I don’t like anonymous sources, but this post by “a former CTO [who] was briefed on Facebook’s advertising strategy” caught a lot of people’s attention last week. This paragraph, in particular, stands out:
What most users don’t know is that the new features being introduced are all centered around increasing the value of Facebook to advertisers, to the point where Facebook representatives have been selling the idea that Timeline is actually about re-conceptualizing users around their consumer preferences, or as they put it, “brands are now an essential part of people’s identities.”
Brent Simmons had a very succinct response to that last quote:
John Gruber then linked to a page that Facebook set up to explain how they make money. Facebook says that it now costs over a billion dollars a year to keep the site running. That’s a lot of money, for sure. But it’s a damn shame that advertising appears to be the only viable way for Facebook to foot that bill.
Facebook says that they have over 800 million active users, and that “more than 50% of our active users log on to Facebook in any given day.” So let’s, for argument’s sake, say that about 500 million users visit Facebook every day. If each of those users paid Facebook $2 per year, the revenue would cover the cost of running the site. Just increase that to $3 per year, or 25c per month, and you suddenly have $1.5B revenue per year (or roughly $500M profit, based on Facebook’s rough estimate of their operating costs). Let’s be clear about this: it’s the cost of one coffee per year.
Yes, of course this is naive – it would never happen. Most people aren’t willing to pay for services or content on the Internet. There is an expectation that everything should be free, and that at the same time, companies should respect our privacy and keep The Brands™ away from our personal information. It’s not a realistic expectation – something’s gotta give if no one is willing to pay for anything. But most people don’t think about it long enough to realize that.
A recent article on the Pinboard blog really resonated with me, and by the way it spread on Twitter I know it struck a chord with a lot of others too. From Don’t be a free user:
What if a little site you love doesn’t have a business model? Yell at the developers! Explain that you are tired of good projects folding and are willing to pay cash American dollar to prevent that from happening. It doesn’t take prohibitive per-user revenue to put a project in the black. It just requires a number greater than zero.
In Facebook’s case that “number greater than zero” is $3 per year (have I mentioned that it’s per year!?). But the non-geek world just don’t think about these things. They don’t think about designers and developers who create apps and need to be compensated for it to keep a service alive. They feel that 99c is too much to pay for an iOS game. They freak out every time Facebook moves some things around, still blissfully unaware that they are not Facebook’s customers, they’re just the product being sold to advertisers. All they want is their free Facebook so they can “inbox” their friends about tomorrow’s party. “Pay for this thing?”, they say. “Screw that – it’s not my problem how you keep the site up. Oh, by the way, just remember that you have to respect my privacy and you can’t show me any advertising.”
It’s terribly frustrating.
I fear we’ve painted ourselves into this free corner, and the only way out is to sell our identities to The Brands™. Steve Jobs alluded to this in his negotiations with the New York Times when he refused to give them access to user information Apple collects in the App store. From his biography:
If you don’t like it, don’t use us. I’m not the one who got you in this jam. You’re the ones who’ve spent the past five years giving away your paper online and not collecting anyone’s credit card information.
We created this culture. We’re the ones who have been giving stuff away for free for the past decade, not collecting anyone’s credit card information. We’ve conditioned users that everything should be free, always. This gives advertisers the upper hand in any negotiation, because they know that their way is the only way that most sites can make money.
Why is this such a big deal? Relevant, contextual advertising isn’t bad, right? Not in moderation, no (see The Deck). But when ads become the only way out and advertisers are the ones calling the shots, users suffer. Also, as a matter of principle I firmly believe that it’s better to pay the makers of things directly than through some convoluted ad system.
We can’t really blame Facebook for choosing this path of least resistance. It’s the hand they were dealt by the culture we’ve created. But I remain hopeful that new services will charge for what they do so that we can slowly begin to define our own identities without The Brands™ trying to tell us who we are.