At long last I am back in the United States after an extended trip to India and Europe. But those of you who are my friends on Facebook know that, right? And, of course, Facebook knows it too. Most analysts believe that Facebook will monetize user data like mine by using it to target advertising. But is that the best way for Facebook to make money? Maybe there are other options to consider.
My colleague Dede Fitch has suggested that Facebook could simply change to a subscription model. “People are hooked on it now,” she says, “and instead of starting over on a competing system, they’re likely to be willing to pony up 20 or 30 dollars a year for access. I know I would.”
Now, many people might write that idea off as naïve. Most general interest newspapers and magazines that started off charging for online subscriptions have given it up. Yes, financial services such as Reuters Thomson, Bloomberg and The Wall Street Journal are all succeeding with a paid subscription model, but these services are used to inform major investment decisions. A site that helps you keep in touch with friends does not seem to be in the same league.
Yet I can’t help thinking that on this subject, the advertising community may have been lulled into accepting what the “experts” keep saying. We assume there are fortunes to be made by tapping into the personal information of hundreds of millions of social network users—but first someone has to figure out how to apply that information effectively. The assumption underlying this “groupthink” is that there are so many big brains working to solve the problem of advertising on social media sites that someone will surely crack the code.
But I consider that to be a very weak statement of belief. Just because a lot of smart people believe there is a solution to social advertising does not mean they are going to find it. Einstein believed that relativity and quantum mechanics could be combined into a single “unified field theory,” but the quest to do this proved fruitless. (I learned this recently from reading Ian Stewart’s book, published in 2007, called Why Beauty is Truth: The History of Symmetry.)
Thinking about the things I’ve posted on Facebook, I’m honestly not sure how many of them would help anyone target ads to me. Unlike some people (James, you know who I mean), I do not mean to be deliberately misleading, but much of what I’ve written on my pages is either dated or highly context specific.
The information I posted to my Facebook Profile was reasonably accurate when I first signed up, but that was almost two years ago. Since then, I haven’t been in a sea kayak (more’s the pity), nor have I added The Incredibles or Slumdog Millionaire to my movie list. Listed under my groups are some that have lapsed and others that I’ve never bothered to visit.
If the information in my Newsfeed could be used for targeting, well, here’s what my recent updates would suggest:
Nigel is sitting in the BA lounge at Geneva and wishes he could teleport. Advertising options: a Leather Chaise Lounge Chair, the choice of 249 hotels in Geneva and a Teleport Telescope.
Nigel is too tired to write anything…err. Clearly an opportunity for Red Bull.
Nigel is going out for a pint after an exhausting day yesterday watching rugby. One of these targeting clues is completely misleading. I noted three references to beer in the last few weeks, so advertising for Adnams might be a good choice, but I have no ongoing interest in rugby.
Maybe the big brains can make sense of my Newsfeed, but I can’t, and I doubt they’ll have better luck with anything else I’ve posted.
One alternative revenue source explored by Mike Shields of MediaWeek is to charge fees to application developers like Slide and RockYou, (click here for the article), but that seems unlikely to generate the mega-millions that most pundits expect advertising to generate. Which brings us back to Dede’s proposal: Facebook users could pay to keep the site ad-free.
The evolving demographics of the site might seem to favor this. According to this article on the blog InsideFacebook, dated February 11, almost half of Facebook’s U.S. traffic (48 percent) comes from people over 35. Another 28 percent of Facebook visits are made by people aged 25 to 34. This week’s AdWeek also includes an article by Michael Learmonth on the advancing age of social networkers, and cites ComScore’s estimate that the over-35 group is actually now in the majority on Facebook in the United States. It seems reasonable to me that busy working people who’ve invested time and energy in their Facebook infrastructure might pay to maintain access to it when their only other option is to start over on another platform.
You are all busy working people. What would your Facebook access be worth to you? Dede suggested $20 per year. Is that too high? How does $10 a year sound? That’s not much per person, but multiply it by 175 million and now you are talking serious money. Would you pay to access Facebook if it were ad free? Let us know.
(4 votes, average: 4.5 out of 5)
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February 24th, 2009 at 11:27 pm
I agree with Dede’s ideas and would unhappily part with 20 dollars to access facebook. It’s just so convenient to be in touch and I don’t like orkut and My Space.
February 25th, 2009 at 2:15 am
Introducing a fee for using Facebook might have its advantages (no ads, possibly more strict contractual terms on data privacy) but what seems to be the problem is that some, or most users, are, to my opinion, unlikely to pay for a social networking service. First, because a social network like Facebook is not necessarily an investment, or something you can directly link with career advancement or professional development. It is more of a leisure activity, something you do to keep track of your friends. I admit this is a bit subjective and that other Facebook users may have a different take on this. I’ll move on to the facts then. What I wonder is how many of the 175 million active users are frequent users. According to Facebook Factsheet, an active user is one who has returned to the site in the last 30 days. That hardly seems enough to determine somebody to pay for the service. Moreover, how many of them are not already interacting with some or most of their Facebook connections through alternative channels? Most importantly, how many of them do get more value out of Facebook than out of Linkedin, email correspondence, Picasa etc., just to name a few. Again, I may be biased since I speak from an European point of view, and as far as I know the US is much more present on Facebook that other countries, but I tend to believe that a fee could stop Facebook from growing and attracting new users (depending on how it markets itself then, obviously) and this is rather unpleasant for a social network, which by definition should expand and change constantly to a certain degree, esp. from the point of view of young adults. The question on how Facebook should make money still stands, but I think they begun to find ways to do it with applications and facilities which are fee based. More than that, business pages have a number of features which can be used for promotion and, judging by the number of ads I’ve seen from this category, these features are quite attractive to them. Not sure how that looks like in figures, though.
February 25th, 2009 at 6:51 am
the reason ( I think) marketers havent been able to figure out how to monetize social media is they don’t appreciate the value of the mediumthe advertising world is based on a push based communication modelwhich has evolved from mass to targetted to contextual/situational (Behavior targetting, proximity)We have come to rely on increasing technical sophistication to put forward the same question over and again to consumers “do you wanna buy this?” I think the monetizing breakthrough will come when advertisers recognize that social media channels are a place for conversations not monologues a place to ask consumers if they want to learn more or share information and use that to pull customers into the franchise.I doubt many consumers would pay for Facebook access, nor would FB risk the migration risk because just as quickly as the herd gathered it could depart to a new watering hole.
February 25th, 2009 at 5:16 pm
This is an interesting discussion. I don’t pretend to know much about “monetizing”, or marketing, but I know that FB has recently made huge strides in growing their audience, and right now they make money from advertisers. As their popularity grows, couldn’t they charge advertisers more for this access? Why would they risk alienating their “base”?
The older demographic leads me to believe that people COULD pay for a subscription, but I don’t think they WOULD pay $20 per year. Maybe $10.
Right now, these “friends” are in the novelty stage. That could change. For myself, I would drop out in a heartbeat if they ask me for money…
February 25th, 2009 at 6:20 pm
In my opinion, the ads currently on Facebook are fine — I’m not interested in paying to have it be ad-free. I have been participating on Facebook for less than a month and I haven’t played any of the games or quizzes that seem to abound, so my personal investment is much lower than that of many others… and that is no doubt coloring my response. It has been fun catching up with people I rarely see anymore and I’ve enjoyed the back-and-forth exchanges/chats with several old friends, but I would not be interested in paying for the privilege of using Facebook. There are already ads on some of the screens, so Facebook isn’t really free right now (DK if the ads are new or not), and the ads don’t bother me. I do see them, so they create an impression, but I’m not really interested in the ones I have seen so far, so the impression doesn’t last. Perhaps if I were more cooperative in filling out my profile, the ads could be better targeted, but like you, I suspect that I wouldn’t keep my profile up-to-date, so the targeting might not be that much more effective afterall.
February 25th, 2009 at 6:51 pm
An interesting cross section of views here, thank you!
I think that Ioana and Rita both touch on the key question here. Are there enough people, like Sandeep and myself who are “invested” in Facebook? By that I mean use it on a regular basis to stay in touch with friends and have done so for a while.
Speaking as a user and not a marketer I know my concern is that Facebook will be forced to come up with a more intrusive advertising format if it is to realize the full monetary potential of its user base. Miro makes the point that social networks are about conversations which pull customers in but just how many brands are interesting or attractive enough to do that? How many people really want to talk to their brand of toilet cleaner?
February 25th, 2009 at 6:57 pm
Actually, now that I’ve had a few more minutes to think about it, I think that targeting based on people’s comments could be effective, regardless of how up-to-date their profiles are. I have only made a few comments on other people’s posts and 3 or 4 status updates, but based on them someone would know that 1) I have a Kindle, so I must like reading and/or gadgets (I like both), 2) I’ve replaced a range hood and have stripped/prepped some walls, so I must be interested in home improvement (I am), and 3) I’m a big fan of BSG, so I must like at least some SciFi. Even though you (humorously) suggest that your status updates provide questionable targeting info, I would suggest that the frequency with which you mention things in your updates would provide good targeting info… you mentioned sitting in the BA lounge in Geneva… while we aren’t ‘friends’, I suspect that you have mentioned other international airport lounges/travel destinations in other updates… and said other things that suggest limited patience with waiting at airports — both providing some targeting opportunities for someone, I’m sure. I don’t write targeting algorithms, but would guess that the one-off rugby reference could easily be ignored, while your repeated beer references would be noticed. Anyway, just a few thoughts…
February 25th, 2009 at 10:26 pm
Rita commented that the ads on Facebook are “fine,” and I think I know what she means. From a user’s POV they are not objectionable. They are easily ignored if you notice them at all. That can’t be fine with Facebook, which is not making money yet, or with advertisers. (The cover story of the current issue of Fortune is on Facebook. It says the co’s revenues were just $280 million last year, and that it did not break even.)
Users might not like the idea of paying for the service, or of seeing intrusive ads, but I do not think that Mark Zuckerberg intends to run a charity!
February 26th, 2009 at 4:58 am
I’m not a Facebook user, so please forgive my ignorance, but couldn’t they apply an equivalent service to Google’s AdWords? If they scan comments, etc for keywords, which they sell to advertisers, they can vend relevant ads and claim a commission either per vend or per click-thru. According to Wikipedia, Google made $16.4 billion in 2007 from AdWords.
February 26th, 2009 at 8:30 am
Nigel
ALL brands can have a conversation with their customers. Sometimes the conversation is about the brand itself, other times its about the brand being a focal point for others with shared interests/activities. If you reach out further still, you can have a conversation about what/how the brand is/can be/should be engaged in with their community; their good works programs, their steps to become more green etc. In short, put forward the human face of the brand.
That’s the piece many brand owners forget, that sometimes the brand relationship will only become stronger if it extends beyond the purchase, the product features/benefits or promotions …its what I have come to call Share of Life marketing.to the FB question: they can attempt to implement a subscription fee model, but unless the other walled gardens do the same it’s unlikely they would risk loosing their community. Yes those more invested will be less likely to leave - but since they are banking on the future of the social graph as a new marketing influence model, doubt we will see any fees until the end of their product life cycle.
thxs for the quesiton.
cheers
M
February 26th, 2009 at 8:37 am
Per Phil’s comment - I think that is the theory, yes, that FB can make millions from advertisers for the opportunity to push relevant ads at users. But the first issue is that they haven’t figured out how to do that yet. And the second is that FB is different from Google … when I am on Google, I am looking for something. It may only be information, but an ad for something related may catch my attention, either for immediate action or to follow up on later. Whereas on Facebook I am much more interested in what is going on with my friends.
February 26th, 2009 at 8:42 am
On a related note to Nigel’s comments - I thought of the “25 Random Things About Me” lists. At first glance, those might seem to provide fodder for targeting ads. But - one friend of mine admitted to loving brussels sprouts. Aside from vegetable recipes, what are the possibilities there?
On my own list, I alluded to once having solved a problem I had with rats living under my back porch … but I don’t currently have a rat problem nor an interest in keeping one as a pet. (I’m a terrier!) And though a few decades ago I did set a record for selling Girl Scout cookies, at the momoent I’m not even slightly interested in cookies, selling, or volunteering to work with kids. So where’s the beef?
February 26th, 2009 at 9:10 am
They could introduce a freemium model, where basic use is free, but you have to pay for premium features like no ads, no max friend limit, etc.This model is used by the largest social network in the Netherlands (Hyves), and it seems to work out for them. Their gold members can display a targetted message (age group, sex, or even a single person) on their profile, they receive detailed statistics on the people that view there profile, they have more smileys (important for the 12-year olds), no friend limit and no ads.The last thing Facebook should do is force people to pay for their service if they want to keep their Number 1 seat as the biggest social network (globally). It will definitely slow down their growth and I wouldn’t be surprised if they would lose a lot of members to their competitors. People are used to having this service for free, and (as shown by the revolt when they changed designs) they don’t like change (unless it’s said by the president).
February 26th, 2009 at 3:11 pm
The newly proposed Facebook statement of principles, posted today, specifically excludes a general charging model. From Principle 7:
“People should be able to use Facebook for free to establish a presence, connect with others, and share information with them.” (Emphasis added)
Here is a link to the full statement proposal:
http://www.facebook.com/group.php?gid=54964476066#/topic.php?uid=54964476066&topic=7960
February 26th, 2009 at 5:47 pm
Thanks to Maarten and Woodrow for bringing us back to earth. However, a quick glance suggests the new principles would not prevent the institution of a new, premium model as Maarten suggests. Whatever the solution I am sure the debate about how Facebook will monetize its user base will continue for some time to come. That would definitely appeal to some folks I have talked to.
February 27th, 2009 at 12:10 am
As what you have said. If Facebook were in the same league of other sites that requires subsription rates then it would be fine for them to charge their member for it. But then it’s a social networking site. For example, I would never pay for subscription just to be in touch with my friends. If Facebook will do this they might lose to other social networking sites like Friendster, Multiply, etc.
February 27th, 2009 at 10:16 am
I’m off on a slight tangent here, and I may only be a qually, but as ever I think the data needs analysing carefully. Inside Facebook’s data does not account for people under 18: are they seriously telling me that under-18s don’t visit Facebook?
Does Facebook really belong to the over-35s? I doubt it. It’s not surprising that witha mass-market product, there is a wide usership basis. Inside Facebook’s data suggests that over 35s account for 48% of visits; that’s as maybe, but it’s pretty low compared to population stats.
It would also be very interesting to see the data broken down by age of under and over 40. Qualitatively this seems to be something of a cut-off point for Facebook usage at the moment, which a broad age range like 35-44 doesn’t really capture.
Of course, in 2 or 3 years’ time the cut-off point will be higher…
February 27th, 2009 at 10:42 am
That’s a good point, Andy. Though the InsideFacebook article does seem to be specifically talking about hits, not users, it’s odd that it excludes traffic from teenagers. Estimates of teeange (13-17) Facebook users seem to run around 12 or 13 percent.
I’m curious, Andy - why does age 40 seems like such a significant cut-off point for you? After all, 40 is the new 30.
February 27th, 2009 at 1:27 pm
Would you pay to e-mail your friends?
If that model would have worked, MSN/GoogleMail/other e-mail providers would have tried/implemented it by now. Sir Alan Sugar’s Amstrad Em@iler plus failed miserably even with an offer of sending mails at 12pence per mail.
Although some might deem this as an unfair comparison with purpose of a social networking website, main idea is would you agree to pay for services like these?
I know I wouldn’t.
February 27th, 2009 at 5:59 pm
Hi Abhishek, to use market research terminology I think we have a clear case of segmentation here. Some people would pay to keep Facebook ad free, like Dede and Sandeep, others, like Jack and yourself would not. I guess it all depends on whether you perceive the social networks to be undifferentiated utilities or not. Personally, I became a Facebook user because I found the interface simple and intuitive (less so now that it uses tabs) and other networks were less appealing. Now I am invested in Facebook with friends, mail, photos, etc. and it would be tough for me to start again. Do I have the same attachment to Gmail? No. So would I pay a small subscription if need be? Yes.
February 27th, 2009 at 7:35 pm
Hi Nigel, I agree with you suggesting it’s a classic case of segmentation and no doubt FB has an opportunity worth exploiting. They could target more ‘invested’ users like yourself (maybe based on numbers of hours spent logged in) for a subscription fee and not the entire customer base. This has it’s own risks and leads us to discuss price discrimination based on price elastic/inelastic customer segment.
I see this market as an Oligopoly form. There are quite a few players in social networking business, creating levels of differentiation in order to stifle competition. If the big four, Face book, Myspace, Orkut, LinkedIn collude and bring a subscription fee, price elastic customer segments like me might have no choice! Will not be ethical though.
February 28th, 2009 at 2:51 pm
A good strategy for Facebook to experiment and earn revenues for Facebook would be to create shadow sites for people with similar interests. These could be niche social sites like - a social netwrking website for dog lovers or a social networking website for top marketing professionals. These would indeed command a premium over others.www.dogster.com is a wonderful example
March 2nd, 2009 at 11:00 am
Hmmm - is there a model where Facebook users actually get paid? Rather than giving away their personal information for free? If people’s personal information really is of value to advertisers, then shouldn’t the person whose information it is get a cut?
The equation at the moment seems to be ‘we used to give you this stuff for free - now we’re going to exploit you unless you pay’. If it became ‘we used to give you this stuff for free. We still will. But if you agree to give away a bit of your freedom, we’ll pay YOU. And together we can earn money’. Now that’s a community…
Of course, if the economics worked out that an individual user only earned a pitiful amount of money, then it would all fall down. But I think turning it on its head like this might be the way forward.
March 2nd, 2009 at 7:49 pm
Segmentation is indeed vital in any such scenario, but assuming that profile information offered by Facebook users (no matter how frequent or “invested” they are) can be misleading, segmentation could be better achieved with the niche social sites suggested by Ravi.
Facebook sub-communities could work just fine either based on membership fees or on ad revenue. These communities provide better targetted channels for advertisers (given that advertisers adapt their message content and format), and also more opportunities for users to interact with brands post-sale (a point made by Miro earlier). Such communities do exist in the form of Facebook Groups. I haven’t seen one worth paying for yet, but at least they do represent my interests range quite accurately…
I also like the fairness of the approach proposed by Dave, that of paying users for their data. I just wonder if advertisers would value the resulting databases as much as they would value those obtained without this filtering of FB users - is it sufficient to be able to reach only consumers who are willing to share their private data when the actual target can be much wider?
March 3rd, 2009 at 3:56 am
I’m sure I’ve made this point in a response to a previous post, but why do we assume that there is only one model of membership: either free and subject to advertising or paid and ad-free?
Why not let people choose (radical I know) whether they want to:
Have free membership but be subject to ads
Pay for ad-free access
Most radically of all … tell FaceBook a bit about their interests so that FaceBook can help find advertising that might be interesting (5-mins spent telling them a bit about myself once every few months doesn’t seem so bad, and it might help make some sense of the randomness of the posts I actually make).
I for one can see the potential value of advertising to me as a consumer, but it helps when it’s well targeted. Maybe I’m not the only one who’d willingly help to make the targeting more successful?
March 3rd, 2009 at 7:47 am
Trevor, you beat me to the punch! I was planning to outline how a mixed model site could work. To Ioana’s point, if we combine the niche social sites or communities with the ability to control advertising then it could be a win win. Given the obvious interest in the topic I will try and come up with a post on the topic.
March 4th, 2009 at 12:59 am
Carrying Trevor’s point further, the personal data collected by Facebook every few months could then very well be used to classify users into sub-groups and then sold to marketers by FB.
The people in the sub-groups (if willing) can be contacted by the marketer for further info (By giving incentives / or money for the time and money they give) .
Thus a win - win for all- FB , the FB user and the marketer.
March 4th, 2009 at 9:44 am
Why not let the users of Facebook decide the ads themselves? The whole site is user-generated anyway and by providing the choice for the users to choose the ads themselves the brand impact will be stronger. Let’s say that instead of paying for Facebook you will have to choose 3-5 ads for your profile. Would you choose 3 random ads or would you actually choose ads for companies that you like?
BTW I am not talking about text ads but graphical ads like 125×125 pixels ads know from many blogs. This way the users will become brand evangelists for the brands and you will probably be more likely to notice ads that your friends have choosen than the ads shown on Facebook now.
And I have a solution for the payment structure too…
But forget about letting users pay. A lot of your contacts will probably not pay and disappear from Facebook and devaluate the value of the site and make it less worth than you paid for.
March 4th, 2009 at 2:09 pm
David, very valid last point there, so we can’t have a one-size-fits-all solution. But I do think there is a hybrid model that might work, including the self-selection you propose and the updating Neetu suggests. I’ll write a new post and you can tell me what you think of the idea! Cheers, Nigel
March 6th, 2009 at 6:46 pm
Hi Nigel,
I guess most of us would have read about the recent development on facebook, about conducting paid polls……an excellent idea to use the vast user base. refer link :
http://www.techcrunch.com/2007/06/01/facebook-polls-launches-tonight-marketing-research-paradise/
Also, I am a regular facebook user and I am okay to pay for a subscription but i am not sure if all my friends on the network would be willing to do so, which defeats the purpose of having a vast social networking base..
Cheers,
manaswita
March 10th, 2009 at 7:40 am
Hi Nigel,10$ for a person living in India amounts to ~ 500 rupees. With that money you can buy yourself a nice wholesome meal ( in a non luxury restaurant ) or an cute piece of accessory. I highly doubt if people will choose to remain on a social networking site when other attractive offers (like i’ve mentioned) are available.So, this idea of having a uniform subscription value across all the countries will not work out because of the various sociological factors and purchasing power parity differences. If the subscription fee is non-uniform, it will most certainly lead to controversy and protest (Why should US citizens pay more than, lets say Brazilians? ) Facebook has many uses, apart from keeping in touch with old friends and networking, people login to play games (scrabble is awesome!), compare who is hot/ who is not, other such leisure activities which are distracting to the extent that some companies and college campuses have banned facebook. Everyone will agree that it is a distraction (to some extent), why would anyone want to pay for it? 90% of the people will tell you that they are indulging in a counter-productive activity only because it is free. And i highly doubt if facebook will earn much revenue from the remaining 10%
March 10th, 2009 at 7:50 am
Hi Rp, fair comment about the relative price. I have heard of some organizations that do adjust their pricing based on where someone lives and it might be feasible to do so using IP address.
You might want to check out the new post on this topic. One of the points I make is that we do not need a one-size-fits-all solution.
Cheers, Nigel