There's no such thing as a free lunch in business - and despite what internet utopians wish for, the web is no exception. We're used to social networks such as Facebook, email such as GMail and Yahoo! and search all being free - alongside "free" music and video offerings such as YouTube and Spotify. How much do you think this is …
You can't have a "market of Facebooks". The value of Facebook is strongly tied to the fact that all your friends use Facebook. If Facebook start charging, and half your friends quit Facebook for some free alternative, then Facebook loses value for you too, so you're more likely to quit, making Facebook lose value for other people, etc etc.
But the game changes...
... so your comment doesn't make a whole lot of sense. If you're paying a subscription fee for one FB clone and some of your mates are on another, market forces dictate that the platforms will need to start competing with each other so interoberability should come into play. Just like some IM platforms are doing now. Back in the day if you were on MSN Messenger but your mate was on Yahoo, you had to have both platform apps loaded, that is no longer the case.
The other point you had about one being free and one being paid, today human nature is a funny thing. One comparing to identical services together where one is paid and the other is free, most (note the 'most') people will instinctively be wary of the free platform so they will compare the 2 offerings in greater detail, at which point if the paid service sub isn't too high it will usually offer more than the free service and the paid for service wins out. Plus the other caveat being that a paid service usually is stronger has they have the budget to throw at main stream marketing channels.
Only as long as...
...walled gardens of your data are allowed.
If competition law stated that your own network data had to be made available to other networks at a reasonable cost then there might be a viable market.
Not that this will happen this side of space-bacon though.
What we have ended up with is the equivalent of everyone having to log on to visit http://email.com to send and receive email which to us now would sound a bit perverse because email interoperability was built into email requirements.
If instead your "social network profile" was hosted by a provider of your choice (similar to the way some people use their ISP's email, some Hotmail etc.) and you granted access to that profile to your social network of choice, then there wouldn't need to be any sharing of data between actual social networks. Social networks who ran their own propriety closed systems would seem as daft now as people setting up their own rival to SMTP.
Mind you I've only thought about it for 30 seconds...
The key is open protocols. Who the hell would even use email if I could only email anyone else on the same ISP? It's in the interest of us as consumers to have open protocols for social networking, same as it is for email and now, for example, for instant messaging.
Of course the interest of the entrenched parties is the exact opposite, that's why they use closed proprietary protocols and don't allow any APis to take data out (FB), communicate with other clients (Skype) or install apps / access subscriptions from outside the walled garden (Apple). Luckily the trend seems to be that as free open-source clients for these things get better and better, users tend to 'leak' until the majority of people are using a client (any client) that uses an open protocol, and the ex-incumbent will have to start supporting that open protocol or gradually spiral down to irrelevancy. Instant messaging is a great example, I remember when I had to have ICQ, MSN, AOL etc clients all installed at the same time with each used to chat to a different subset of people.
It is still the case now
I find it extremely irritating that I have iMessage and need to keep WhatsApp running to communicate with Android friends and none us can talk to anybody who is stupid enough to pay for BBM. Not too mention those still using SMS.
So when are we going to get all our message in one place instead of having to faff around several apps?
"Let's suppose, I replied, that half of Facebook users paid a mere pittance (say $5 a year) for the service, then web giants wouldn't feel such a need to go data mining. "
Blimey - that truly is "a glimpse into a mindset so otherworldly"... I wonder why anyone would think these web giants would stop ?
i had a chuckle at the comment as well
"..web giants wouldn' feel such a need to go data mining"
Well, let's say there's $30bn of untapped value lying around from potential subscriptions, direct or indirect (somebody could bundle access with another product or service).
And then there's $5bn more to be squeezed out of data-mining, behavioural shenanigans, etc. Maybe.
Then the incentive is to chase the $30bn. Investors want to maximise their return, they're not charities or unicorn farmers.
"Well, let's say there's $30bn of untapped value lying around from potential subscriptions [...] And then there's $5bn more to be squeezed out of data-mining"
Then the incentive is to chase the $35bn. Why stop at only thirty?
@Andrew Re : Otherwordly
blah blah blah
"Then the incentive is to chase the $30bn. Investors want to maximise their return, they're not charities or unicorn farmers."
Yes, of course - did you miss the joke icon ?
However, as every fule kno, the business is to make the money, ALL of the money, the option to do data mining is not mutually exclusive.
You only have to look at Tesco, they apparently do quite well with their grocery shops, but they still mine data and will even pay you (clubcard points) for data to mine.
And not only that. Once they had the 30 bn from payers. The 5 bn from data-mining suddenly becomes worth much more than 5 bn, since it now is pre-sorted for people willing to pony up.
"Yes, yes, I'm a rapacious psychopath who dreams only of being rich, rich, rich! but if you give me 30 bn, I'll let another 5 or so lay around for someone else." Right.
it's obvious is it not?
How about precisely because that $5bn can potentially cause a lost of the 50% of the $30bn?
Microsoft is a prime example of too much greed gets you nowhere. Whilst free services is just on the other end of that spectrum that causes lost of jobs and degradation of service levels and quality.
You think $5.2bn in Q1 2011
And that's with Bilbo Ballmer at the helm.
Just think what M$FT could still do with a competent CEO.
Andrew, I am sure that if someone did come up with a way to farm unicorns it would be a fantastic investment. It would be a bit like butchering pigs: they could sell everything except the squeak. Except with unicorns there isn't even a squeak! ;-)
Cos 38 on Fortune 500 - thats the epitomy of getting nowhere.
Data mining could be deprioritised if there was bigger money to chase going after a large subscriber base. More likely is that it would become part of the deal with different subscription levels based on degrees of data access. There would likely even remain free de-featured entry level products - try before you buy stuff.
One thing is for sure - monetization of the click is going to increase somehow cos there's been a lot of money gone into the web and someone is going to start demanding a return soon. The problem is going to be that this has to take place against a general global recession (soon to be a depression maybe?).
What will be interesting to watch will be the way FB develops after its IPO and the accountants start to increase their sway at the expense of the idealists.
Change our real identities?
"Eric Schmidt had just said that if we were that bothered about privacy, we should just change our real identities every few years"
what, as Google now specifically prohibit ?
Simply never use your real ID in a non real world like the internet.
I assure you my name is not really MacGyver.
Re: change our real identities ?
I don't want the bother of being born again.
"Let's suppose, I replied, that half of Facebook users paid a mere pittance (say $5 a year) for the service, then web giants wouldn't feel such a need to go data mining."
They wouldn't have to keep mining. But would they really stop? Well, we've seen from the bankers that the greedy will squeeze the last penny out of you.
They would be failing their shareholders if they stopped.
See above - the investors will make up their minds for them.
You have an *utterly* irrational belief
that investors and shareholders have an influence on corporate policy.
HP, IBM's bad decade, the decline of M$FT, Nokia's crash and burn, and Best Buy all prove otherwise.
You're treating corporate decision-making as if it's somehow a divinely-inspired error-free event - like an infallible statement by the Pope. Or something equally sparkly, wondrous, and powered by pink unicorn crap.
It's nothing of the sort. Corporate history is littered with suicidal idiocies.
From the reliably manic-depressive boom-bust business cycles of the last century and half, to the endless tech fails of most of the major players - most investors, CEOs and shareholders have the collective intelligence of toenail fungus.
But that's not the point.
Shareholders demand that businesses do things that they think will make them money. Often those things are idiotic, short-term or self-defeating. However, in this case they KNOW selling your data can make money, it's undisputed. Therefore they aren't going to let the business stop doing it.
Not even that much
Shareholders demand a return - the only other question is the term they are willing to wait.
Facebook charge ?
If Facebook wanted to charge us it would have to be a lot better than it is - for instance one still cannot search one's own posts :(
ok, so explain to me this
How will that work in my country of origin, where net neutrality laws have recently been passed?
neutral net access is a law here, telcos have been told they cannot charge for specific traffic and ISP are not allowed to throttle certain protocols. If what you say is true, then our laws will need to be changed.
Just curious... what country is this?
Also, what's the local beer like?
why wouldn't it work?
Um, why exactly would it not work?
It's only a problem with net neutrality if the service provider - Facebook - pays the ISP for preferential treatment of their traffic.
There's absolutely no net neutrality issue with an end user paying the service provider for access to the service. None at all. It's just...flat out wrong to believe such. Is a Flickr Pro account somehow a violation of net neutrality?
I think it's Chile and their beer is awful.
The unnecessary necessity of information.
The presumptions made in this post boggle the mind. The first and most glaringly idiotic presumption is that any of these services are necessary in people's lives. They did just fine without any of these services 10-15 years ago and will do just as fine if they happen to be priced out of their want.
The second presumption is that the market will continue to favour content providers. With "content providers" being the correct choice of words used in completely the wrong way. Who provides content for Facebook? Its users, Facebook trades on the users information which the user gives up freely in exchange for use of said services. These factors will always balance out in the end and that is what will keep these services free to use. The above also applies to Google, Microsoft and to a certain extent even Apple. Without users none of these companies have content and in the case of Apple its closed system will not serve it well if consumers decide that sharing their data in a freely provided service is more attractive than paying through the nose for exactly the same bargain on their end.
The amount of control news agencies have over information is negligible at best. Paywall news sites provide exactly 0% extra news and facts that a person could not find elsewhere, this is an aspect of the internet that will never change as paywalls are most easily circumvented by age old word of mouth which in the age of information is a lightening quick source of rapidly assimilated knowledge about events which take place almost in real time. A great example of this is the fact that Dwayne "The Rock" Johnson knew about the death of Osama Bin Laden in advance of any official statement and had released that information into the public domain.
The article also presumes that there is an inherent importance to the content that these companies are providing, I fully believe I could get through the day and sleep soundly at night without knowing about what Ice T and CoCo and the Kardashian family have gotten up to that day. The services would need to start providing information of real importance to actually have any sort of real value. Any of the services mentioned in the article would not be world breakers if they somehow vanished over night and the general consumer is never going to forget that.
Are you sure
"...The first and most glaringly idiotic presumption is that any of these services are necessary in people's lives. They did just fine without any of these services 10-15 years ago and will do just as fine if they happen to be priced out of their want..."
You don't really understand human nature that well do you? I'm sure simliar arguments were made about the mobile phone in it's early days, you know that device, the one that is an essential part of the majorities lives today whether they can afford it or not.
I very much agree with the first point. A whole lot of these services are "nice to have", but if they would not be free I would certainly leave the majority behind. I can see paid services working if they also have a "free package" and offer better services on top of that for a fee (see Dropbox), but the paywalls employed by those newspapers which are not to be named here will simply not work out in the long run.
Oh, and "The End of the Free Web"? Didn't I hear the same thing 5 years ago, too? Is it in a perpetual state of dying?
The article isn't based on 'presumptions' but on actual statistical data. Someone went out and asked people how much they would be willing to pay for certain services, and compared it to how much they're actually paying. The amount people say they'd be willing to pay is rather greater than the amount the market is currently charging them. That's not a presumption, it's a solid bit of data.
You can dispute it on the grounds that it's a recognized phenomenon that people will sometimes _tell_ you they'd be happy to pay for something, but then when they're asked to actually _do_ it, things change. (Ask anyone who ever got sponsored to do something for charity, or anyone who's ever tried to launch a business by asking people to promise to buy the product once it's built). But that's a question of interpretation of data, there isn't any 'presumption' going on.
"A fool and his money, are soon parted."
Less than free
FB and other social networks. email services, etc. cost less than free because google, etc. are willing to spend money to make a consumer of you.
So people move from open-source solutions (free, but for your time) to gmail, etc. because its even cheaper than 'free'.
But once FB, Google+ start charging, there's a market for open-source alternatives. (eg. Diaspora, which is just about ready for prime time.) The only way that web2.0 companies can stop this is if they've built in controls: you can't get your data (or get to your friends, etc).
Strange, I would have thought TheReg would be in favour of net neutrality. Do you really think the Reg is big enough to say No when BigContent has control of the pipes, and demands a cut in returning for you reaching your readers?
I, for one, would pay...
To get a service as great as Twitter or Gmail with no ads, no spam and full commercial service levels. I'd pay. Not a lot, but they don't need to charge me a lot as it's relatively cheap to run.
I get gmail ad free for free, wonderful thing Firefox no script and ad block, works wonders.
Not sure what you are talking about on the ad thing though.
What exactly is an "ad"? The last ad I saw was something about "punching a monkey".
On the matter of spam, I get none. My sock-puppet however gets nothing but, well maybe the occasional free user validation email confirmation.
The free content providers are playing a game where they try to sell my habits and data, and I play on the other side, where I try to thwart them. May the best man win.
Facebook without user content is worthless, why would I pay for something that uses me to make others pay for seeing the things I myself had to pay to create. See how much that makes sense? It doesn't.
Surplus, what surplus?
"When half a billion people spend more time on Facebook than they do watching TV, Facebook's current revenue strategy looks miserly and foolish - it makes no sense to leave so much consumer surplus on the table."
If Facebook charged, they'd lose punters in proportion to the pricing. Well, actually, not quite in proportion. They'd start off by immediately losing all of the customers who *couldn't* pay for some legal or technical reason, such as kids. That's locking the gates on the next generation of punters, and doing so in full view of all their advertisers who will understand just how stupid that is. *Then*, they'd lose their remaining customers in proportion to their pricing. Since their customer base is probably already heavily skewed towards "people who have time on their hands", like the aforementioned kids, it wouldn't take much pricing to drive them away.
Social networking has very little intrinsic value. Facebook is the incumbent monopolist, but charging would give *every* Facebook customer an incentive to switch to a new provider and most people would probably find that it isn't too hard to change. And then? There's no incentive to ever drift back.
Agree with most...
Everyone seems to have forgotten about business, but charging for services will make a comeback, and when it does, it will straiten a lot of this out.
That said, "how much punters are willing to pay" won't have much to do with the price of the service. Punters would give their lives for a supply of water or food, but those things are still relatively cheap.
Just because people say they are willing to pay ten billion quid or whatever doesn't mean that services can just start charging that much. Competition would spring up and prices would come down to approach how much service delivery costs, not what people say they will pay.
"Competition would spring up and prices would come down to approach how much service delivery costs, not what people say they will pay."
True, but this is the internet. If the service is delivering text, photos and small videos, the *incremental* delivery cost (after the capital cost of getting *any* net connection) is almost nil.
So *that's* what people will pay. So there isn't "let's say" $30bn on the table to fight over.
Forgetting a few factors...
... a lot of people seem to be forgetting a few factors.
If FB started charging, I can gaurantee it would be at a level that they knew would be affordable to the majority, because if they can keep the majority they already have then subscription can be based on economies of scale (e.g. 50million users at £5 or 25million at £2.50).
Also those that can't afford to budget for this expense might still try and break the bank to pay it as they have already 'invested' a lot of their time and effort into the platform (e.g. uploading images, posts, online games etc). It will take a hefty, uncomfortable subscription for these types of users to cut free from FB and loose all that net-estate behind.
Plus you have the addicts who can't leave it because they have now fully intergrated social media into their daily lives, which is what most social media platforms want, they want and market themselves as essential, once they are essential it's easier to but a price on it.
@Andrew, good article, I think you have highlighted the elephant in the room that everyone deep down wishes wasn't there, you can slap a horn on it if you want and call it an ellehorn if it helps fit in with your analogies.
Re: addicts and breaking the bank
You make it sound like Facebook's suctomer base (That was an honest typo, but I like it so much I think I'll leave it in.) is composed of beggars and addicts. Even if they are breaking the bank, there's not much money there.
Talking of people over-investing in platforms and being unable (emotionally) to leave them, does anyone still use Second Life? There used to be articles about it here, but I haven't read one for ages. Same goes for MySpace.
breaking the bank...
Sorry I should have said I was only referring to those that would struggle to pay for a sub, those that won't struggle to pay it will probably quite happily fork out the cash if they aren't going to notice it.
I reckon honest budgeting is more of a priority for more than it was a couple of years ago. Chatting to a professor in socioeconomics said that these sort of economical times you see a lot of 'middle class' folk suddenly drop straight into the 'lower class' most folks who were comfortable a few years back with their lifestyle expense are now finding it a little harder with increased prices from fuel to food and the analogy of 'most people are only 1 paycheque away from living on the streets' seems a lot more real nowadays. I know a few people that have decided to drop a gym subscription or maybe trim their sky bill by ditching movies or sport.
I think the other point you made 'Even if they are breaking the bank, there's not much money there.' Corporates don't care how you will be able to afford it they just want you to pay it, if they can get you hooked how you keep your habit going is of no concern to them.
P.S. liked the typo as well ;-)
P.P.S From what I've read Second Life degenerated into a virtual fetish club by the sounds of it.
Of course, it's possible that the real "web utopians" are the people that think Facebook is so valuable that people will pay extra for it.
It's just possible that Facebook is free today because free is its actual value. I'm certainly not seeing anything about the concept of "price elasticity" in Orlowski's latest pro-corporate piece - the idea that once you start charging more, you lose customers. Price elasticity is generally considered as a function of price ratio, and guess what? A ratio of N:0 is infinite.
Of course, email and Facebook etc. *do* have value. That value can neatly be summed up, as it's the figure I'm already paying to my ISP, in return for which I can access them.
Another thing to think about is that Facebook is all user-generated content. So the day they start charging us to access the content is the day they're also going to have to start paying us for providing the content. Net result?
What you say have a point. I think Facebook is probably a bad example as actually I was an early adopter of FB but quit a year ago and am able to live better than I did before.
But take for example, FOSS that are given away for free like Drupal. It's the same deal. Web developers can no longer make a decent living creating good websites for people and other businesses because Drupal "users" (no they're not developers) undercharge a lot and businesses no longer see the value in a decently created web portal.
Or, another example, services like Dropbox. Or any web applications today you find on the web that is truly useful to others but some people simply give it away for free. All of which may seem great to punters on the service, but somebody has to make a living.
Somebody has to recoup the money they spent on University education while trying to start a family and buy a house.
Can an economy be sustained based on freemium? Sure, the large subscription based services as the article rightly point out would probably benefit. But that's at the cost of everybody else.
If the nations' future economy depends on the tech industry. More needs to be done to safe guard businesses against these saints. (or devils depending on the way you look at it)
Otherwise, obviously people would start trying to find other ways to monetize. Be it invading your privacy or data mining.
But let me say this, data mining will only go so far. When the market is full of data, but no one has any money (because they're out of a job) to spend on the market, other businesses would start to cut back in advertising and marketing. Meaning the revenue stream from data miners would decline. And in turn, the entire industry simply enters a death spiral.
Friends Reunited was incredibly succesful, tried to charge for premium functionality, got its arse kicked by MySpace and Farcebook etc, dropped its charging model but it was too late.
@rob, There is a difference between Facebook and Mobile phones. Mobile phones are useful items that people have been used to paying large sums for from the beginning. Facebook is a piece of free trivia.
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