People Hate The Ads & That’s Why Facebook Should Try A Subscription Model

In this guest post, the CEO and co-founder of enterprise software firm Zuora, Tien Tzuo (pictured below), argues that a paid subscription model would put pay to Facebook’s data and privacy woes…

Soon, users might have to pay for Facebook. The company has recently been conducting market research on an ad-free version supported by subscriptions. It’s about time.

A few weeks ago, Facebook made headlines globally as CEO Mark Zuckerberg testified in front of both the US Congress and Senate, to address the mishandling of users’ personal data, fake news, Russian sabotage and the social media site’s role in swaying the U.S. Presidential election among other things.

For all the spectacle – what the public didn’t hear is how things will change for the social media giant. But there were some hints that Facebook may be considering a change in business model, as its earliest investor Roger McNamara has suggested.

“There will always be a version of Facebook that is free,” Zuckerberg told the Senate. “It is our mission to try to help connect everyone around the world and bring the world closer together. In order to do that, we believe we need to offer a service that everyone can afford.”

Was that a nod that a subscription model is on the horizon?

There are lots of reasons why the time is right for Facebook to make that move. For one – Facebook’s user growth is slowing (an outcome of billions with an “s” users – a problem every company in the world would die to have). Still, Facebook can only serve so many ads to all those billions of users before it runs out of space in its news feed. And it’s butting up against a real estate shortage when it comes to smashing ads into its news feed. No more real estate means ad revenue can only grow so much.

And while advertising is certainly Facebook’s cash cow — it raked in some $US12.8 billion (in advertising) in Q4 of 2017 alone — charging users could solve some of Facebook’s immediate and long-term problems.

For one thing, offering Facebook’s service as a subscription to its 2.2 billion active monthly users would create a new, consistent, predictable revenue stream possibly in the billions-of-dollars range for a relatively low monthly fee per user.

Zuckerberg says improving the quality of information on Facebook is his personal challenge this year. “In 2018,” he said recently, “we’re focused on making sure Facebook isn’t just fun to use, but also good for people’s well-being and for society.”

And that’s the larger point: a subscription offering would lighten the incentive and burden Facebook has to promote, and accept payment for, advertising content that isn’t good for the world.

And let’s be blunt. Advertising is evil.

It’s why newspapers insisted on the separation of advertising and editorial — so that advertisers couldn’t influence the content. And it’s clear, as we were reminded in Zuckerberg’s Congressional hearings this week that some–even Senators, don’t understand how Facebook uses advertising to make money. That makes you wonder if Facebook users can even distinguish an ad from the content their friends are sharing.

Would users go for it? Most likely. A majority of people hate internet advertising.

More than 80 million Americans will use ad blockers this year, costing digital media companies around $10 billion in revenue. And masses of people are indicating their willingness to pay monthly fees for the services they love. Take Pandora and Netflix as the obvious examples, or even the subscription growth at News Corp.

Google recently announced the launch of its own music streaming service in an attempt to compete with the Spotify Apple duopoly and encourage its billions of YouTube users to start paying monthly.

There’s also this other big thing. We know that companies that offer subscriptions outperform those that don’t. And we know that the subscription model enables a stickier relationship with customers, creating loyalty among consumers and pays dividends in customers’ long term value.

While Facebook of course has troves of data on its users, and is king of customising experiences — what’s keeping Facebook users from abandoning a site that they increasingly distrust to provide quality content and that is cramming its news feed full of ads? A subscription model forces Facebook to be accountable to improve its value to its users — or risk losing them for good.

The backlash began with the US Congressional hearings and the interest by some lawmakers in exploring how to regulate Facebook. But there are other threats to Facebook’s power, too. New apps like the popular Hold app out of Norway, are being designed now to reward people for limiting the time they spend connected to their devices. Vero, an ad-free, subscription-based competitor to Facebook, gained popularity in February 2018.

If Facebook doesn’t change, it stands to lose more trust, and spur more competitors.