There have been various reports about Facebook adding pre-roll video to its site, where you would be forced to watch a short commercial before entering your Facebook account, at least for the first time each day. While I think this is a spectacularly bad idea on many levels, would there be other ways for Facebook to “monetize” that might make sense?
If Facebook’s reported numbers of 1.06 Billion (yes, with a B) active monthly users is correct, and we’re not talking about people who control multiple pages, that’s simply huge- 1/7th of the planet has a Facebook account. Obviously, the temptation to monetize through ads and promotion is huge, but this additional noise on Facebook is also making the experience for many people less pleasant than ever before. So instead of trying to get big brands to buy a Facebook ad that would be shown to every member, for one day, for a million dollars, let’s talk about what would happen if you made Facebook a membership service.
Every time you erect a paywall, you start to limit who engages in the service and who does not. For example, when we ran the first Podcamp Philly, we got close to 600 people signed up for the event, but only 300 or so actually showed up. It’s hard to plan an event with such a wide swing in attendees, so we introduced a “co-pay” of $20 for a two day event, and the level of no shows plummeted accordingly, to the point where one year, we actually had people sign up the day of the events, increasing our attendance over 100% of sign ups v. show ups, which was awesome.
Likewise, on a grander scale, in the early days of HD TV and particularly with sports broadcasting, advertisers were intrigued and pushing networks to invest in HD broadcast vans, etc. in part, because as long as HD TV’s were still expensive, the only people buying them were able to afford them (the early adopters) and they were then a great high end market to target exclusively.
In simpler terms, if you are an advertiser, marketing to people who are already willing to spend money online is actually a good thing, although it may shift the demographics of who participates in the platform. So let’s assume Facebook would consider a membership or premium experience, where you might be able to limit ads if you paid a yearly fee, sort of like premium storage on Flickr or other sites. Let’s do some quick math:
If every current user gave Facebook $1 a year, that’s $1.o6 BILLION in revenue for the year. But maybe that would be difficult to manage and control. So let’s say you make it worth their while and charge $1 a month or $12 a year. Still chump change, even for the younger set. That would be a potential revenue of $12 Billion dollars a year, or a Billion dollars a month in revenue. If you lost half the users, it’s still 6 Billion a year, without mucking about with all the advertising push-push stuff that detracts from the overall experience.
Now let’s see what that means- it sounds obscenely huge, right? Well, Apple‘s annual sales are 155 Billion, and once you factor in the cost of goods sold, etc. their profit is $68 Billion for 2012. To get to that sort of number, factoring out costs, Facebook would need to charge about $70 a year for an account, which seems pretty high, but I could easily see people paying between $1 and $5 a month for a Facebook account, particularly if you could opt out of ads. I would pay it for my kids as well, to be honest.
It’s an option Facebook has available to it, I assume. I know I would rather have that than the current system of complicated edge rank, Facebook’s auto-silencing friends whether I want them to or not, and the increased amount of ad noise in my news feed. And I am sure that I have no interest in Facebook pushing pre-roll video and its data costs to me on any of my mobile devices, annoying me with ads and making me pay for the privilege at the same time. With more than 1 in 6 accessing Facebook only with their mobile device, this is pretty significant. (Thanks for the great article, Christopher Penn and Shift Communications.)
I wouldn’t be surprised to see facebook go in the direction of premium accounts at some point, and limiting the ads shown there. But I would expect ads to still be shown, and for Facebook to up the amount it charges for Advertisers to get a hold of that specific, paying demographic. After all, chase people who have money and you know are willing to spend it first. That’s targeting.