by C.G. Lynch

Would You Pay for Facebook?

Dec 12, 20087 mins
Enterprise Applications

I like Facebook so much that I’d pay for it someday. I came to this conclusion mainly out of concern and the nagging persistence of facts. I’ve been dogged by the hackneyed, frequently asked question: how will Facebook (and social networks like it) make money? For all the pontificating and analysis, still, nobody has the answer.

The evidence suggests these early social advertising models will fail, and continue to fail — maybe not entirely — but at least against the expectations we’ve set for them. As a result, and this might be looked upon as blasphemy in the Web 2.0 community, we might have to pay eventually. New media could, ironically, become more like old media in the coming years.

There’s been some things about this social advertising model (and ones like it proposed for the future) that seem unsustainable.

When I was at the Web 2.0 Summit more than a month ago, it was all I wanted to talk about, but many of the attendees there didn’t. “They’ll find a way” or “they’re smart guys over there [at Facebook]” were common phrases. Others told me that advertisers saw good returns on putting an ad on top of Facebook.

But facts certainly don’t share that sentiment. In this New York Times story, citing IDC research, we learned that “just 57 percent of all users of social networks clicked on an ad in the last year, and only 11 percent of those clicks led to a purchase, IDC said. And it turns out that marketers are not so interested in advertising on pages filled with personal trivia and relationship updates.”

Many say Facebook has strong potential to monetize because it’s more powerful from an advertising perspective to see what your friends buy (such as a scarf, to use one of the cited examples in Facebook CEO Mark Zuckerberg’s 60 Minutes Interview last year), opposed to just searching for an item on Google and getting random text-based ads.

Call me an old Web 1.0 media hack, but I still bet on the stability of the latter delivery model over what Facebook wants to do.

There’s a couple fundamental problems with this proposed social advertising model that keep getting ignored, or pushed aside, because they’re inconvenient for social media evangelists and the third party application firms riding Facebook’s coattails to explain. One (and this is channeling my inner-Obama) is the myth of the younger generation’s apathy, in this case towards privacy. Because Facebook originated in college, and garnered that group as its core constituency before blossoming into what it is today, social media enthusiasts and marketers assume this generation’s propensity to share anything and everything is unwavering. What an amazing paradigm shift! they exclaimed. Imagine them just broadcasting their buying habits for you!

The Beacon advertising incident stunted that wave of euphoria, and Zuckerberg and company intelligently (and rightly) began adding robust privacy features to Facebook afterward.

I’m not sure they truly believe users care that much, however. After Beacon, the message to users was, “oh, we have to go back to the drawing board and get this right. Sorry.” But what that really meant was this: “Actually, that really is how we want to do it, so, um, yeah, we’ll just structure it a little differently so you’ll think it’s different.” So they’ve called it something else. We still have Beacon, or the potential for it. The only difference is it’s called social ads and we have opt out capabilities.

But social media marketers are banking on the majority of us not opting out and, moreover, hope we just leave those privacy settings on default. They’re building a business model based on our ignorance towards privacy. That might work for awhile, but I’d argue there’s going to be a privacy tide change that dwarfs the outrage we saw over Beacon, and it will start in academia (which ironically is the environment where Facebook began).

This new generation of future Web consumers will increasingly be educated about how to manage their online reputation and identity. In the future, it might be offered as a requirement course in schools, next to Sex Ed and SAT prep courses. Right now, a good majority of people who use Facebook don’t even know what a social ad does, nor have they so much as glanced at the privacy settings. If that ignorance abates, and you build a business model predicated on the notion that it won’t, you’ve got trouble in the future.

You could argue that since we type so much information into Google, and since they return ads based on that search, why would we care any more so about our privacy on Facebook? The difference, clearly, is intimacy. For Joe the Internet User, Google offers you greater anonymity. Yes, our IP addresses are recorded, but with the exception of noting popular searches that we all do collectively, there isn’t a message that goes up saying “your friend John searched [insert keyword or phrase here] on Google.” Nor would I want a service like this. Does one exist? Sounds terrible if it does.

Another problem with social ad models is the type of content being exchanged on Facebook that you’d have to push ads on top of. This could change as the audience gets older, more sophisticated and is more interested in trading ideas on Facebook. But right now, Facebook largely remains a place to trade virtual toys, store our personal pictures and videos, and chronicle who we’re dating. As a P&G marketing VP noted, the potential for advertising there seems limited.

So assuming social advertising on its current path blows up in our face, that leaves me with this question: would you pay for Facebook?

Provided the price were appropriate, I absolutely would. As a user, I love Facebook. I rely on it to keep in touch with friends and, at the end of the day, I use it as my digital scrapbook. That’s important to me. That has value. If my apartment burned down today, I’d lose that stuff on my laptop and discs. I’m trusting Facebook to back it up ten times over and never lose it (that might be stupid on my part, but that’s a whole other issue). At the end of the day, Facebook has value to me and my friends.

We overpay for things like cable and internet, so throwing Facebook a small yearly fee (20 or 30 bucks maybe?) to host all my pictures and video, and connect with friends, seems pretty reasonable. Considering what I pay for the Economist, Sports Illustrated, New Yorker and a bunch of other old media brands, that seems fair. Facebook would still sell ads under such a model (why not?), but it certainly won’t generate this robust $15 billion behemoth we keep hearing about. And that’s fine. Who says Facebook needs to be that?

Eventually, on the Web, this entitlement towards free information and free use will eventually be trumped by reality: we have people to pay, servers to run, and data to secure. Venture capitalists won’t keep paying for it because Microsoft was misguided enough to cough up a quarter billion dollars for one percent of Facebook.

If another few years go by and Facebook can’t make money, what will you be willing to do to keep it?