Would you pay for Facebook?
or: "Why I won't work for a social network."
I've had a lot of ideas involving social networking floating around in my head for the past few months. They were finally crystalized into a solid conclusion this week: I don't want to work for a social networking company. There are really two distinct but related problems with social networking companies, and combined they form a deal killer for me.
First: they are free. With the possible exception of dating sites, social networking services are free. They do everything in their power to get as many people to sign up as possible. Due to the network effect they really can't charge admission. It's not worth money to join the network until lots of other people are already on it. Combined with the economics of VC funding, the cost of joining is always driven to free. You should always be nervous when someone offers you something for free.
If a service is free then one of three things will happen. The service might charge in the future. This is a valid strategy but likely to piss off lots of current users. Next, the company could simply run out of money one day and shut down. Many great sites have simply died due to a lack of a viable business model. And finally, the site could remain free but make money doing something else; which, in the social networking world, means advertising.
Facebook doesn't charge you money because you aren't the customer. The advertisers who buy your eyeballs are the real customer. This creates an inherent conflict of interest. They serve the advertisers over the users. The users still matter somewhat since without users there would be nothing to sell, but there is a constant tension between the two. Still, this wouldn't be so bad if it weren't for the second problem: scarcity
Fundamentally social networks are selling the users' time, and time is the ultimate scarce resource. The only way for a social network to grow is by getting more users or getting more time out of their existing users. There are only twenty four hours in a day and only a certain number of people on the planet. Recent polls indicate that social networks are reaching saturation in developed nations. Most of the people who want to use a social network are already doing so, or will in the next year or two. Without new users social networks must maximize the time they get from each individual user. This is where things really start to get bad.
To further their growth Facebook has an incentive to optimize the number of ads you see per page, and the number of pages you see per day. They constantly look for ways to bring you back to the site and spend more time interacting with it. I call this the Zyngafication of content, after its most famous implementor. I stopped playing Cafe World when I ran the numbers and realized there is no strategy. You can't design a particular cafe or food item that will maximize profit. The most profitable food in the game was (as I recall) a 3 minute appetizer. The point values of foods are weighed to maximize the number of minutes you have to actually spend playing the game per day. Their incentive structure is designed to suck up as much of your time as possible.
Long term this can't be sustainable. As free services try to maximize their profit the number of ads per page will increase, and the number sneaky ways they get you to stay on the site longer will only grow. The user experience will suffer and eventually users will leave. What we need is a system that treats our most valuable resource, time, as something to be conserved instead of wasted. I suspect this is fundamentally incompatible with an advertising driven model. And I don't want to work for a company who's business model requires reducing the user experience.
So this brings up a fundamental question: Would you pay to use Facebook if it let you accomplish things more efficiently instead of less? What about photo sharing? Is there a viable model for paid social networks and services?
Posted December 15th, 2011