Paying for YouTube makes sense. But Facebook?
It’s going to be a tough sell.
Ask yourself this question: what special Facebook feature would you pay to use? Consider that over the past decade, the company has experimented with a range of new services that failed to win over its users, from a brilliant digital assistant in Messenger to a big cryptocurrency project. All died out and were free.
From Facebook’s perspective, it would be nice if there was a simple fix like instructing people to remove ads from their News Feeds. It would cost very little, and it clearly worked for YouTube Inc., which lured subscribers by making its ads so infuriating that users would happily pay to get rid of them. But Facebook users are just scrolling.
Over the past seven years, the number of paid subscribers to YouTube has steadily increased. Today, more than 50 million people pay between $10 and $11.99 per month for YouTube Premium or YouTube Music.
YouTube does not detail its revenue for these subscription services, but a conservative estimate suggests it collects $500 million per month, or $6 billion per year in subscription fees, which is nearly a fifth of the division’s total sales. (The rest comes from advertising.)
This would make YouTube an outlier in social media. Meta, Snap Inc., and Twitter Inc. have all made efforts to diversify, but few have succeeded in reducing an entrenched addiction to advertising.
Snap, which derives 99% of its revenue from ads, has failed in its attempts to sell smart glasses. In June, it also launched a $3.99 monthly subscription service called Snapchat Plus. The characteristics are banal. You can change the Snapchat icon style, for example. So far, 1 million users have registered to pay. It’s not a bad start, but it’s hard to see many of its 329 million other active users doing the same.
Facebook has meanwhile thrown spaghetti at the wall to see what sticks, and very few do. In the past few months alone, it shut down a gaming division, live shopping tool and neighborhood feature to compete with Nextdoor Holdings Inc. It also shut down a newsletter platform.
Twitter’s data licensing business is a decent diversifying effort, generating about 11% of revenue, or $570 million, last year, but its reliance on user data doesn’t make it that different from the advertising model. .
YouTube has managed to move away from ads much more successfully, largely because they’re some of the most annoying on the internet. The four-second or longer countdown at the start of many popular videos can feel like an eternity. Its advertisements noticeably take up our time and not just space on our screens. Flip through a few tweets on YouTube Premium and many talk about how refreshing it is to use the website without having to watch ads for toothpaste or web design companies. “I got YouTube Premium (ad-free) and can confidently say I will *never* be going back,” one user recently shared.
During the pandemic, YouTube’s subscriber growth has accelerated and the division has been so successful that parent company Alphabet Inc. says it’s driving growth in its non-advertising business.
In the Verge report, Facebook said it would retain ads for future subscribers. It sounds crazy considering how the opposite worked for YouTube, but Facebook has become a victim of its own advertising success. Its extensive data-gathering practices mean that its ads are so well-targeted and personalized, so well camouflaged in news feeds, that many of its users probably wouldn’t mind having to keep scrolling through them.
This indicates an impending problem. Social media companies like Facebook, which derive 97.5% of their revenue from ads, have reached high valuations due to the seemingly unstoppable growth of digital advertising. But that growth will slow over the next few years, to around 7% in 2026 from nearly 16% this year, according to a recent forecast from eMarketer Inc., a market research firm. Facebook and Snap are so tied to the advertising model that they have no choice but to diversify.
“Facebook knows internally that its app is dying,” said independent social media consultant Matt Navarra. “He is now squeezing every penny he can.” Mark Zuckerberg’s multi-billion dollar investment in virtual reality is the big risky bid to branch out. Getting into paid features is another.
If Facebook can get even 5% of its roughly 3 billion active users to pay $3 a month for a nifty feature on Instagram or Facebook, that would bring in about $5.4 billion a year. While that’s only a fraction of the $117 billion Facebook generated from advertising last year, it could help offset the coming slowdown in digital ad spending.
It would also fill some of the void left by Apple Inc.’s financially devastating update last year, which left 37% of iPhone or iPad users in the US untracked. advertisers, according to researcher Insider Intelligence. The move will cost Meta $14.5 billion in lost revenue in 2022, according to estimates from research firm Lotame Solutions Inc.
It’s hard to see Facebook making up for that shortfall with new widgets, but it has no choice but to try, and with some urgency. Hopefully Zuckerberg won’t be tempted to make his ads more boring than YouTube’s.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Parmy Olson is a Bloomberg Opinion columnist covering technology. A former journalist for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous”.
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