In an interview with NBC's Today show last week, Facebook COO Sheryl Sandberg said that if users want to stop her company from making money off their personal data, they might have to pay for the privilege.
This proves the saying: You can't get something for nothing.
Millions of customers use search and social platforms each day without paying for the service. How did we get here?
The answer--for Facebook and others--is that advertisers have been footing the bill. Now, we're realizing that users are also paying the piper--with their personal information. That's starting to look like a high a price to pay.
Eleven years ago, I wrote a satire titled "Can I Please Buy Myself Dinner?" highlighting privacy concessions customers were making in the ad-supported economy. Even then, there were horror stories--I wrote about a woman who was hounded by diaper ads after having a miscarriage--and the business model has only grown since.
Sure, we're outraged about the way Facebook lets advertisers use our data. But if we start to opt out of advertising-supported services, digital companies will need to find new business models--and it's hard to beat free.
Last night I asked my daughter, a daily Instagram user, if she'd pay $5 a month to keep the service. She said no. I was stunned. She happily shells out more than $5 for popcorn at the movies--yet she rejected the idea of paying for a form of entertainment she uses all day.
For some reason, we seem to value digital and physical goods differently. We'll drop $5 on daily lattes from Starbucks without thinking twice, but won't spend more than 99 cents on an app.
The digital economy will have to get past this hurdle to avoid Facebook's problems, especially since it's about to face far more regulation. Europe's new General Data Protection Regulation (GDPR), which goes into effect next month, will dramatically change how European companies can use customers' information. We should expect more regulation on this side of the pond, too.
I've worked with hundreds of fast-growing businesses over the past decade--particularly on customer acquisition and monetization--and it's taught me these three ways to stay ahead of the curve:
1. Create digital value on par with physical value.
As business leaders, we have to establish more value for our digital products and services. We need the Starbucks latte of social media--something people are happy to pay for because it's better than other options.
Publishing platform Medium does this well with its subscription service, where people pay for the best content. Customers have also proved willing pay real money for digital goods in popular online games.
2. Don't give away something you want people to value.
Moving from a free service to a paid service is an uphill battle. It can be done--water used to be freely available everywhere, and now people buy bottled water--but it takes time and superb salesmanship to make the transition.
Whenever possible, start with some kind of fee structure, even if the charges are small. You could use a "freemium" model, for example, which establishes a clear paywall once a user reaches a certain threshold of use.
In our consulting business, we make sure to only provide services customers will value enough that they will pay for them. It's one way we keep our customers focused on value.
3. Tap into the subscription economy.
HBO, Showtime and other premium content companies are rapidly moving to direct-to-customer subscription packages. Porsche is testing a subscription car service that lets users drive a variety of cool cars for a monthly fee. Amazon Prime members spend almost four times as much as regular members. Establishing a subscription has become a great way to deliver predictable revenue and develop a community.
Consider what Facebook could do with its two billion users. In 2017, Facebook's average advertising revenue per user was $20.21. Let's assume 10 percent of Facebook's users can't live without it. That's 200 million people. If Facebook charged each of those users $99 a year--about 15 days' worth of Starbucks lattes--the company could pull in $20 billion. That's nearly as much as the company makes now from advertising.
Charging customers is good for more than just your everyday bottom line. Long-term, the fee-for-service model ensures your accountability to users, not just advertisers.
That keeps you focused on developing the products your users want and need, which is critical to your company's long-term success. In Facebook's case, much of its research and development has been spent on new types of advertising, rather than on the features that paying customers would like.
In the future, building loyalty and engagement won't be enough. If you sell digital products and services, you'll need to create real value--just like your physical world counterparts.
The future of your businesses might depend on it.