Brands that rely on Facebook face an uncertain future

While scrolling Facebook you might’ve noticed a slim, futuristic toothbrush hovering between photos of your friends’ babies and your uncle’s political rants. It’s an ad for Quip, a brand dedicated to making toothbrushing sexier. Quip is unique in the history of toothbrush brands because it isn’t gaining customers by appearing on drugstore shelves. Instead, it’s marketing its product where consumers spend much of their time: on social media, particularly Facebook and the Facebook-owned Instagram.

When founder Simon Enever launched the brand in 2015 with only $300,000 in funding, he knew only a fraction could go toward advertising. And according to Shane Pittson, Quip’s head of marketing, Facebook was an obvious place to spend it. “Facebook removes all kinds of barriers to entry for small companies,” he says. “You have a very clear understanding of what you’re paying for and how much is returning back to your business. With other channels–like magazine or podcast ads, for instance–it can be very difficult to measure the impact.”

The strategy worked. Quip sold 100,000 toothbrushes in its first year. In 2016 it was named one Time‘s 25 best inventions and won a slew of other accolades, including GQ’s Grooming Award and inclusion on Oprah’s “O List.” This kind of success isn’t uncommon. Many digitally native brands that have seen exponential growth in recent years–Warby Parker, Reformation, Away, Everlane, Glossier–used Facebook to introduce consumers to their products. The platform’s remarkable ability to connect companies with new audiences is one reason 5 million advertisers choose to pour money into it, which generated $12.97 billion for Facebook last year.

In many ways, these are brands that Facebook built. Yet it’s done so by amassing vast troves of data about its 2 billion users that the platform largely withholds from ad clients like Quip. Lately, with more users asking just what Facebook knows about them, how it knows it, and what it does with that knowledge, the future of this model–and the fates of the brands that rely on it–deserves some scrutiny, too.

TAINTED BY ASSOCIATION WITH FACEBOOK

In March, news broke that Cambridge Analytica had scraped information from some 50 million Facebook profiles and used it to help the Trump campaign. This came after months of Americans hearing that Russians had been using the platform to manipulate the presidential election, and the news in February of the federal indictment of 13 Russian nationals for “information warfare” on social media. All the while, many Facebook users have encountered ads that seem eerily connected with the conversations they’d been having–or even just things they’d been thinking about.

Before the Cambridge Analytica scandal, says Karen North, a clinical professor of communication at USC, “we were already sensitized to the fact that when we’re online, it looks like the digital world knows a lot about us.” In her view, “The reason that this is a big topic right now is not because anything has changed–it’s because something called our attention to it.”

It’s true that Facebook knows a lot about you and has for quite some time. Should you choose to download all the information it stores about you, the file you’ll receive is roughly the size of 400,000 Word documents. It includes every message you’ve sent or received, the times you’ve logged on and from what device and location, all the apps you’ve ever connected to your account, and a list of topics you might be interested in based on things you’ve liked or discussed. Before cutting ties with them last week, Facebook used companies like Acxiom and Experian–which gather offline consumer data from mailing lists, public records, and loyalty cards–to supplement its own cache.

Now that a spotlight’s been turned on practices like these, consumers don’t seem to like what they see. The company’s reputation is at an all-time low, and powerful figures like Elon Musk have fanned outrage among users calling for a boycott. Brands that advertise on Facebook now seem worried about catching some of this blowback by association. That may be why, when I reached out to dozens of brands across multiple industries to hear about their experiences marketing on Facebook, only one was willing to talk with me: Quip.

fresh week. fresh thinking

A post shared by quip (@getquip) on May 8, 2017 at 2:53am PDT

WHAT QUIP KNOWS (AND DOESN’T)

According to Shane Pittson, Quip’s head of marketing, Facebook knows a great deal more than it shares. While Facebook is capable of extremely specific ad-targeting, Quip’s parameters for finding potential customers is broad: The company wants to reach consumers of all ages, genders, and locations.

How Facebook goes about casting that wide net isn’t something Pittson understands, however. The platform has dramatically streamlined the process for marketers like him. As Pittson explains it, Quip presents several types of ads and lets Facebook match each one to a user it deems likely to click it–and that’s basically it.

Yet he concedes that it works. “Facebook and Instagram do a great job of taking all the different inputs–whether you’re serving a long- or short-form video, still images, carousels of images or articles–and placing each type of content in front of people that will engage with it,” says Pittson. (Meanwhile, competing platforms like Pinterest or Twitter operate more like search engines, where it’s the brand’s responsibility to find a winning combination of keywords.)

This means that Quip only starts gathering data on a particular individual Facebook has targeted after that person has left the social network–by clicking Quip’s ad, engaging on its website, or subscribing to its newsletter, Pittson explains. Quip only gets that person’s email address once they make it all the way to checkout. This is no surprise to Pittson, who grasps as well as anyone that Facebook’s ad business is premised on hoarding, rather than sharing, data with brands.

“There’s no incentive for Facebook to release the data,” says North. “If it were possible, brands would buy the data once, then use it and not pay Facebook. Facebook wants to charge them every time they want to advertise.” Facebook did not respond to repeated requests for comment about its data-sharing policies with advertisers.

Pittson says that if Quip wants more granular details, it can pay Facebook for deeper customer insights, which are nevertheless presented in aggregate. This is how Quip might learn that people who like yoga are more likely to be interested in Quip, or that pastel-tinted images do well among older men. But Pittson says Facebook has never shared information with Quip on individual users (which may hearten users, to a degree). To gather some of that intel on its own, Quip takes a manual approach–interacting with people who comment on its brand pages or posts. “We respond to most comments,” Pittson says, “so that’s one level of engagement,” but he acknowledges there’s a limit to what Quip can learn this way.

According to North, Quip’s experience is typical of how most brands learn about their consumers from Facebook. “Most of the time, brands don’t know anything other than what they tell Facebook,” she says. “They will say they want people with the following five characteristics, and Facebook will take their money and put those ads in front of them.”

FATES TIED UP IN FACEBOOK’S FORTUNES

North points out that, until recently, Facebook’s users had accepted this hyper-targeting as the status quo; exchanging data for a better online experience was the implicit trade-off of engaging on the internet. “Really good, tailored, targeted advertising can be perceived as helpful because it gives you products and services that you want and are seeing,” she says.

But North believes this unwritten pact is fraying. The Cambridge Analytica scandal “is different than the past,” she says. “As a social network, Facebook is in real trouble.”

Customers may have agreed to see ads based on their interests, North points out, but they never signed up for political propaganda. In addition, Facebook seems to have failed to protect the data it gathers from organizations bent on misusing it. North says it’s noteworthy that the Cambridge Analytica news was “reported like an identity-theft story. It was like stories of credit-card breaches, where all of a sudden you have to take steps to get a new credit card or make some other change.”

Indeed, even Facebook users who don’t take active steps–whether by tweaking their privacy settings or deleting their accounts completely–may spend less time on the platform anyway. In fact, that was already happening before the recent scandal. Users spent a total of 50 million hours less time on Facebook than last year, and the number of daily users in the U.S. and Canada fell for the first time in the company’s history. CEO Mark Zuckerberg admitted that Facebook anticipated this drop-off after changing an algorithm to serve fewer news stories and more personal content. The company’s ad revenue actually grew despite these declines, though–largely because Facebook has successfully pressed advertisers to pay more per ad.

If user activity continues to ebb, Facebook may find that harder to do. Until now Facebook has carefully engineered a system where brands are at its mercy. “It is ultimately Facebook’s algorithm that finds people who will think we’re a cool brand or a product that they are interested in,” Pittson says. “But we don’t have insight into how. At the end of the day, we’re just waiting for the Quip customer to emerge.”

For Quip, Facebook has proved a highly effective black box. But if it stops minting customers as well as it used to, Quip–and countless similar brands–may think twice about pumping money into the platform.