Facebook CEO Mark Zuckerberg whispers something important to President Obama
The rumor that Facebook will suddenly start charging users to access the site has become one of the social media era's perennial chain letters.
While Facebook prominently advertises that its service is "free and always will be" on its homepage, it hasn't stopped false rumors of a pay scheme from going viral on numerous occasions, most recently in conjunction with the major profile redesign that the site announced earlier this month.
Given the ubiquity of these rumors, we thought it was worth exploring their origin -- and why we can guarantee Facebook will never charge you to use its service.
A Long History
Chain letters -- which date back to the days of snail mail -- have dogged nearly every online service that achieved critical mass. While they vary in the details, the general premise is that something negative will happen to your account unless you spread the message to your friends.
On AIM, this took the form of IMs that needed to be shared with friends to avoid account deletion. On Friendster, rumors spread that the service was getting "too crowded" -- and hence, they needed to determine which accounts were active and remove those that weren't. On MySpace, word was that the service was getting so popular that the site would soon start charging members, and the only way to avoid the fees was to -- you guessed it -- forward the message to your friends.
Of course, none of these situations ever actually materialized, but it didn't stop millions of users from passing the message along. Snopes has a detailed overview of these scams and others that have permeated the web over the years, going all the way back to the early days of Hotmail.
Facebook's Business Model
The recent round of Facebook rumors suggest that the site will start charging for membership as a result of the upcoming new profiles. The new Facebook does indeed feature some dramatic changes, but you can rest assured that one of them isn't that the site will start charging you.
For starters, it doesn't need the money. Here's why:
- Facebook is estimated to be on track to pull in around $4 billion in revenue in 2011.
- Facebook has raised more than $2 billion in venture capital.
- Facebook is on track to go public in 2012, a move that would bring in significantly more capital for the company and value it at between $80 billion and $100 billion.
More importantly, the company's business model revolves around having as many users as possible. Remaining free is paramount to doing that. Facebook makes its money on highly targeted advertising that's based on the plethora of data that its members share on the site. Restricting users' ability to use the site would actually be detrimental to that model.
Facebook didn't even introduce its ad platform until 2007 -- because the company wanted to focus on adding users as quickly as possible.
That's not to say social networking sites haven't found success in charging members for some services. LinkedIn offers premium memberships with features such as enhanced search, direct messaging and seeing who has viewed your profile. Some dating sites, like Match.com and eHarmony charge users to message each other. Still, those services are appealing to a specific audience -- Facebook's goal is to connect everyone in the world. That can't be done if you need a credit card to use the service.
Why It Will Never Charge You
Of course, Facebook is in business to make money. Beyond advertising, it has found ways to profit directly from its users through Facebook Credits, a form of currency that can be used on the site in social games like FarmVille and Mafia Wars.
In the future, we expect Facebook to find additional ways to monetize.
- Facebook could grow its credit system to become a rival to PayPal.
- Facebook could extend its ad platform beyond the social network itself and onto the wider Web -- in order to compete with Google's AdSense.
- Facebook also has potential in e-commerce. Although Facebook's Deals product fell flat, an increasing number of merchants are starting to sell their wares directly on the social networking site. Might Facebook one day provide its own tools for powering such activity? It's certainly possible.
The one thing that all of these models have in common is that they need a critical mass of users to be successful. Facebook has that, and would never risk losing it by charging people for basic access to the tools that make its multi-billion dollar business work.
COMMENTARY: With respect to Pete Cashmore and the guys and gals at Mashable. Would Zuck ever consider charging his users to access their Facebook accounts? You betcha. Here are ELEVEN good reasons why I think that Zuck could begin charging YOU to access your account.
- Zuck Owns YOU - All the content you have posted on your account (supposedly) belongs to Zuck. Please read Facebook's Terms of Use, particularly Section 2.1 which reads: "For content that is covered by intellectual property rights, like photos and videos (IP content), you specifically give us the following permission, subject to your privacy and application settings: you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook (IP License). This IP License ends when you delete your IP content or your account unless your content has been shared with others, and they have not deleted it."
- The Addiction Factor - Millions upon millions of Facebook users are addicted to the site. Some of them never logout of their accounts. They go to sleep with their Facebook account still on. When they wake up, the very first thing they do is log into their Facebook account.
- A Small Fee Would Not Be Earth Shaking- A nominal fee of $4.95 per month would probably not be initially greeted very well, but within a month or two, everything would be forgiven and it would be business as usual. Netflix increased its DVD rental fees and lost about one million accounts, but it is still making a huge profit. The banks will charge $5.00 per month when you use your bank debit card. Consumers get pissed for only a few days, but they end up swallowing their pride, and pay up. You will too.
- People Are Invested In Facebook - Many Facebook users have invested considerable time and effort to build a large fan base. Britney Spears has nearly 15 million fans. Lady Gaga has nearly 44 million fans. Many users are not going to pack up their tent and leave Facebook. Even a small nominal fee won't get them to leave.
- Zuck Won't Let You Leave - Try to delete your account. It's difficult to do, and the DELETE feature is difficult to find. Zuck hid it in the Help Center. It's right HERE. Now try downloading your fan data using one of those apps so you can take it to another social network like Twitter or Google+. You can't. Zuck blocked this avenue when Google+ joined the ranks of social networking sites.
- Zuck's Investors Are Greedy Bastards - Nothing would please Facebook's investors more that a huge boost in revenues from monthly membership fees. Even if 50% of Facebook users decided to bail, this leaves 375 million who would probably pay that $4.95 per month. This works out to a humongous spike of $1.8 billion in revenue per month or
- Zuck Can't Get Into China - China has banned Facebook, so Zuck cannot compete for China's advertising dollars. A monthly membership fee makes up for that huge loss in revenues. Thank you very much. Zuck smiles all the way to the bank
- You Are The Product - Facebook is the the Freemium business. Anytime a company does not make anything or offers its service for FREE, then YOU are the product. I have been saying this for a long time. To Zuck YOU are the eyeballs that he sells to his advertisers.
- Facebook Has Your Credit Card Number - If you play social games or buy things on Facebook you must have a credit card in order to buy Facebook Credits, the virtual currency everybody uses on Facebook to pay for things. Facebook already has YOUR means to pay. Zuck essentially has his hands in your wallet.
- Zuck Wants To Be The Richest Man on the Forbes 500 - Bill Gates ranks No 1 on the Forbes 500 list of the richest people in the world. Zuck only ranks #212. Do you honestly believe he wants to be ranked that low? Hell no. Nothing would please Zuck more than being the No 1 richest man in the world. A small nominal fee could have a huge effect in the overal rankings.
- The Critical Inflection Point - I wrote about this in a blog post dated March 20, 2011. It's all explained below.
I've always felt, as far back as 2009, that the ad-supported revenue model of internet sites was deeply flawed. Facebook started chrging for ads because it was a quick-and-dirty way to start generating revenues. Friendster began the practice, and Zuck just picked it up from there.
According to eMarketer, Facebook is on track to generate $4 billion in revenues in 2011, and could do $6 billion in 2012. About 70%-80% will come from advertising. The rest will come from Facebook Credits. So long as Facebook can continue to grow its active users, it will maintain steady growth in advertising revenues.
It is now commonly known that Facebook's user penetration has peaked in the U.S., Canada, the UK and most of the EU. Most of Facebook's growth in users is now generated from India, Indonesia and Brazil. Those markets will reach maximum penetration in another two years. The only ace in the hole is a Facebook entry into China, but that is NOT going to happen.
If you've been following my posts, Facebook hit a critical inflection point sometime towards the end of 2010. The critical inflection point occurs when the growth in the number of users begins to slowdown. As growth in the numbers of users slows down, a corresponding decline in advertising revenue growth also occurs. At some point, within about three years, both the number of active users and advertising revenues will peak.
Advertisers pay for impressions, or the number of eyeballs that are exposed to their ads, but when full penetration occurs, Facebook will be hard pressed to increase its cost per thousand advertising rates. The number of advertising dollars is also relatively fixed. The growth in advertising dollars has already peaked in the U.S. and this situation will occur worldwide as well. The only way that Facebook can continue growing advertising revenues is by stealing market share from other social networks or increasing ad rates (something it won't be able to easily do). It's basically a zero sum game, where market shares keep juggling back and forth between sites.
The addition of Google+ has really changed the rules of the game. Facebook is no longer the only game in town. Google+ has already reached 50 million users, and could be at 100 million by the end of 2011. Facebook fatigue is beginning to set in, and this could crate an wholesale flight of users moving over to Google+, further slowing down Facebook's user growth rate. And, let's not forget Twitter. Twitter now has over 200 million users and growing at a faster rate than Facebook. You can bet that Twitter wants to grab the low hanging fruit and steal away market share from Facebook.
The Facebook brain trust has already modeled the above, and they probably know they reached a critical inflection point, and this is the principal reason why Zuck and company are rushing to add additional revenue streams. Although they dumped Facebook Deals and Facebook Places (something I predicted), they have since added the Facebook Media platform, a potpourri of music and video downloading services. Most of this media will be initially free, but its my guess that Facebook will eventually claim that they can no longer offer it for free and must charge something for you to enjoy all these wonderful goodies. Hence, that $4.95 monthly fee won't look so bad after all. And, YES people, you will open up your wallets and pay it because Zuck owns YOU.
Courtesy of an article dated September 30, 2011 appearing in Mashable
Congrats for your blog. All your articles are very interesting!
Posted by: Sachakin | 12/13/2011 at 06:22 PM