October 31, 2008

Also, the Aaron Sorkin movie would go right into turnaround

Farhad Manjoo may be correct that Internet startups really ought to have a business model, but isn't he missing a gigantic point when he makes this suggestion for Facebook?

The social network attracts more than 100 million "active users" around the world, but as of now—as even its founder Mark Zuckerberg admits—it's still looking for a "business model" (that is, a way to make tons more money than it spends).

But let me say that again: 100 million people use Facebook regularly. Judging from some of the folks in my social network, a sizable minority of Facebook users have hundreds of "friends" and check in to the site multiple times a day—call them superactive users. Let's imagine that Facebook became a tiered service. A free plan would limit you to 200 friends, one status update per day, or some other non-Draconian combination of restrictions. But for $5 a month, the limits would be lifted. Certainly, many users would balk; tens of thousands would join Facebook groups to protest the new pay model. Let's assume that 95 percent of users will refuse to pay a dime. That still leaves 5 percent, or 5 million people, to pay $60 a year. That's $300 million in the bank.

As one of Manjoo's superactive users (at least on days when I'm avoiding a deadline), allow me to point out that Facebook's value rests entirely on its critical mass of users. If 95 percent of us stop using the service (which is effectively what would happen if we're shunted into a lower tier — a status update that can't be updated instantly is definitionally useless) then the site is no longer worth $60 a year to the other 5 percent.

I currently have 599 friends (mostly people I actually know, at least via e-mail). So let's say I can't bear to see that cut down to 200. I pony up $60, only to find out that 95 percent of my friends did not. I'd guess that at least half of them — 285 people — also have more than 200 friends, and let's say that of that half, half again choose me as one of the friends they need to drop from their roll. So right off the bat my fee goes from $0 to $60 so that I can lose 142 friends. Then if I meet someone new, odds are good that their friend list is already full, and I won't be able to add them either. And of my remaining friends, the vast majority are no longer able to update their status regularly, and, as an inevitable result, begin spending less time on the site, making the Facebook experience less interesting for me, and increasingly not worth the money I'm already expected to pay.

Manjoo contrasts Facebook unfavorably with a few software companies that have been successful in charging people for products. But Facebook doesn't have a product. It has its users. If it loses them, or alienates them, it has nothing that anyone would want to pay for. Not to mention that there are dozens of social networking sites waiting in the wings to offer its cast-offs a very similar experience for free.

Since I'm pretty sure Facebook is aware of all this, there's little chance of Manjoo's destructive vision coming to pass. So if you're a regular commenter whose name (or handle) I'd recognize, by all means go ahead and friend me. However, do not send me quizes, zombie attacks, li'l green anythings, or anything else that requires adding an application. The one Facebook feature I might actually pay for is the "ignore" button.

Posted by Daniel Radosh


Manjoo is a freakin' Moron. (my CJR letter to the editor was regards a review of his idiotic book). I'm sure he'd love to see facebook ruined as his real agenda is as a right-wing apologist and I sincerely believe facebook is emerging as a serious political tool.

Speaking of tools don't you love the way everyone is abandoning Myspace after Rupert spend how many billions for it?

I just hope the slim advertising is enough to keep facebook out of corporate hands, for they would surely be the touch of death....

Restricting existing functionality, or creating obvious upper vs lower classes, is a suicidally stupid move.

But if you take the kernel of the idea there's still something there. It just needs to be proposed by someone with experience in business. :-)

The key is to turn it around. Leave existing functionality as-is, and find something where 5% of users would pay for a premium level of service with slightly expanded capabilities. You also can NOT ever let the gap between the tiers get too large -- the free service needs to remain great, because that's what makes the pay service possible.

LinkedIn has a model a lot like this. The people paying extra are recruiters. What's the Facebook equivalent? ... stalkers?

Manjoo? Wtf kind of name is Manjoo?

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