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WORKING PAPER NO: 438

Market Segmentation of Facebook Users


Raj Dash
Doctoral Student,
Marketing
Indian Institute of Management Bangalore
Bannerghatta Road, Bangalore 5600 76
raj.dash@hotmail.com

Year of Publication-November 2013

Electronic copy available at: http://ssrn.com/abstract=2307627

Market Segmentation of Facebook Users


Raj Dash, IIM Bangalore
ABSTRACT
In this paper, I develop afresh a comprehensive approach to market segmentation of
Facebook users. The approach considers the implications of Facebooks multi-sided
platform (MSP) based business model. Using cluster analysis of survey data, I develop a
basic 3 segments solution for the OSN - infrequent, frequent and engaged. Then I
extend the 3 segments solution to factor in responses to marketers and developers as
well. The resulting comprehensive SN analytical framework for the MSP can help
design market segments for all three parties/groups, i.e. Facebook, marketers, and
developers.
As an outcome of this research, I offer a specific set of propositions addressing (a) the
causal mechanism for response heterogeneity of Facebook users (b) interdependence of
services (OSN, marketers fare and developers fare) on the Facebook MSP (c) basis for
comprehensive market segmentation, and (d) the integral role of the low rate users in
the network. Future research may validate these propositions further.
Key Words
Market Segmentation, Facebook, Multi-sided Platform (MSP), Cluster Analysis,
Network Effects, Online Social Networking (OSN), Strategy, Marketers

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.

Electronic copy available at: http://ssrn.com/abstract=2307627

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

Marketers fare includes advertisements, business or brand pages, marketing posts/communications,


storefronts, social care, social shopping, crowd-sourcing etc. Developers fare is a wide range of games
and non-game apps relating to travel, music, health, books, education, fashion, entertainment etc.

Electronic copy available at: http://ssrn.com/abstract=2307627

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/

Electronic copy available at: http://ssrn.com/abstract=2307627

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.

Social Technographics (2010): Grouping Consumers by How They Participate


Groups

Creators

24%

2
3

Conversationalists
Critics

33%
37%

4
5
6

Collectors
Joiners
Spectators

20%
59%
70%

Inactives

17%

Activities that indicate group membership


(group member participates in at least one of the listed activities for the
group and groups do overlap)
publish a blog/own web pages, upload self-created video/audio/music,
write and post articles and stories
update status on SNS like Facebook or microblog like Twitter
post ratings/reviews on products/services, comment on others blogs,
contribute to online forums or to wikis
use RSS, vote for websites, add tags to web pages or photos
Maintain profile on a SNS, visit SNS
read blogs, online forums, ratings/reviews, tweets, listen to podcasts,
watch video from other users
none of the above

Table 1

Source: Forrester Research

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.

1.6 Implications of the review


It is evident from the preceding review that the segmentation solution can be made more
comprehensive by taking into account the MSP based business model of Facebook. The
study by Lee et al (Lee et al, 2011) observes that use of OSN on Facebook isnt
necessarily accompanied by response to marketers and developers. A scheme that uses
only the response to OSN as the basis for segmentation and ignores that to marketers
and developers, therefore, is unlikely to suffice. Missing out on the important
dimensions of response to marketers and developers, it yields an inadequate solution.
For a comprehensive solution, we need to bring in response to marketers and developers
as basis variables in addition to response to OSN. This may call for new metrics that
separates low scale of response from high for marketers and developers.

MARKET SEGMENTATION FOR OSN: EMPIRICAL STUDY

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.

3 Segments Solution/Framework for Facebook

Price insensitivity

Engaged (21%)

Infrequent
(30%)

Frequent (49%)

Frequency of use

Figure 2

Web link for survey questionnaire is at: https://qtrial.qualtrics.com/SE/?SID=SV_ahlxGCTWQEyk4mN


In case of difficulty in accessing, you may write to the author.

2.2 Segment Descriptions


3 Segment Solution for OSN
Segment S1
Engaged User (30%)

Segment S2
Frequent User (49%)

Segment S3
Infrequent User (21%)

Engaged users (S1) average 57


minutes a day on Facebook.
These are frequent users who
are lower than segment S2 and
S3 on price sensitivity and
higher (refer Tables A1 and A2
in appendix) on variables that
measure attitudinal and
behavioural engagement such as
(a) love Facebook (b) intend to
continue using it for a long time
(c) use it as a daily routine (d)
feel out of touch in a while
without Facebook, and (e)
Facebook use is not a low
priority activity. Importantly,
segment S1 is unlike S2 and S3

Frequent users, averaging 44


minutes a day on Facebook,
are comparable to segment S1
on rate, range, proficiency and
priority of Facebook use, but
their use differs qualitatively
as well as in duration. They are
as responsive as engaged users
on Facebook on activities such
as like and playing games but
significantly less frequent on a
range of initiatives such as
status updates, use of album,
comment and chat. They score
lower than the engaged users
on most engagement variables
(see under S1 on the left). It is

With an average of 16 minutes of


use a day, Facebook is not a daily
habit for segment S3. They are
lower on frequency of use and
engagement. They have less than
half as many friends and groups
on Facebook compared to
segment S1 and S2. For them
social media and OSNs have
lower priority in a days activity.
Only a few of them access
Facebook on the mobile. A higher
proportion of segment S3 are
married, stay with family and are
older; factors that probably lower
the use of OSNs and Facebook .
Some of them may be infrequent

who are likely to discontinue


using it tomorrow if a rent of $1
per month is charged per
account.

likely that Facebook is not


integral to their basic social
activities such as keeping in
touch with friends, relations
and acquaintances.

or lower in duration of use


because they use G + or LinkedIn
or Twitter longer than S1 and S2
(see Tables A1 and A2 in
appendix).

63% of frequent users


constitute segment Y; these
frequent users are low in
engagement variables.

Around 58% of infrequent users


used it at least for 5 minutes in
last 1 week and 24% have done so
between a week to a month.

For 42%, OSN is low priority,


for 50% Facebook is low
priority, for 63% daily routine,
66% have continuance
intention, 16% anxious
without it, 29% feel out of
touch in a while without it, and

For 69% OSN is low priority,


for 84% Facebook is low priority,
for 7% daily routine, 42% intend
to continue for long, 2% anxious
without it, 13% feel out of touch
in a while without it, and only
7% say they love Facebook.

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

for a while; and reportedly, 56%


love Facebook. All willing to
pay $1 a month.

28% love Facebook. None are


willing to pay $1 a month for
using Facebook.

Demographics
46% are married
young (83% are 35 or less)
54% stay alone

76% are married (sample % is 51)


old (60% are 35 or less)
34% stay alone

34% think it is more for teens


41% find it trivial
66% find it less authentic
49% uncomfortable opening
up online

47% think it is more for teens


49% think it is trivial/frivolous
80% view it as more stylized selfpresentation
60% not comfortable exposing
thoughts online

8 out of 10 use F mobile

6 out of 10 use F mobile

5 out of 10 use f mobile

interest in social media and


SNS is higher for segment S1
89% chat on internet
21% comment on blogs
66% play games on mobile
45% used LinkedIn in 24 hrs
Facebook gets 69% of time for
SNS (among F,L, G+ & T)
39% find it useful for
career/business

larger share of SNS in time


pass for S1 and S2 than S3
82% e-chat
31% comment on blogs
51% play games on mobile
33% used LinkedIn in 24 hrs
Facebook gets 65% of SNS
time
24% find it so for
career/business

priority of OSN and Facebook


falls from segment S1 to S2 to S3
47% e-chat
4% comment on blogs
36% play games on mobile
13% used LinkedIn in 24 hrs
Facebook gets 38% of SNS time,
LinkedIn & G+ score higher
16% find it so for career/business
Rate, range and proficiency of use
is remarkably lower for S3

42% are married


young (85% are 35 or less)
52% stay alone (away from
family)

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

2.2 Evaluation of Segmentation Solution for OSN


The above empirical solution was found to be better than several other alternatives that
were considered (detailed analyses are available from the author). It meets the
requirement (Lilien & Rangaswamy, 2004; Frank, Massy & Wind, 1972; Wind & Bell,
2003) of an appropriate segmentation scheme (refer Tables A1 and A2 in ANNEXURE)
for the following reasons.

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.

Response heterogeneity in relation to marketing stimulus is provided by the price


sensitivity measure. The segment structure analyses showed that such behavioural
segmentation based on frequency of use and level of engagement may be more useful
for OSN than segmenting on the basis of variables such as benefits or demographics or
psychographics.

MARKET SEGMENTATION IN THE MSP CONTEXT

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.

3.2 The F cube segmentation framework


Extending the 3 segments framework to all 3 services; OSN, marketers fare and
developers fare, I arrive at a framework as shown in Figure 4 below. The resulting
27 Theoretical segments of F Cube
F
F3 M1 D1

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.

The F Cube (or more generally SN) Segmentation Framework


Groups
F1

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)

This extended framework is an improvement over the framework of Figure 2 that


ignored response to marketers and developers. Earlier, the groups were 3 - F1, F2 and
F3 (S1, S2 and S3 in 2.2). While, theoretically, there are 27, adequate homogeneity
across some of these segments may let us club them to design final segments. Empirical
data and analytics may guide the design of final segments with these 27 building blocks
and subsequent choice of segments for targeting. Depending on the purpose, one may
choose segments from the menu of 27 and even further sub-segment them before
evaluating.

The F cube segmentation framework can be more generally christened SN segments


framework for MSPs where s is the number of segments for each of the business players
(3 in this case) and n is the number of business players (also 3 in this case). This SN
segments framework (Table 3) can make it easy for individual marketers and developers
also to understand and constitute their market segments. For a newspaper for example,
there are two business users newspaper owner and advertisers as a group. Readers are
the non-business users. Using 3 segments for both parties, we get 32 = 9 theoretical
segments from N1A1 (N for newspaper and A for advertisers collectively), the least
lucrative to N3A3, the most lucrative. Here, of course, the business model is
subscription based for readers.
The approach may differ for specific developer or marketer on Facebook. For example,
the prime segment for a specific game developer, say Zynga, may be constituted by
segments with D3 and F2 or F3. For greater relevance D3 may be further divided into
D3g the games segment and D3a the none-game apps (such as for books and health)
segment. Similarly, while segmenting users in the served market for a specific marketer,
only relevant marketers, relevant activities (such as advertisements or business page
posts) need be considered as a subset of Mi.
If Facebook, for example, wants to release an advertisement campaign to persuade users
to do social shopping on Facebook, the segments to target may be the ones in F2 and F3
with M2 or M3, keeping in mind the cost of exposure. Mass marketers may prioritise
F2M3 and F2M2 segments ignoring the D levels. The ideal segment to grow for the
MSP is F3M3D3. F3M1D1 with growing numbers may make a strong case for the
fremium model. In case the proposition is to offer an advertisement free version of
Facebook for a price to users, this framework may help weigh the gains from the F3
segments against the opportunity loss from M2 and M3 segments because a part of F3
users would not be accessible for advertising. As mentioned in Table 3, users in F1
segments are important for network effects. They help bring in, retain and engage other
users (refer 1.5) who choose not to limit themselves to using OSN only, and respond to
marketers and developers.
4 DISCUSSIONS AND PROPOSITIONS
To recapitulate and advance our understanding of the segmentation strategy context for
Facebook, I develop a set of propositions based on the learning from this study. These
are defeasible inductive arguments that can further enhance our understanding when
new evidence accumulates. Mapping and hypothesising relationships that govern causal
mechanisms behind response and response heterogeneity may contribute to academic
research. Identifying conditions under which the propositions may hold well can prove
useful to the business users. Each set of propositions below is preceded by its line of
reasoning based on theory or empirical facts.
4.1 The sources of heterogeneity of Facebook users
Table 2 and Table A1 in the Annexure list the heterogeneity across the segments for
Facebook users. The heterogeneity in response variables such as rate of use, price
sensitivity, and associated level of engagement can be explained in terms of a range of

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

* signifies sparseness in number of users

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.

The issues of greater interest to academics, I addressed in some measure in section 4, is


the causal mechanisms that give rise to response heterogeneity for OSN. Response
heterogeneity in relation to marketers and developers fare needs to be unpacked
further. Patterns of network effects across various segments as enumerated in Table 3
and even at more granular level such as different types of services from marketers and
developers may be studied with longitudinal quantitative data on activities of Facebook
users from the logs.
The MSP based perspective on market segmentation I presented in this paper is not the
only one of importance. Another valuable perspective takes shape when we look at
users, marketers and developers as distinct, though interdependent, markets. How do we
go about segmenting marketers and developers for Facebook? Facebook has been
tweaking its business model for marketers in recent times. What innovations can we
expect in business models in SNS space tomorrow? How network effects may be
manipulated to advantage by a marketer or developer? Future research may answer
these and other related questions that arise from this study.
ACKNOWLEDGEMENTS
I thank Professor Srinivas Prakhya, Professor Avinash Mulky, Professor G. Shainesh, Professor
Mithileshwar Jha, and Professor Manaswini Bhalla whose valuable reviews and comments have helped
improve this study. I thank Professor Dinesh Kumar, Kaushank Khandwala, and Sunil S. at Data Centre
and Analytics Lab (IIM B) for facilitating me to present the initial draft of this paper in Business
Analytics and Intelligence Conference 2013 at IIM Bangalore. I also thank colleagues Praveen S. and
Tushar Tanwar with whom I had originally gathered the empirical data used in this paper as part of a
general purpose research project on social networking.

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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
#

Descriptors for Segment


Metric (mean) measures
curious
interesting
time pass
in touch
love
daily routine
continue
anxious
useful for career/business
open online
more for teens than for adults
trivial or frivolous
priority_o
priority_f
tp_general
SNS share of time pass (%)
share of time of F (%)
share of time of L (%)
F mobile visits (last 24 hrs)
# F groups
# F friends
F minutes a day (average)
like
status update
comment
follow
album
chat
apps/games
use rate (self rate)
use range (self rate)
use proficiency (self rate)
authentic
t_mins (%)
g_mins (%)

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.

Table A2: Non-metric Scaled Segment Descriptors

Categorical (%)

Engaged
Users

Frequent
Users

Infrequent
Users

1
2
3
4
5

d_m** (use f mobile)


blog_c** (comment on blogs)
l_24**(used LinkedIn in 24hrs)
m_games** (plays games on mobile)
e-chat***

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)

lm(formula = sqrt(u_rate) ~ s5 + t2 + adult + serious + factor(blog_c) + priority_osn +


g_mins + l_mins + factor(marital), data = osn)
Residuals
Min
1Q
Median 3Q
Max
-1.643 -0.382 0.068
0.403 1.520
Coefficients
Estimate
Intercept
.0946
s5
.1657
t2
.1143
adult
.1493
serious
.1023
factor(blog_c)1 .3115
priority_osn
.1930
g_mins
-.0112
l_mins
-.0068
factor(marital)2 -.2400

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**

Residual Standard Error: 0.6126 on df = 204


Multiple R-squared: 0.5189 Adj R-squared: 0.4976
F-statistic: 24.44 on 9 and 204 df, p-value: <2.2e-16
#

Residual SE is very high if u_rate is used instead of sqrt(u_rate) for Y

s5: perceived benefit of social influence

t2: usual means of keeping in touch

adult: perceived appropriateness for adults (as opposed to teenagers)


serious: extent to which it is not perceived as a trivial or frivolous activity
blog_c: whether comment on blogs (Yes = 1)
priority_osn: priority of OSN in a days activity
g_mins: share of google + in time for Facebook, LinkedIn, twitter and Google +

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