So, Google+ is now open to everyone and it is growing like a weed. Facebook has gone and changed everything again. Some say it is in response to the circles in Google+, others say it is to make it more Twitter-like. People seem to be missing the point of all of these changes from Google+ and Facebook.

Google and Facebook are in the advertising business. They don’t really care if you make connections with long lost friends. They do care about your connections and what they say about you. Think about what they have done. Google launches with “circles”, but more importantly, they launch with a few standard circles like family, friends, etc. Facebook decides that lists are actually useful, contrary to their previous opinion of lists, and also creates some standard circles with family, close friends and acquaintances. These standard lists, and the automated lists based on education, employment and location, are the key to Google’s and Facebook’s advertising future.

Why this is important is found in traditional marketing lists. Dave Winer puts it plainly in his post “Facebook Is Scaring Me”:

They are seeking out information to report about you. That’s different from showing people a picture that you posted yourself. If this were the government we’d be talking about the Fourth Amendment.

Facebook and Google are building the largest marketing databases possible. Traditional marketing databases can use location, age, approximate income, and general census information to get an idea of how to market to a person. What these two companies are doing is gathering information about who you really trust, the family and close friend lists, and what you share with these groups. So, not only are you a 30 year old male living near Silicon Valley, they also know who your trusted friends and family are, what your education really entails (not just a BS, but a BS from a specific school), who you have worked for, who worked at the same company at the same time as you, and very likely what music and products you may like.

This information is not only marketing gold, it is easily worth hundreds of billions of dollars. This is the future of advertising, and currently only two companies have the power to play. Think about how targeted your advertisements could become. If I listen to music using Spotify and Louis Gray likes the same music, his recent purchase of a Depeche Mode album will be presented as an advertisement to me. This is much more powerful an advertisement than a generic “Popular artist releases new album” advertisement.

Let’s look at how all of this targeting works. Market basket analysis was one of the first popular data mining techniques because it provided much more information than typical census information about your purchasing habits. Wikipedia provides an excellent example:

A company could look at what other items people purchase along with eggs, and classify them as baking a cake (if they’re buying eggs along with flour and sugar) or making omelets (if they’re buying eggs along with bacon and cheese). This identification could then be used to drive other programs.

Now, compare the basics of this concept with the amount of information that Google and Facebook are collecting. The inferences that can be made are staggering. Not only do you get the same type of affinity analysis as the market basket example, you also get the additional input of your trusted social circles. There is much more information that can be gleaned from this type of analysis with so many inputs.

The other side of the targeted advertising is the sale of data. Privacy policies typically state that an individual’s data will not be sold, nor will identifiable data. However, there is nothing wrong with Facebook or Google selling the aggregated data or analysis of that aggregated data. This type of aggregated data is still better than the typical marketing databases based on census data. Just selling the aggregated data is a business worth billions of dollars.

Advertising and marketing are big businesses that have been hoping to get their hands on all of your interests, recommendations and purchases. With Google and Facebook, we may finally see this massive database created.