“I’d pay £5 a month for Twitter, for instance” said Neil. “Nobody does that though. Well, apart from app.net. But why not?”
What followed from me is an 88mph reckon, which I’ll repeat here.
(YMPHMV, of course.)
It’s easier to get investment for a business built on rapid user growth. It’s easier to get rapid user growth if your product is free. It’s easier to make a product free if, when people ask “but how do you make money..?”, your answer is “advertising, my friend”.
We all know this, no news here.
What matters here, I think, is market perception of the potential revenue per user.
Nobody knows what the maximum revenue figure for a social network user is in the advertising model.
Yet potential revenue per user for a paid-for network model, is a relatively easy to guess at.
With good research, to establish how much people would be willing to pay for a social network. It might be £5 per month, it might be £10 a year, whatever. You can find out. You’d even get a good sense just by thinking ‘oh, I’d pay that’ or ‘oh, that’s too much’.
But if you’re working in an advertising revenue model, there’s much more potential.
Recently, Facebook’s ARPU (Average Revenue Per User) was $6.44 in the US & Canada, and $2.24 Worldwide.
The key point is that this figure isn’t static; it’s growing. People start thinking “if it can make an ARPU of $6 per year, then it can probably do $8. Then $10. Then…”
Nobody knows where that stops. We have a good feel for how much is too much to charge for a service, but not for how much can be potentially made through advertising… but when Google can make $45 ARPU, then people suppose that everyone else, if they find a secret sauce, can at least make half that, right?
Where does that leave us? What about Neil’s question? Will we see a paid-for social network as a service?
I wouldn’t have thought so, as long as most social networks are taking investment from people who want to turn their capital into more capital quickly.
To explain why, we started talking about Back To The Future III.
Quick plot reminder. The Doc and Marty are stuck in the ‘Old West’ in 1885, with a DeLorean time machine they must get up to 88mph in order for it to take them back to 1985. To do this, they steal a train to push the car on rails in front of the train past the necessary speed.
This involves doing it on the ‘only piece of track suitable’, meaning they must reach the speed before hitting the as-yet-unbuilt rail bridge where the train will plunge into the canyon below.
This last bit is just a plot device to introduce a bit of jeopardy, obviously. You can tell when there’s jeapordy involved in films when they must build a small scale model of it beforehand, and write things like “Point Of No Return” on it…
The plan is to do whatever it takes to push the train faster and faster, so as to push the DeLorean past escape velocity out of grubby, dangerous, Real Cowboy America and into the bright, shiny future of Actor-Cowboy Ronald Reagan’s America.
In this analogy, there are two things that matter.
If you’re using the service, then you’re sitting in the train.
You’d be quite happy if it just pootled around various stations, doing train things, forever. Phenomenal, abnormal speed isn’t an issue. When you got on, the train was standing on a platform, heading to a place you wanted to go to, with some people on it who were a bit like you. You’d like the train to be a train,
If you’ve got shares you’d like to cash in, you’re sitting in the DeLorean.
You don’t really care about what happens to the engine behind, because you have a clearly defined point at which you want to get out (perhaps, even, at $88 dollars per share). It’s in your interest to push the engine as hard as you can, so that you get to that escape velocity.
You’re probably inventing all sorts of fancy coloured fuel-logs to make the engine run hotter. More ads, more formats, different sales approaches, research studies… anything that makes the business make more money more quickly, so the share price goes up, and people start thinking that the potential revenue per user might just keep growing and growing.
The trick is making the share price go as high as it can before the train tumbles down into the canyon.
The thing is, I’m not sure there’s a way to make the people in the train and the people in the DeLorean both benefit. As soon as you start going at a certain speed, and pushing the ad revenue model in a way that starts to annoy people, you pass the fabled point of no return.
Here, when you get past it, you can’t go back to the previous model. You know that the network you’ve created is heading down the canyon. So you just have to push it fast enough to hit 88mph.
I’m going to think a bit more about this, obviously, and so would welcome other perspectives. If anything, I think the digital-bubble fuss around the Ello signup T&Cs at least shows people are now considering carefully which trains they get on in the first place.
In the meantime… some mild jeopardy: