Should Facebook Go Freemium?

2018-04-12-Facebook

With Facebook under heavy fire over its handling of privacy issues and its iconic head having been grilled by Congress over two days, the company is surely groping for ways to appease critics without derailing its money-machine model. In this opinion piece, Ravi Bapna, a professor at the University of Minnesota, suggests that a two-tiered service mode — including pay-for-service — could solve a lot of the social media company’s pressing problems.

We live in interesting times. Mark Zuckerberg just gave Congress a lesson on the Silicon Valley mantra: “Do first, ask for forgiveness later.” The trifecta of fake news, privacy erosion and device addiction continues to eat away at our collective psyche and is a clear and present danger. In almost playbook fashion of how we teach disruption to MBAs, the same decisions that make an entity hugely successful at one point in time cause it’s potential disruption at another point in time.

Facebook’s decision to open up its platform to app developers in the early part of this decade, including allowing access to friends’ data (the so-called ‘friends permission’ feature) played a huge part in creating early network effects and rapid user growth. Remember Farmville. But, by putting the onus of privacy control in the hands of the end user – yes, it was left to aunt Mary to decide how much she wanted to share — they sowed the seed for the current-day, existential threat stemming from the Cambridge Analytica crisis. It’s time for a fresh perspective on this issue.

In fall of 2013 I, proverbially, walked into to the lion’s den. Having been invited to give a research talk to Facebook’s growing data science group, I decided to present ongoing work (subsequently published in MIS Quarterly) that extolled the virtues of the “freemium” model. The thesis of my talk was based on research we conducted that found that as people pay premiums they get more engaged. And, increasing engagement is the Holy Grail for most online social platforms.

We found that premium users of a popular music listening social platform listened to more tracks, created more playlists for the community and most importantly drew in more friends to the network as compared to their alter-ego free users. I opened by saying that Facebook should seriously consider going freemium, to which I heard the retort that Zuck had gone on record saying that would never happen.

“Zuck had gone on record saying that would never happen.”

Five years since, in the thick of the Cambridge Analytica crisis, it is time to reconsider. Not because society needs to worry about a given company’s business model, but because much good is still likely to emerge from a ‘shrunk-world’ that has billions of people socially connected to each other on digital platforms.

Freemium services such as Spotify, Linked and OkCupid do the delicate dance between giving something away for free and charging premium essentially for a similar, but somewhat enhanced, service at the same time. Free is powerful to build an installed base, complete with network effects, market thickness (no one wants to go to a dating platform where there are few others) and targeted, advertising based monetization.

The magic lies in configuring the enhanced set of features that separate the market, capturing those with a high willingness to pay to, say, avoid ads (Spotify), or browse anonymously (OkCupid), for instance. Paid users tend to be, order-of-magnitude, more profitable, but free users provide market thickness. However, giving away something for free makes it incredibly hard to get people for to pay for it, the so-called free-to-fee problem.

Quite simply put, Facebook needs a baseline, general data protection regulation (GDPR) level, privacy-first free version, coupled with a premium version targeted at people who have a desire for even high levels of privacy, and for other to-be-imagined features. There is certainly an untapped willingness to pay associated with this segment. The kicker though is that it does not have to come at the cost of social engagement, business value or even advertising dollars.

“Facebook needs a premium version targeted at people who have a desire for high levels of privacy, and for those who place a higher premium on their personal information.”

As our research shows, premium users tend to be more engaged and not only causally influence other users to become premium users but also attract other users who can be monetized via advertising. By creating features that make it easy for people to control how and by whom the content they create is engaged with, how it diffuses, and how it is shared with advertisers, Facebook can possibly start the long journey to win back the trust of people who have been giving it their attention.  Granted, this is major departure from the status quo, and how this nets out is an open question. Importantly, it may be the only route that wins back the trust of the public.

To be clear, Facebook cannot put the genie back in the bottle. It has allowed hundreds of thousands of app developers unprecedented access to user data (more than necessary and at the control of the user, not the platform). My coauthors and I (using IRB approved protocols and due diligence with data) built an app to let people play the trust game a decade ago and found it fascinating to be able to collect a host of interesting predictors from what data we got access to. Predictors, such as how many times two people are tagged on a photograph, indicating a real-world social tie were strong predictors of trust. While the Cambridge Analytica saga demonstrated how nefarious this lax attitude towards privacy on the apps side of the platform could be when exploited by bad actors, we have to remember to not make drunk-driving an excuse to kill the automobile.

Let’s not forget that for every bit of fake news that propels itself through online social networks, the very same networks enable a multitude of human connections that reduce day–to-day social frictions and allow coordination for causes that were hitherto difficult. The world needs online social networking that has massive scale while at the same time exudes the warmth of a family huddle. The question is whether there exists a platform that is clever enough to curate such an experience.

Ravi Bapna is a professor of business analytics and information systems at the University of Minnesota, where he also is director of the Carlson Analytics Lab. His research investigates social media, social engagement, analytics, economics of information systems, trust and peer influence online, e-market design, grid computing, and the design of the IT organization.

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