Why Facebook Will Charge Users

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Our standard in journalism school was The New York Times. Articles and long-time columnists at The Times were put on a pedestal that only the very best and brightest of my classes could even dream of reaching. For those on the print track, you wanted a byline in The Times and for those on the public relations track -- like me -- you wanted to be quoted about your client in The Times.

I purposely avoided the documentary "Page One" about The Times. I didn't want to consider the notion that such an institution was potentially on the precipice of collapse. When the documentary was added to Netflix streaming, I added it to my queue. I had avoided it long enough.

How This Relates to Facebook

Listening to editors and staff writers at The Times talking about the paper with the same reverence I had and interviewees listing off possible reasons for its demise, my mind wandered to Facebook.

Could the same reasons that The New York Times opted for a pay wall lead Facebook to start charging its users?

Here's why I think it will happen.

1. Ad Revenue Will Dry Up Facebook is going to have to innovate to keep from facing the same problem The Times had -- ad revenue drying up.

For The Times, preferences changes and print circulation dwindled as their core readership aged and other sites like Craigslist came in to vulture the classifieds market right from under The Times' nose.

For Facebook, it is already trying to battle studies that find that younger web users flat out ignore the right side of webpages thanks to years of similar ad placement.

As ads are ignored and other social platforms like Twitter give advertisers access to more premium space - like promoted tweets in a user's tweet stream -- Facebook's ad platform just seems flat out ancient. Just as at The Times, Facebook needs to freshen up its ad platform or risk losing out to competitors stealing advertisers with cheaper rates or better placement.

If ad revenue dwindles advertising, charging users for a premium service or premium options -- as The Times does, charging users to access the paper on their preferred channel -- might be in the cards.

2. A Rapidly Greying Audience I just saw an infographic from JESS3 that blew my mind. In 2008, the average age of a Facebook user was 33. In 2010, it was 38. From a platform that just six years earlier was populated primarily by 18-to-24-year-olds, that is a heck of a leap.

This is a concern for two reasons.

The first being that Facebook used to be the best place to reach young people. Now it is a place to reach everyone. It's losing its exclusive youthful edge. To advertisers and marketers, if you are competing for the same mass group of users that you can get elsewhere, then you are going to start looking at other options -- maybe more niche or less expensive -- to reach your user.

The second being that generational habits will change. Just as the majority of my generation is more comfortable getting their news online -- an issue The Times faced before erecting a pay wall on their website recently -- future generations may not want to use Facebook.

Without an exclusive, youthful audience, advertisers may look elsewhere. And older users -- with more disposable income -- may be willing to pay to stay in touch on Facebook.

3. Facebook Has a Lot of Addicted Users Entrepreneur Sean Parker said they went about the Spotify launch like a drug dealer. Give users a little bit for free and if your product is good, they'll be hooked and come back willing to pay. I am listening to ad-free music on Spotify Premium as I type this.

Right now, there are a lot of people who are painfully Facebook addicted.

They upload photos, share their location via check-ins, and comment and like posts on Facebook as if they literally have nothing else to do. They would find life drastically changed without access to the Facebook platform. And if Facebook doesn't innovate with this data quick enough, the ads will be ignored no matter how relevant.

Right now, Facebook's got you hooked. If it can't get advertisers to subsidize your addiction, it'll come right to your door with its hand out, looking for you to pay for access. Don't pay and Facebook will cut off your supply.

Why Facebook Can Charge

The one thing that The Times has that should endure as long as it doesn't drop its standards is a brand that represents great journalism, allowing it to lure the best and brightest journalists -- on any platform they want -- into its camp.

I will pay for that level of journalism because I can't get it elsewhere and The Times introduced a pay wall to take advantage of it.

What Facebook does is aggregate all of these great services -- from photos to videos and now video chat with Skype -- that you couldn't find elsewhere in one bucket before Google+ was introduced. The difference right now is Facebook has about 700 to 800 million more users.

The question is, when will Facebook take that "first mover" advantage and stop relying on advertisers? Or when will it be forced to?

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10 comments on "Why Facebook Will Charge Users".

1. Peter Vogel from Plink
   

   commented on: November 22, 2011 at 9:50 a.m.
   I can't disagree with the data you base your conclusion on, but I do disagree that Facebook's only option will be to charge users a fee. I think Facebook can still monetize members by expanding the Facebook Credits strategy that was launched in social gaming. Users are willing to pay to get extras or level up in games and are doing so by buying Facebook Credit - and Facebook keeps 30% of those transactions. Next verticals to be monetized are music, movies and media - music is already well underway with Spotify, Rdio and Mog. If anyone wants any more info on Facebook Credits, connect with me on Linkedin - http://www.linkedin.com/in/petervogel1 and I'll send you an invite to the Facebook Credits group I recently started - lots of good articles posted there.
2. Patrick Evans from STA Travel
   

   commented on: November 22, 2011 at 12:03 p.m.
   I don't think Facebook's only option is to charge users a fee. If they ramp up innovation and users are comfortable with better ad placement and possibly paying for certain extras, I don't think they would have to charge a fee for access. I also think we'll see a move away from building Facebook exclusive games and apps, which takes away from the value of Facebook Credits.
3. Scott Krauss from Zeta Interactive
   

   commented on: November 22, 2011 at 2:21 p.m.
   Come on Patrick you are REALLY stretching here. The Times Ad Revenue dried up for completely different reasons one of which is the reason Facebook is doing so well and that is the migration of ad dollars into digital vs. print and if you've checked the numbers there is plenty more to make its way over. The other is declining circulations again due to increased internet usage. If there is some other monster network that could possibly steal ad dollars, that has nearly 1B users that can provide hyper targeting I would love to know about it! Facebook Ad revenue is actually very well positioned. The Display space is growing at a tremendous rate, with Eric Schmidt predicting it will be a $200B Marketplace. Facebook continues to capture more of the overall Display dollars and I don't see why this would end. You say that Ad's are ignored. Are you talking about clicks? If so, no one that runs display even cares about clicks. It's common knowledge that I'd just as soon get struck by lightning while crashing my car into the ocean while getting eaten by a great white then click on a display ad. Display is a branding vehicle and impressions are what counts...funny how Facebook implemented it's Ticker right by the Ads. Also Facebook was opened only to college students at first, so just because the Avg. user age increases doesn't mean they left the platform. If we are talking statistics here it just means that a ton of older people ALSO joined. Again not really a concern, more eye balls to target.
4. Patrick Evans from STA Travel
   

   commented on: November 22, 2011 at 2:52 p.m.
   Scott - Ad network aside (not sure I agree that impressions are what counts), why wouldn't Facebook charge users a few bucks a month? I doubt they would lose many users and some of my friends are terribly addicted. Even if they added a premium tier with more space for photos or videos, I think it is the most logical next step.
5. Jimm Fox from One Market Media
   

   commented on: November 22, 2011 at 7:58 p.m.
   Patrick, I don't believe a Facebook fee-based service is imminent. Advertising is still in it's infancy on Facebook and while not hugely effective today, the fact that 'digital ink never tries' is exactly why Facebook has such an enormous edge over print. Side panel display ads are not the only option (as in print). There are more than enough new platforms and tools for advertising online (many of which are now being tested by Facebook) that will generate ample revenue to allow their primary service to remain free of charge. A more interesting question might be, "what percentage of the Facebook base would evaporate if Facebook charged usage fees?" I bet Google has a number in mind...
6. Patrick Evans from STA Travel
   

   commented on: November 22, 2011 at 8:40 p.m.
   Agree, Jimm. I think Facebook could be well-served by finding more innovative ways to serve ads right now. There are lots of advantages, but I'm seeing greater innovation in advertising elsewhere.
7. John Kim from Social Savvy
   

   commented on: November 23, 2011 at 11:20 a.m.
   Patrick - You are so off that you are not living in the same planet. You are analyzing Facebook as a media property but FB is a technology company. FB's business model can change, disrupt, and grow in ways that you are not anticipating. 1) Facebook has significant headroom ahead of them with their existing business model and monetization units (ads, FB credits). More brands are adopting FB everyday and spending dollars to grow their presence. We are only at the tip of the iceberg. FB has not even introduced mobile ads yet. 2) FB can introduce new types of experiences in the future (e.g. search) that could blow the doors off their existing models. 3) In a world of HTML 5.0, FB could be the primary beneficiary. Time spent on FB could grow from minutes per day to hours per day. Why leave? 4) FB is an entity authority, They could leverage the social graph to disrupt commercial identity based issues such as fraud. 5) If FB really wanted to introduce a fee, they could charge partners to pay to use Facebook Connect and other platform innovations.
8. Patrick Evans from STA Travel
   

   commented on: November 23, 2011 at 12:16 p.m.
   Hi John - Thanks for reading, but I think you're making different arguments then the one I am trying to make. My point is not that Facebook is going to start charging users tomorrow, just as The Times didn't introduce a paywall until 150 years after it started. My first and third points are checked with the statement that Facebook needs to innovate. The point of the article wasn't to tell Facebook how they should evolve and innovate - that's what your comment does. I'm just making a comparison between two gigantic entities and pointing out a need for innovation.
9. John Allen from Tele
   

   commented on: November 23, 2011 at 6:21 p.m.
   I wouldn't even say facebook is a technology company. Like google, they are clearly in to data. I would argue they are both data companies...
10. Jenn Hurley from Inno-mark
    

    commented on: September 21, 2012 at 9:25 p.m.
    facebook originated for one purpose- to connect and socialize with others and with no intentions to ever charge for such a place. Sure the users have taken FB into a networking beyond social, advertisers understand the value of branding where people spend most of their time, and the value of a friend recommending their product is huge. Why would you charge the user. They are not advertising- charge the ones that are taking up all the bandwidth. the ones that promote themselves in mass for FREE- that is the way to go. And they are easily identified-seriously. They charge, peeps will go elsewhere. look how fast they gathered to FB. We can merge somewhere else real quickly if FB charged to be here.

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