A same-side effect, in which increasing the number of users on one
side of the network makes it either more or less valuable to users on the same side; and
a cross-side effect, in which increasing the number of users on one side of the network
makes it either more or less valuable to the users or players on another side (refer Figure
1). Same-side network effects are positive for SNS users but usually negative for
marketers and developers if competitors are added. Marketers of complementary
offerings may be added with positive effect for incumbent marketers. Usually, there are
positive cross-side network effects between users and marketers, and users and
developers. Increase in number of users benefits and attracts more marketers as well as
developers. Increase in developers has positive effect on users. The effect may be
negative when addition of marketers results in more advertisements. Often some users
benefit from adding a marketer whereas other users find it intrusive. Increasingly, the
negative effect is being minimized with more relevant targeting.
In this section, I present the findings of an empirical study6 that helps develop the
approach to market segmentation for Facebook. This is a segmentation for the OSN
service (and not marketers or developers fare) to begin with. It is based on around 261
(50 pilot and 211 in final round) responses from current and past students of Indian
Institute of Management Bangalore, a leading business school in India. The study
gathers information on user characteristics, use and engagement.
2.1 Segments identified by two-step cluster analysis
Two Step Clustering procedure in SPSS that used 4 proposed basis variables (the SPSS
term is input features); in touch (feel out of touch in a while without Facebook), adult
(whether more appropriate for teenagers than for adults), f_24 (whether used Facebook
in last 24 hrs these are frequent users who use it almost every day), and ps_1a
(whether likely to continue using if a monthly rent of $1 is charged for Facebook),
yielded a simple 3 segment solution (Figure 2) tabulated in section 2.2 below. The close
to 0.5 value for silhouette measure of cohesion and separation showed that the market
segmentation solution is satisfactory in terms of within group homogeneity and across
groups heterogeneity. Infrequent, frequent and engaged are the 3 segments.
Price insensitivity
Engaged (21%)
Infrequent
(30%)
Frequent (49%)
Frequency of use
Figure 2
Segment S2
Frequent User (49%)
Segment S3
Infrequent User (21%)
Profile
Frequency of use
Frequent use is a necessary but
insufficient condition to be an
engaged user. 37% of frequent
users constitute the engaged
users of segment S1.
Engagement
For 29%, OSN is low priority
(activity), for 45% Facebook is
low priority, for 69% daily
routine, 81% have continuance
intention, 21% become anxious
without it, 53% feel out of touch
if they miss out on Facebook
Demographics
46% are married
young (83% are 35 or less)
54% stay alone
Subjective Norms/Beliefs
21% think Facebook is more for
teens than adults, 31% find it
trivial, for 48% it is more
stylized self-presentation than
authentic socializing, and 31%
are not comfortable exposing
thoughts online.
Behavioural
Table 2
There is significant heterogeneity in extent and type of need across the segments
Though users are heterogeneous across groups, they do cluster into
homogeneous groups
These segments may respond differently to the firms new propositions or
stimulus as evident from the response to the price change question.
Using descriptor or access variables, it is possible to predict segment
membership with reasonable accuracy.
The segmentation solution for Facebooks OSN offering developed in section 2 based
on empirical analysis augments current research by incorporating a response variable in
the form of price sensitivity. Facebook may use it to drive use and engagement, design
and offer premium features and so on. However, since response to marketers and
developers is not factored in, segment profitability (also revenue and growth) cannot be
evaluated.
3.1 Extending the 3 segment solution for OSN to marketers and developers
I propose to extend the 3 segment solution or framework of engaged frequent
infrequent for OSN to marketers fare and developers fare as well. This is in order to
factor in the responses sought from other important quarters paving the way for a
comprehensive solution. Response of a user to marketers fare may be measured by the
users spend level in response to advertisements in a given period. For marketers who
advertise, users spending above a certain cut-off level but below a certain cut-off level
in engagement behaviour may be grouped as the frequent or high rate users. Users
scoring above cut-off levels in spend level as well as engagement behaviour may be
designated as engaged users of marketers fare. Spend level, however, is inappropriate
for marketers who do not advertise or sell on Facebook. Frequency of interaction with
marketers fare may replace spend level in such a case. One may choose between the
two measures depending on requirement. Engagement behaviour in relation to
marketers includes likes on brand pages and other content; recommendation to friends;
liking, commenting on or sharing of posts or ads; participation in events etc. A score
card may be designed keeping in mind the range of engagement behaviour possible. The
approach may be similar for identifying infrequent frequent engaged users of
developers fare or apps/games. Such an extension shall provide us with the building
blocks of a comprehensive segmentation solution.
F3 D1 M3
F3 M1 D3
F3 M3 D3
F1 M1 D1
F1 M3 D1
F1 M1 D3
Figure 3
3x3x3 = 27 segments which may be represented by a Rubiks cube (I refer to it as the F
cube segmentation framework for Facebook.) because it has the same number of
constituent small cubes (see Table 3 for enumeration). The segments for OSN are on the
vertical F axis of the cube (Figure 4). I designate the infrequent, frequent and engaged
segments as F1, F2 and F3 (equivalent to S1, S2 and S3 of 2.2) respectively with F1 at
the bottom layer and F3 at the top layer of the larger cube.
Each segment for OSN is further subdivided into 9 theoretically possible smaller
segments or cells. These 9 segments capture the variations in frequency of
interactions/response and level of engagement with marketers and developers. M1, M2
and M3 are respectively the infrequent (low rate of spend), frequent (high rate of spend)
and engaged levels of response/interaction with marketers; and D1, D2 and D3 are the
ascending levels of response/interaction with developers through apps/games.
One may note that the 3 axes in Figure 3 are used like those of a a Rubik's cube for
representational purpose. Basically, it shows the 27 possible combinations of responses
of a user to the 3 services - OSN, marketers and developers. On each axis, I show 3
categories of responses - infrequent, frequent, and engaged. Strictly speaking, the axes
for OSN, marketers and developers do not represent orthogonal dimensions. The axes
are not linearly scaled. An engaged user of OSN need not be less frequent than a
frequent user.
F3
F2
Combinations
or segments
F1 M1 D1
F1 M1 D2
F1 M1 D3
F1 M2 D1
F1 M2 D2
F1 M2 D3
F1 M3 D1
F1 M3 D2
F1 M3 D3
Base layer of F cube
Combinations of F1
F3 M1 D1
F3 M1 D2
F3 M1 D3
F3 M2 D1
F3 M2 D2
F3 M2 D3
F3 M3 D1*
F3 M3 D2*
F3 M3 D3*
Top layer of F cube
Combinations of F3
F2 M1 D1
F2 M1 D2
F2 M1 D3
F2 M2 D1
F2 M2 D2
F2 M2 D3
F2 M3 D1*
F2 M3 D2*
F2 M3 D3*
Mid layer of F cube
Combinations of F2
Facebook
Co
#
#
#
#
#
#
#
#
#
Marketer
Developer
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
Size
Remarks
Priority
No.
of
users
inside
the
small
cubes
Cubes with
M2, M3,D2
and D3 are
likely to have
few users
Least
for
current
profits
# low
interest
#
#
#
do
#
#
#
do
Strategy may
be to migrate
F1 users to F2
Important for
network
effects
Top priority
Segments in
F3 are most
receptive to
Fremium
business
model (like
LinkedIn)
Informs
competiti
ve and
growth
strategies.
Highest
for
Facebook
least price
sensitive
to
Facebook
offerings
high
interest
Medium
to top priority
F2 is strategic
because of its
sheer size
clearly bigger
(Table 2) than
F3.
High for
Facebook
May be
highest
for
marketer
or
developer
in some
cells
Table 3
(segments s = 3; groups of business users n = 3 and SN = 27 F Cube in this case)
other variables reported in the same tables. The theory of planned behaviour (TPB)
(Ajzen, 1991) provides several important reasons for heterogeneity among users in
usage patterns. The empirical survey data particularly supports the role of attitude and
subjective norms (refer Table 2 and table A1 in Annexure) in determining levels of use
and engagement. Regression analysis (Table A3 in Annexure) of a range of variables
showed that the other important sources of heterogeneity are: (a) demographic, i.e.
marital status; (b) category (social media) attitude, i.e. keeping in touch and social
influence; (c) category behaviour, i.e. priority of online social networking in days
routine and blogging habits (commenting on blogs); and (c) competitive factors or
multi-homing (Evans, 2003), i.e. LinkedIn and Google +. Perhaps, those who are
married have less need for online socialising than those who are unmarried. Also,
greater need for privacy for the married may discourage use of Facebook. LinkedIn and
Google + compete with Facebook for the users time though Twitter doesnt do so
significantly. It is worth noting that social technologies are still evolving and diffusing
in terms of extent and type of uses (Chui et al, 2012). Different people may take to
different set of services and features at a given time. This is another important yet
changing source of heterogeneity. A key variable that differentiates engaged user from
the frequent user and importantly explains differences in price sensitivity between them
is the love (Batra, Ahuvia and Bagozzi, 2012) variable (see Table A1 in Annexure and
online questionnaire). In the context of this Facebook study, it signifies emotional
attachment, separation distress, passionate desire to use, and willingness to invest
resources, i.e. time or money. Based on these theoretical underpinnings and related
interpretations of the empirical findings, I offer the following proposition to explain
sources of heterogeneity of Facebook users.
Proposition I
(a) Some of the key sources of heterogeneity in Facebook use are: (i) marital status
(ii) category (social media) attitude and behaviour, and (iii) use of competing
OSNs.
(b) Association of Facebook use with social influence and habitual use of Facebook
for keeping in touch give rise to differences in usage and engagement.
(c) An important source of heterogeneity is subjective norm: (i) whether perceived
as more appropriate for adolescents than adults, and (ii) whether perceived as a
frivolous rather than serious activity.
(d) Differences in level of engagement can be partly attributed to love of Facebook.
A larger statistical survey along with objective data from Facebook accounts of the
respondents can help validate these propositions conclusively. Heterogeneity in
response to marketers and developers calls for research investigation using database of
Facebook accounts. The empirical findings of this research are based a sample 261
Facebook users among current and past students of IIM Bangalore is not representative
of the overall population of Facebook users. Also, the survey did not measure response
to marketers and developers for two reasons. The pilot study showed low rates of use of
apps/games, purchase response to Facebook ads, and response to marketers pages in
the sample of study. To get statistically sizeable sub-samples of users who are frequent
and engaged in relation to marketers and developers a stratified sample (addressing the
27 sub-segments of Table 3) may be useful and efficient. Ideally, the sampling frame for
survey of users may be prepared based on Facebook profile page records of activity in
relation to OSN, marketers and developers. In relation to marketers and developers
fare the differences among users from different countries is substantial. This is partly
because of differences in facilities and payment infrastructure on the Facebook platform
itself. To develop a market segmentation scheme, one may also add pan-regional
variables, i.e. US and Canada, Europe, South East Asia and so on.
The sources of heterogeneity in response to marketers may differ from those in case of
OSN. Online purchase behaviour is a patent source. Peer network externality (Lin & Lu,
2011) may have an important role; the more your peers interact with marketers on
Facebook, the more value you find in such interactions and do likewise. Online
openness to experience and self-express, attitude towards marketers/advertisers, and
creativity may count as other sources of heterogeneity. In case of developers fare, the
main source of heterogeneity may the gaming habit in case of games. For non-game
apps, social technology savvy may be a key source. Age and lifestyle may be other
important sources. Data from profile pages and activity logs of Facebook along with
survey responses may help evaluate propositions or hypotheses developed on these
lines.
4.2 Interdependence of services
The offerings on Facebook from the business users, i.e. Facebook Co, Marketers and
Developers may be viewed as 3 different offerings as depicted by the rows in Table 4
(this is a simplification of Table 3 earlier) below. Theoretically, seven possible
combinations of use of these three offerings are possible for Facebook users. S7 are
users who use all three services and are most valuable for the platform. S2, S3 and S4
are rare in occurrence or incidence, because, people primarily come to Facebook for the
OSN.
Interdependence of Services
S1 S2 S3 S4 S5 S6
OSN
Marketers
*
*
Developers
* *
S7
Table 4
It is possible that there are a few users who use Facebook mostly to play some games or
use some apps or interact/transact with some marketers who are not conveniently
accessible elsewhere. However, such users are likely irregular and infrequent. Also,
they may not fully benefit from the interactions in the absence of an active friend circuit
on Facebook. OSN adds value to multi-player games, apps that peer network members
use, and interactions with marketers in varying degrees. Another reason why these
combinations are sparse in incidence is the fact that marketers, barring a few small ones,
are likely to have equivalent offerings on other channels. Developers also do multihoming. So, interest in marketers or developers fare per se doesnt require the prospect
to interact with them on Facebook. When interest in OSN is lacking, they are less likely
to do so. Use of OSN is a pre-requisite though only a fraction of those who meet it
respond well to marketers and developers fare. Another strong argument for the
criticality of OSN use is peer or local network effects (Lin and Lu, 2011). More use of
OSN implies more friends on the Facebook platform which in turn would enhance
perceived value of services on the platform.
There have been many changes in the multiplex that is Facebook in recent times. New
services such as social care and features such as graph search integrate the platform
more and raise the scope for positive same side and cross side network effects. The
wider the range of offerings from a marketer, the more reasons a prospect has to connect
with the marketer on Facebook. While games are intrinsically different from activities
in relation to marketers on Facebook, the same cannot be said of apps that are not
games. For example, a user of Tripadvisor, a popular Facebook app, may be interested
in travel products and a user of a health care app may look for health care products from
marketers on Facebook and so on. Each developer may need to use its own analytics to
evaluate how the response it gets correlates with that for other developers, marketers
and the OSN fare.
The engaged segment tends to use Facebook significantly more than even the frequent
segment (see Table A1 in appendix) and this itself increases their exposure to
communications from and in relation to marketers and developers. The higher exposure
may result in higher likelihood of engagement activities such as sharing and
recommending. Perhaps, more important than the higher exposure is the more positive
social context an engaged user has to support activities on Facebook across the board.
A marketers range of offerings on Facebook to such a user benefits from the fact that
Facebook is a preferred platform for her. The argument is similar for developers. The
preceding discussion gives rise to the next set of propositions.
Proposition II
(a) Response to or interaction with (i) marketers and (ii) developers critically
depends on the extent of OSN use. However, OSN use is a necessary but
insufficient condition for it.
(b) Response to or interaction with marketers and that with developers are
positively affected by each other while controlling for OSN use.
(c) An engaged user of Facebook is more likely to respond to or interact with
marketers and developers than a frequent or infrequent user.
This set of propositions is best tested using activity logs of Facebook users. It would be
interesting to investigate all the non-OSN reasons why Facebook is preferred by some
users. Interdependence between marketers and developers fare, if any, can be
established from longitudinal data from Facebook logs. The stages a typical user goes
through from trial to adoption over time may be studied from historical records of users.
Activities in relation to OSN, marketers fare and developers fare and associations
among may be measured qualitatively and quantitatively to evaluate proposition II
above. Score cards may be designed for measuring responses to marketers fare. As
discussed in 3.2, pages of marketers liked; posts from marketers liked, commented upon
and shared; service apps from marketers used; advertisements clicked on; purchases
made via Facebook and so on may count towards response/engagement with marketers.
Rate of use of apps/games and associated spend levels may count towards
response/engagement with developers.
4.3 Key basis for segmentation
Sections 2 and 3 dealt with the development and extension of market segmentation
solution at length. The analysis underscored the need to include response or interaction
with marketers and developers as basis variables for market segmentation. A pertinent
question that may arise is why segment Facebook users when you can market one to
one. One to one marketing, barring a few cases, does not imply that all elements of
marketing mix are unique for each customer. New product development, for example,
can benefit from segment level standardization. There may be little point in driving a
new product development initiative according to disaggregated requirements of a billion
users found by one to one marketing. The level of disaggregation may vary according to
the element of marketing mix while keeping the segments sizeable. The SN
segmentation framework can guide the process of arriving at the one to one value
proposition and related marketing mix for each customer. Segmentation, for example,
may help sharpen behavioural targeting for advertisements. Information about the target
market segments can be incorporated effectively into strategies (Wind and Bell, 2003).
In case of Facebook Co, strategies may pertain to user recruitment advertising,
competitive positioning, new product development, pricing premium features, business
model innovation and public relations content. All these can be adjusted (Smith, 1956)
to take advantage of the heterogeneity for specific segments of interest.
To illustrate further, suppose, Facebook offers tomorrow premium features that it has
been experimenting with in recent years. It can use browsing behaviour data in
conjunction with profile, activities, and online transaction records to identify
appropriate market segments within the SN framework (F3 segments), and then
selectively offer suitable premium features with appropriate scheme. If a user often
clicks on ads on Facebook, it may not be a good idea to target ads on premium ad free
version of Facebook at the user. Similarly, privacy needs are different for different
groups of users, and so premium privacy features may be targeted selectively. Marketers
placing ads for products and services can be more selective with the help of the SN
segmentation scheme. A marketer however, need not limit herself to infrequent frequent engaged as basis variables. She can sharpen targeting by using in conjunction
other information at her disposal. Besides, for a marketer, segmentation of Facebook
users has to be coordinated with the segmentation it does outside Facebook. An
important benefit of using this framework is that the marketer can distinguish among
segments such as F1M3, F2M3 and F3M3 (refer figure 4) and allocate advertising
dollars optimally. The sn segmentation framework provides the basic building blocks for
segmentation. Depending on contextual needs, one may add more basis variables.
Because there are more than a billion users and it is online, it is tractable to have many
segments. The preceding discussion lays down the ground for the next proposition.
Proposition III
A comprehensive market segmentation of Facebook users calls for basis variables that
measure response to not only OSN, but also marketers and developers. Extent of use
and engagement with OSN, marketers, and developers can be key basis variables on
which we may segment Facebook users. Such a segmentation scheme, with adaptable
metrics for basis variables, can guide strategies not only for the Facebook Co, but also
for individual marketers and developers.
The above proposition, along with the SN framework of section 3 (refer Figure 3 and
Table 3) may be evaluated on a statistical database of Facebook activity records of users
along with survey responses on lines similar to the reported empirical study.
4.4 Network effects and the long tail of low rate users
While high rate users of marketers and developers fare (M2, M3 and D2, D3) respond
to or interact with marketers and developers more often, the aggregate value low rate or
infrequent users (M1 and D1) bring to the platform need not be low. As discussed in
section 1.5, positive same side network effects (Eisenmann et al, 2006) is the
fundamental value driver associated with low rate or infrequent users. Take low rate
users off the platform, and many frequent users shall no longer remain frequent; some
will drop out too. The same argument goes for marketers and developers as well. Cross
side network effects also drive value. The low rate users raise the addressable market or
prospect size which triggers a rise in marketers and developers which in turn spurs the
numbers (Weyl, 2010) as well as rate of response of users. If you take low rate users off,
it will bring down cross side numbers as well. This is special about platform economics.
The base of Facebook users whose rate of response to marketers fare is low (M1 in
Table 3, say below the median rate) is likely to be much larger than those with higher
rates (M2 and M3). This may be implied (needs to be validated empirically) by the fact
that the company earns about half of its revenue (2013 figures7) from only two
countries, US and Canada, though they have less than 18%8 of global monthly active
users. The total value the low rate users contribute thanks to their numbers from all over
the world may eclipse the aggregate value from high rate users like in the case of
Google and eBay. Google, for instance, makes most of its money off small advertisers
(the long tail of advertising), and eBay is mostly tail as well - niche and one-off
products. Because of the long tail (Anderson, 2007) phenomenon, revenue and profits
from M1 may outweigh that from M2 and M3. The same argument applies in the case
of apps/games from developers. There are other reasons in favour of low rate users of
marketers and developers fare. Low rate (M1) users may be of greater interest to
marketers and developers who want to grow new markets. Most of todays M1 may
grow to M2 or M3 tomorrow. As our earlier analysis in 2.2 and 4.1 showed, many users
in M1 segment may prefer competing SNS or social media services. Interestingly, there
are many marketers who mainly want to gather consumer insights (Barwise & Meehan,
2010) on Facebook. They do considerable market research of the inobtrusive as well as
obtrusive kind on Facebook. For such purposes, marketers may look for a portfolio of
segments cutting across M1, M2, M3, F1,F2, and F3. These factors lead to the
proposition outlined below.
7
8
http://venturebeat.com/2013/10/30/facebook-grows-per-user-revenue-in-every-single-global-territory/
https://newsroom.fb.com/key-Facts
Proposition IV
(a) Low rate users of marketers fare on Facebook (combinations of M1 with F2
and F3 in Table 3) are of substantial value to marketers and therefore also to
the Facebook Co itself.
(b) Low rate users of developers fare on Facebook (combinations of D1 with F2
and F3 in Table 3) are of substantial value to marketers and developers and
therefore also to the Facebook Co itself.
(c) Low rate users of OSN (combinations of F1) are (i) of value to the Facebook
Company, and (ii) not of significant value to marketers and developers.
Long tail phenomenon, if any, may be verified by linking revenue and profits to users.
The value of each of the 27 segments in Table 3 may be evaluated from the point of
view of marketers, developers and the Facebook Co to examine the above propositions
well. Data on dollars/Rs transacted for the latest financial year may be used for
evaluating value of each segment of users to marketers and developers at aggregate
level. To evaluate network effects of F1 users, low rate users may be taken off by
deactivating their accounts in an experiment to study the effect on high rate users who
remain. We can also compare the Facebook usage of a family in which parents are
infrequent users and children are frequent users of OSN against that of another in which
parents are inactive or non-users whereas children are frequent users. Ceteris paribus,
the former is likely to yield more benefits to marketers and developers compared to the
latter.
4
CONCLUSION
The key issue I addressed in this paper, to reiterate, is the implications of Facebooks
MSP based business model for the market segmentation strategy of itself and affiliate
business users of the platform; marketers and developers. The SN segmentation
framework, developed by extending the 3 segments solution found empirically, informs
segmentation strategy formulation and implementation. It helps recognize several
demand schedules for each service offering whereas the conventional solution misses
out on offerings other than OSN. The four propositions developed in section 4
encapsulate the learning and some of the implications of this study.
An important research agenda that emerges from this study is the need for developing
metrics for users scale of response and level of engagement with marketers and
developers. The task is easier for advertising response or purchases at storefronts but
difficult in case of response to other activities such as social care, interaction with brand
pages, crowd-sourcing. The nature and range of a marketers offering varies from one
marketer to another and score cards to measure non-advertising response or engagement
may have to be designed on a case by case basis. Judicious and near optimal choice of
market segments is possible only when user response to marketing stimuli is understood
well. As observed in 3.3 and 4, market experiments (including ex post) may be carried
out to understand market response at segment levels. Experiments may also help
evaluate same side and cross side network effects.
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ANNEXURE
Table A1: Metric Scaled Segment Descriptors:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
#
Engaged Users
3.61a
2.87a
3.96a
3.21a
3.61a
3.76a
3.97a
2.58a
3.02a
3.18a
2.58a
2.95a
3.11a
2.84a
19.07a
20.25a
68.69a
18.63a
4.03a
9.35a
555a
56.97a
3.95a
2.27a
3.55a
2.94a
2.21a
3.03a
1.02a
5.16a
4.0a
5.85a
2.56a
7a
5a
Frequent Users
3.51a
2.69a
3.94a
2.77b
3.04b
3.54a
3.67a
2.3a
2.86a
2.8ac
3.05bc
3.28ac
2.95a
2.65a
26.47b
16.48ac
64.97a
20.0a
3.54a
7.81a
491a
43.94b
3.67a
1.71b
2.88b
2.38a
1.63b
2.25b
.84ac
5.0a
3.63a
5.19a
2.29ac
8a
6a
Infrequent Users
2.82c
2.24c
3.44c
2.09c
2.53c
2.04c
3.09c
1.56c
2.42c
2.58c
3.33c
3.53c
2.33c
1.80c
22.24ab
10.14c
37.87c
34.02c
.60b
3.31b
244b
15.71c
1.53c
1.02c
1.33c
1.00b
1.11b
.82c
.44c
2.13c
1.8c
3.69c
1.93c
16c
13c
If two segments share a superscript a/b/c, difference is not statistically significant ( = .05). Else, the
difference is significant. In 33 and 34 above, segments X and Y are not different, but Y and Z are not
different in 33 and different in 34.
Categorical (%)
Engaged
Users
Frequent
Users
Infrequent
Users
1
2
3
4
5
77.4
21.0
45.2
66.1
88.7
63.5
30.8
32.7
51.0
81.7
46.7
4.4
13.3
35.6
46.7
6
7
8
9
10
11
12
13
14
father on Fns
mother on Fns
spouse on Fns
partner on F* (overall 20.4%)
pro_acqns
femalens (overall 21.3%)
marital*** (overall 51.2%)
stay alone*
age (>35)**
25.8
21.0
37.1
27.4
80.6
12.9
41.9
51.6
14.5
19.2
10.6
44.2
22.1
75.0
22.1
46.2
53.8
17.3
11.1
15.6
55.6
6.7
66.7
31.1
75.6
31.1
40.0
2 significant at * = .05
** = .01
*** = .001
ns
not significant
# The same segmentation analysis was also carried out with frequent user defined as those who claimed to
use Facebook daily. The difference was not substantive compared to the results in A1 and A2.
Table A3
OLS Regression of Rate of Facebook Use (Y)
with demographic, attitudinal and behavioural variables (X)
SE
.2366
.0451
.0415
.0409
.0460
.1009
.0408
.0030
.0020
.0883
t value
.400
3.673
2.756
3.650
2.227
3.088
4.726
-3.744
-3.361
-2.713
Pr(>|t|)
.6896
.0003***
.0064**
.0003***
.0270*
.0023**
.0000***
.0002***
.0009***
.0072**