Facebook post-IPO: Free not fee will make Zuck a buck
Dam friction-less sharing and the company is toast
Open ... and Shut No sooner did Facebook file its S-1 in preparation for an IPO than speculation kicked into high gear on how Facebook could possibly sustain its $75bn to $100bn valuation. After all, despite its hugely impressive revenue and profit numbers, key components of its revenue model – like advertising revenue – are decelerating. So should we expect Facebook to impose a paywall on some or all of its users, as MyLife.com chief executive Jeff Tinsley suggests it could?
Not a chance.
For one thing, every time a user logs into Facebook they're presented with a promise: Facebook is "free and always will be". Presumably "always" includes "post-IPO."
But we don't have to take Facebook's word for it. It's in Facebook's self-interest not to charge users. To encourage users to congregate on its service, Facebook can't afford to scare them away with entrance fees, especially since using Facebook doesn't have obvious monetary value to the users. It's a way to connect with friends, colleagues and other people, and the more they connect, the higher their business value to advertisers wishing to reach them through Facebook.
Tinsley speculates that he "would happily spend a small amount of money each month to get an even more optimized user experience" – perhaps correcting Facebook's "ad overload, slow feature rollouts, and a lack of customizable options". But I've never actually heard anyone complain about ad overload (and as an Adblock Plus user, I've never seen a Facebook ad); if anything, people complain when Facebook changes the layout or swaps out features that they had grown accustomed to.
Perhaps people would pay to have Facebook stay exactly the same forever and ever?
Even if so, they're out of luck. It's simply not in Facebook's DNA to charge users for the service, whatever the other arguments in favour of this move might be. In the letter he wrote to accompany Facebook's S-1, CEO and founder Mark Zuckerberg talks about his aspiration "to build the services that give people the power to share and help them once again transform many of our core institutions and industries".
In other words, as important as money may be, it's not his guiding principle. And if history is any guide, it won't become such. Lest we forget, Zuckerberg will still own Facebook post-IPO, given the controlling shares he'll retain.
The best companies of the past 10 years have been those that have stayed true to their ideals. Companies like Facebook, Amazon, Google, and Red Hat (Twitter, too, though it still has a ways to go to prove out its vision). These are companies that remain a bit aloof from Wall Street, dictating terms to The Street rather than following the herd in bleating out quarterly numbers.
Red Hat has long insisted on a relatively pure message of open source and open standards for enterprise infrastructure software. I've never seen this message waver, in public or private. Could the company sacrifice its ideals a bit to hawk a proprietary product? Sure. But instead we see the company acquiring proprietary code and open sourcing it, as Red Hat recently did with GlusterFS.
Amazon has invested heavily in infrastructure, at perilously low margins, since its inception, much to the chagrin of investors. And yet in so doing Amazon has set the bar to competition in retail so high that it's difficult to see how others can compete. Amazon CEO Jeff Bezos has kept the company's gears set to high growth for a long, long time, and it works. Amazon doesn't have it in its DNA to be a high-margin business, anymore than Apple can be a low-margin business.
And then there's Google, which is at a crossroads.
Google has stayed pretty true to its mantra of organising the world's information. But lately it has been tempted to compromise its role as neutral arbiter of information.
Whenever Google does veer from this ideal, as I'd argue it has with Google+, it doesn't really work. Such products feel as if Google's heart isn't really in them. It's worth watching to see if Google's attempts to corral all user information into one central database, with all the potential for "evil" inherent in such a move, will ultimately sow the seeds of user discontent and abdication of Google's services.
If Google sheds its essential Google DNA, providing neutral guidance to the world's content, it will fail.
Back to Facebook. Zuckerberg's company is all about friction-less sharing, which is inimical to high-friction paywalls and other such schemes. The best place to scout for Facebook's revenue growth is in the social traits that have made it so wildly popular, and so stubbornly resistant to selling out its users for a mess of Wall Street pottage. ®
Matt Asay is senior vice president of business development at Nodeable, offering systems management for managing and analysing cloud-based data. He was formerly SVP of biz dev at HTML5 start-up Strobe and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register.