Facebook's iconic blue and white site has a hallmark one line descriptor that has been around since the social network's inception: "Sign up. It's free and always will be."
Many of us might not even see this gem of a statement anymore because it's on the login screen and we don't formally log in to Facebook anymore because for days, weeks, sometimes months at a time we're never even logging off.
It's a staple website in the array of select screens that occupy a permanent residence on our laptop or desktop computer's dashboard. It's an app that doesn't require a log in on our smart phones and tablets. It's ever-present. Like hunger. When we're hungry we eat. When we're hungry for online (at times in place of offline) social inclusion and information we check Facebook. And our appetite has been increasing.
Like a cookie jar that never empties, it's always full and always ready to serve. Although not always offering our favorite type of cookie, there's always something there that can be readily consumed. Information diffuses at a continuous clip and follows the rate at which we're personally ready to review, receive, send, upload, and share. For many us, this pace of information consumption is pretty rapid.
Yet as our usage of the site has enjoyed a solid growth story, Facebook's stock price since its IPO a few months ago has been solidly declining. If stock price is an indicator of a company's health, Facebook might not be doing so well.
Investors are wary about future profitability and the company needs to demonstrate that future revenue streams are sound. The bread and butter of Facebook's revenue comes from companies who advertise on the site. As its user base continues to balloon there has been ongoing dialogue about privacy concerns and data sharing of personal information with these advertisers.
In response to safety concerns, safeguards and security checks have been established to protect user information. Yet the debate wages on: how is user information being collected, mined, used internally and eventually socialized with companies?
With their dedicated Facebook pages and selective advertising, companies have been targeting interest, tracking clicks, and building customer acquisition databases. Having a presence on the site is baseline, optimizing online marketing spend such that campaigns translate to positive brand equity and ultimately greater market share and increased stock price is the game. And over the past few years, many are realizing that they're not playing the game that well. Offering coupons if people "like" a page is only as beneficial as the uptick in additional awareness, consumers, sales, and ultimately profit such an action drives.
Companies are quantifying every digital campaign and the associated costs of sidebar ads and fan pages laden with promotional initiatives. As these companies shore up their marketing teams with digital and inbound marketing talent, the return on marketing investment is no longer as opaque of a metric it once was to measure.
In response, Facebook is rolling out new advertising strategies to entice these advertisers to stay in their playground.
Facebook's characteristic mission statement is also present on the login site: "Facebook helps you connect and share with the people in your life."
Well, what if doing so came at a cost?
What if, instead of focusing on corporations for profit, Facebook turned to its primary consumers: us, the individual users of the site?
Would you pay?
We all have a symbiotic relationship with Facebook. We, the user base, determine the strength of the offering by our presence and participation on the platform and the effective and popular offering, in turn, ensures that we don't leave. We need each other.
What if every user in the world paid the equivalent of one U.S. dollar (exchange rate adjusted) for access to the site? Let's say an annual fee of one U.S. dollar. With the site's increasing global adoption rate that would roughly translate to a maximum potential flow of approximately $900 million (based on an assumption of 900 million total users of the site).
Let's say it was an opt-in model, meaning that it was completely voluntary and you didn't have to pay but had the option to. Let's conservatively assume that only a quarter of the global user base decided to pay. That still shakes out to about $225 million dollars in added revenue. Not bad.
So how reasonable of a proposition is this?
On the one hand, I would pay a dollar. It's a dollar!
On the other hand, I wouldn't pay a dollar. What if this is a soft serve to larger eventual price hikes?
On the one hand, when the "pay for play" fee has always been zero, raising it by even a cent can be too high of a transaction cost.
On the other hand, my non-monetary switching costs of leaving the site are high. If I have 1,000 people in my Facebook network and the majority of my friends pay the fee I will likely also follow suit because I don't want my network to dissolve. (Assuming paying for access is mandatory and not voluntary).
A one-time price increase can create a substantial short-term lift in revenue, but is it worth it if it generates a longer term fear in users? How will perceptions of Facebook be influenced? Will competitive offerings crop up as substitutes and swoop in to claim any lost users? Could their initial spark of popularity swell into a viable competitive platform? What is a reasonable fee to charge without alienating your existing and future user base?
Consumers value transparency and honesty. What if Facebook asked us, the users, for help? Could we empathize? It has revolutionized how we connect, but does such a plea come across as a ploy to exploit us for being so loyal?
If one of your friends who never needed help and always professed to never asking for help ended up needing some help -- a dollar a year with no expected payback -- would you give it to him or her? What if this friend was your primary point of connection to 600 or so of your other friends?
"Sign up. It's free and always will be."
If the value proposition of Facebook has less to do with its free price tag and more to do with its ability to connect us in such a colossal and unparalleled way, then perhaps a better tagline for the site is simply, "Sign up."
Follow Shruti Eva Saini on Twitter: www.twitter.com/ShrutiEva
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In short: this is a magazine that no one will ever pay for. And this is a fatal flaw in its (non-) revenue (non-) model which is right now being played-out by the stock market.
The only source of income that Facebook has is advertising, and the sale of "private" information which ... although you can say which other subscriber can see "your" "private" stuff ... is ALWAYS available to "Facebook, Inc."
No one really knows what the public reaction will be to the sale and disclosure of what they still consider to be private information.
Implicitly, people would never consent to a telephone-company taping their conversations, using computer software to pick it apart word-by-word, and to send advertisements based on what you talked about with your neighbor. But this is where a lot of Facebook's revenue now comes from. It is, in other words, a gigantic "honey-pot," but one whose legality not to mention its morality is as-yet untested. (And which IMHO is very likely to abysmally fail that test, when it comes.)
It costs you your time and energy.
If you feel those are worth nothing than carry on. Some of us, on the other hand, know better, and thus spend our time more productively.
The business model that make the most sense is the platform-as-a-service (PaaS) scheme, in which the platform provider invites third-party developers to build and host applications on their platform and bills them for the resources they consume.
Facebook has enjoyed a very profitable PaaS relationship with Zynga, but they've had to tightly control their external platform interface, because at the end of the day they're trying to run an advertising business, so they need to control their content. Twitter is tightening up their public API for the same reason.
Facebook and Twitter should be doing business by opening their platforms to third parties and setting prices for every feed they follow, for every 1000 content items they post, for every 1000 notifications they receive, etc.
There are other ways of charging users on Facebook, though. Facebook could charge their users to store photos past a certain amount of free storage. Freemium photo storage would be good for Facebook.
And you are addicted to the internet, aren't you?
:-)
Consider her argument: 1) Facebook’s declining stock price is evidence of poor corporate health; 2) digital advertising is dynamic and uncertain; 3) Facebook should pass the hat to users, generating $225M annually.
First off, Facebook isn't sick. Sell-side equity analysts, who study Facebook for a living, project that the company will earn $2.7B in EBITDA in 2012 and $3.5B in 2013. Facebook's stock may be mis-priced, but it is very healthy company.
How about the uncertainty of digital advertising? Yes it is uncertain. In ten years, brands and consumers will interact online in different ways. With a trove of personal and social data and massive digital scale, Facebook is well positioned to lead the innovation, despite privacy challenges. Facebook embraces the dynamism of digital advertising.
Generating an extra $225M from users isn't worth the trouble. Analysts project 2012 revenues to be $4.9B, and to grow to $6.3B by 2013 (29% growth!). A requested donation could alienate a minority of users. Facebook will focus on growing the $6.3B rather than passing the hat to us for $225M.
I laude Ms. Saini’s creativity, but question the conclusion. Looking forward to the next post.
Of course, truth is... FB is NOT worth $1, let alone $10 a month to most of its users. They are there because it is free. If they began charging, 99% of its users would immediately migrate to a site that does the same but is free.
:-)