MIT Technology Review

Wednesday, April 10, 2013

What if Facebook Went Freemium?

A $20 annual subscription to see Facebook ad-free would preserve the company's profits

Facebook’s home page proclaims that the social network is “free and always will be.” But what if you could also choose to pay for it?

Facebook is wholly supported by advertising today, but many other companies that show ads to their users also offer the option of paying to remove them. It’s arguable that many Facebook users might take that option, at the right price. Rough estimates based on Facebook’s financial results for 2012 suggest it wouldn’t have to be very high.

Financial results released by Facebook show that, on average, every active Facebook user in the U.S. and Canada netted the company $13.58 in 2012. If Facebook charged $20 for a year of an ad-free version of its services it would make more money than it does today.

Offering a premium option could also have other benefits due to the network effects at work in social networks. If it prevented some users that didn’t like ads from ditching the service, it would make their ad-viewing friends get a much better experience. Paying users would also continue to generate valuable data about users on the free tier that could help target ads.

Are Facebook’s ads so annoying? Sometimes. One problem built into the company’s business model is that it gets the rich personal data needed to target ads by offering a very personal, social space that is challenging to insert product ads into. Commercials interrupting a movie is one thing, but inserting them between personal conversation is another. Anecdotally, based on my own experience and that of friends, the company also runs an awful lot of very poorly targeted ads, despite its public claims to be offering ads so well-chosen as to be welcome. Facebook’s ads are particularly disruptive on a smartphone, where they fill an entire screen worth or more of your news feed. Ads that CEO Mark Zuckerberg says will appear in the company’s new interface for Android mobile devices will also be hard to get right.

In January 2013, Zuckerberg was granted a patent on the idea of users paying to “replace advertisements or other elements that are normally displayed to visitors of the user's profile page”. Yet there have been no indications that the company has any such plans, and Facebook doing so would go against the established wisdom and tradition of the social Web. On the other hand, subscription models are gaining traction in other areas. A subscription to the New York Times costs $3.75 a week ($195 a year); Spotify charges $10 ($120 a year) for unlimited music streaming. Alongside those, $20 a year for Facebook’s services doesn’t sound too unreasonable.