Why Facebook should pay you for your personal info

October 18, 2012: 10:07 AM ET
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NEW YORK (CNNMoney)

Facebook knows more about you than any company in history.

The social network's users willingly supply Facebook with deeply personal information, including likes, dislikes, their close associates, politics, religion and relationship status, just to name a few. That means Facebook is sitting on a treasure trove of data -- an advertiser's dream.

Yet the company hasn't been able to turn that potential gold mine into actual gold. Predominately through advertising sales, Facebook (FB) makes just $1.28 per user each quarter, compared to the $7 Google (GOOG) makes on each of its users. The company's stock is worth half of what it was when it first started trading in May, mainly because of investors' fears that Facebook lacks a clear path to increasing the revenue it makes off of its subscribers -- despite having more than 1 billion of them.

That's why a pair of New York University business school professors are advocating a bold new strategy for Facebook: paying users for the privilege of selling their personal information.

On the surface, it sounds laughably implausible. But it might be just what the company needs to jolt its business -- and its lowly stock price.

Here's the idea: Facebook would pay its users a nominal fee -- say $10 a month -- for the right to send their relevant personal information to advertisers. Companies looking to advertise their products or brands to a specific group of people would pay Facebook for that data and for the ability to directly market to those individuals.

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It's a potential win-win-win. With 1 billion users, Facebook could emerge as the world's preeminent market research platform. Advertisers would get near-instant access to information about targeted groups. And Facebook subscribers would get promotions and information about products they're actually interested in -- while getting paid for it.

Facebook could gain more than just a new revenue stream. For a site with a long history of privacy screw-ups, offering subscribers a share of the pie could boost the company's transparency and trustworthiness.

"This way, Facebook's intent becomes clear," said Vasant Dhar, a professor at NYU's Stern School of Business. "If users aren't making a conscious choice about what happens with their data, they end up feeling violated."

Facebook declined to comment for this story.

The idea that companies should pay for their users' data isn't new: The notion of an "information market" has been floated around by academics for nearly two decades. But the concept never took off, mainly because customers switch loyalties frequently and haven't been willing to cough up such personal information.

Facebook solves that problem, Dhar said -- its users don't really have anywhere else to go, and they've proven eager to post their secrets on the social network.

Facebook is also an ideal candidate to put information marketing to the test because its current revenue stream just isn't well-suited for a social network.

The decidedly "old world" Internet moneymaking strategy of sponsored search and product placements has worked well for many companies, including rival Google, whose users tell the company exactly what they are looking for. A search for "Volkswagen" typically offers up a Volkswagen ad on the results page, where the user is much more likely to click on it than they are on a random Volkswagen ad splashed across their Facebook page. On Google, people want information; on Facebook, they want to interact with their friends, not advertisers.

"Facebook's current ad model is at odds with its mission," said Arun Sundararajan, who is also a professor at NYU's Stern School of Business. "People are unhappy about it."

As a result, most advertising on Facebook goes to waste, Sundarajan believes. That's why Facebook ads are far cheaper than those on rivals like Google, Yahoo (YHOO) and AOL (AOL), according to eMarketer.

But Facebook offers something its rivals can only dream of: precise personal data.

Others target users based on basic information like their age, gender and purchasing habits. Facebook -- with the right analytics -- could know which products and brands are likely to connect with us on an emotional level. It also knows how much influence we hold over our friends, family and other social contacts -- and how much they have over us. It's a sociological experiment on steroids, and its data is potentially far, far more valuable than your search history or a collection of your recent Target (TGT) receipts.

If Facebook gets too aggressive with using that data, it risks alienating its user base. Letting users opt in to share the profits would go a long way toward winning their support.

"Right now, Facebook is leaving money on the table," Dhar said.


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