The problem at Facebook: their business model

The tide of concerns around privacy is rising at Facebook, as they try to leverage the personal information you’ve given them (who you are, who you know, your photos, your notes) to make money. They try to sell it, they try to offer it to other websites who can use it to attract your attention, they try to use it to target you for ads on their own site. Why are they acting so . . . evil, as many have put it?

You haven’t given them anything else.

You haven’t paid them cash. You don’t like ads on the site and don’t pay attention to them when they run them – you certainly don’t click on them. What’s a Facebook to do to keep the doors open and the investors happy?

It’s not really your fault. Facebook started doing what they’re doing with no real plan to make money, a common form of hubris among many start-ups these days. Over the past decade, it’s been all about getting people’s attention online – and the slam-dunk advertising model (or the idea of it) was always there to help cash in on that attention.

But it’s not a slam-dunk any more. People have sipped the sweet elixir of ad-free business models and developed a taste for them. $15 a month for ad-free HBO or satellite radio? Sure. Downloadable iTunes music, apps, and more? Sign me up. Netflix and now streamed movies through On-Demand services? Yes.

The heart of Facebook’s problem is their business model. You (we) are the ones getting the value, but we aren’t willing to pay for it in the way they are asking us to . . . but could they ask us in another way?

What if Facebook charged you $3 a month, locked your data down (no more privacy issues), and focused all of their energy on providing more features and value for you (vs. building out fan pages and hiring sales people to attract money from brands)? Would you pay them? I would, actually. But a lot of people, perhaps most people, might not.

But don’t underestimate what Facebook could do if it were the first subscription social networking site and was suddenly only serving one master (you). They are big enough and have enough resources that they could steadily and rapidly absorb the capabilities of every other networking site you use – and serve you at a higher level than any of those other sites, many of whom are still clinging to the empty promise of the ad model also.

I don’t think Facebook would ever do this, they are making some good money from advertisers and are rushing in that direction guns a-blazing. They have too many cooks in the kitchen to change approaches now – and I know if I was in their shoes and I read this blog post I’d think “yeah, easy for you to say dude.”

So does the subscription model opportunity exist for another fledging general-use social network? I think so. Facebook’s second (and perhaps final) hubris would be to underestimate users’ willingness to switch to an alternative who is solely focused on user needs. Ultimately, two masters – the users and the advertisers – might be one too many.

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