In Business Model, Internet Access

Some of us would note with regret an apparent pullback of’s “Free Basics” program, which has allowed perhaps 100 million people to use Facebook and some other useful apps without having to buy a mobile internet access subscription, something that is socially highly useful in markets where people cannot afford to spend much on communications and where they need to learn how to use the internet. Having faced the same torrent of criticism about “network neutrality” rules that in some instances are said to bar even giving poor people access to internet apps at no cost, Facebook now seems to feel it cannot take the political heat. That is a shame. 

Sponsored internet access, no less than free phone calls or messaging, should not be barred because “all bits are not treated equally.” Some bits need to be treated differently to provide value (applications where delay actually degrades the experience). And some bits–including sponsored use of key apps–should remain lawful. There is no end to the complications.

Consider possible moves Facebook may take to offer paid versions of Facebook that are not reliant on advertising. In one sense, that also involves tiers of service, even if the intent is to remove the incentive to monetize end user data and habits. Those who decry paid prioritization now will see paid access alongside free. Some of us see no problem there, as we see no problem with sponsored access or sponsored data.

“Free” is a compelling price point, and Facebook might have to fact that in the future, if it introduces an ad-free paid subscription version.  The question obviously arises: what price would a revenue neutral, assuming Facebook only needs to replace current revenue?

Facebook average revenue per user overall (globally) was a bit more than $6 a quarter in the fourth quarter of 2017. But U.S. revenue was in the $26.76 per user, per quarter range. So it will matter where the paid subscribers come from.

There  is, for that reason, no simple answer. Replacing a U.S. free user might involve replacing $9 a month in lost ad revenue, but just $3 in Europe, 83 cents in Asia or 67 cents per month in Africa.

The “simple” answer is to charge different amounts in each market. And that is where matters get very tricky. How much additional cost is required to create a new marketing and fulfillment mechanism for paid subscriptions in any market? Does that cost scale linearly with living costs in each market, or is there some universal cost of computing infrastructure and marketing that applies globally?

That cost will hinge on volume, but assume a reasonable assumption is made that the incremental cost of selling a subscription amounts to 25 percent higher costs. Then the retail price of a U.S. Facebook subscription would be perhaps $11.25 a month.

Compare that rate with consumer willingness to pay for other apps. Even the most-desired mobile apps seem to be priced at just $3, total, all in, with no recurring costs. Netflix might cost $11 a month in the U.S. market, if fulfillment and marketing costs were just $2 per sub, per month.

Facebook arguably could sell for a price point closer to Netflix than a mobile app (low one time cost). If marketing costs are higher than $2 per month, retail prices could reach far higher levels.

It will be a tricky exercise. Prices much above $10 to $11 a month might face significant user resistance. Ask yourself whether you would pay $30 a month for an ad-free version of Facebook, for example. Most of us likely would refuse to do so.

So is “more privacy”  worth $11 a month to perhaps $15 a month on Facebook?

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