Why Facebook is unlikely to ditch its advertising model

As pressures mount on Facebook from both advertisers and users, Mumbrella's news editor Paul Wallbank looks at whether it would be viable for the social media service to switch to another model.

As the Cambridge Analytica scandal continues to highlight users’ concerns about privacy on Facebook, some are questioning whether advertisers should keep spending on the platform.

With the new privacy features announced at its F8 conference yesterday, Facebook will become a little less attractive to advertisers, but could the social media service itself survive without advertising?

A survey released earlier this month by Melbourne-based market research company Nature looked at consumer attitudes towards Facebook’s privacy and their willingness to pay for services. The results illustrated Facebook’s dependence on advertising.

The survey, which asked a thousand Australians about whether they would be prepared to pay for Facebook instead of seeing targeted advertising found most were indifferent towards ads, but preferred the service to stay free.

In the survey, Nature found only 22% liked receiving personalised messages and only 19% were happy to share their data.

Similarly Nature reported only 22% of users were willing to pay 50c a week to get rid of advertising. That proportion dropped to 10% prepared to pay $2 a week.

Nature’s findings are consistent with other online services’ experiences with user subscriptions. Prior to its take over by Microsoft at the end of 2016, LinkedIn’s subscription earnings were only 16% of its income, while Digiday reports YouTube Red only made up 7% of the streaming platform’s revenues.

With 22% paying $26 a year, or 50c a week, Australia’s 17 million Facebook users would return $97 million a year to the service. At the $2 mark the company would earn $177.

While those numbers are impressive, Facebook’s reported Australian income last year was $497 million, up 46% on the previous year.

The importance of advertising to Facebook can’t be underestimated, with over 98% of the company’s revenues coming in from advertising.

What’s more, Facebook’s revenues though have grown by over 50% year on year and it’s unlikely subscriptions could do a similar thing.

The good news for Facebook in Nature’s survey was that even the most privacy-obsessed users would rather have an advertising supported service, with 49% saying they prefer the company’s current business model at that 50c a week price point.

Facebook isn’t likely to change its business model, something acknowledged by Zuckerberg during his recent testimony before Congress.

Zuckerberg’s views make sense for Facebook and most online services such as Google, which itself is heavily funded by advertising.

If there’s one thing we’ve learned from the last twenty years of the internet, it’s that people will always favour the free and convenient services over those that offer privacy and security, something Nature’s findings underscore.

The real test though is in the numbers, and the next quarter’s financial figures will tell us whether advertisers and users’ enthusiasm for Facebook has been dampened by the Cambridge Analytica scandal.


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