What if We Paid for Facebook
(Photo Credit: Courtnie Lewis)
Yesterday, Andreessen Horowitz, the famed VC fund, released a series of articles titled: Social Strikes Back. Per their website:
"Until recently, it was commonly accepted that "social" was done. The market had been fully saturated, the thinking went, dominated by the holy trinity of Facebook, Twitter, and Instagram. Turns out, rumors of social's demise have been greatly exaggerated. Not only are we seeing the rise of innovative new social networks—from the earshare of Clubhouse to the seamless interactivity of cloud gaming—but having a social component has become a powerful acquisition and retention tool for every consumer product, across education, shopping, fitness, food, entertainment, and more. In this series, we reveal what new social looks like, the forces that are driving it, and how to build it."
Social has evolved from scale to niche. Everyone joined Facebook because their friends were on it. Now, everyone wants to meet their next group of friends. Yes, you might meet them on Facebook. But more likely, you'll meet them in a "niche" community.
Niche communities have existed since the dawn of the internet. I wrote about in, "Why Buy a Product When You Can Buy a Community?"
"The primary goal of IRC was to bring communities together. Thirty years later, software tools are still trying to figure out how to do that.
Communities have lived in different places on the internet. Some times it's a website like All Recipes, a community for cooking. Other times, it's forums such as a subreddit. Lately, it's a revisit to the days of IRC, real-time chat 2.0. There is something appealing about the idea of being able to connect with your communities in real time. Many of them take place in Slack."
The key part is the last sentence, "Many of them take place in Slack." Slack, an enterprise chat app, is hosting the next generation of communities. I'm not going into detail, but using enterprise apps for consumers isn't ideal.
We Love Free
Most communities use Slack because it’s free. Our brains have spent the past 10 years expecting "free". Facebook, Snapchat, Instagram and other social media companies don’t charge us. The business model was simple: get as many users as possible and make money on advertising.
It still is a great model. Facebook made $70.9B in 2019 in revenue. But as you begin to break down this number, you begin to see the opportunity that Andreessen Horowitz is talking about. Facebook has 2.7B monthly active users. Facebook's average revenue per user (ARPU) is $7.89.
Well, what if I create a community with 27M users with an ARPU of $789? The revenue is the same as Facebook. I'm not saying this is easy, but it's not out of the question.
In 2004, when Facebook launched, there weren't a lot of ways to monetize social networks. Now that has changed. Andreessen Horowitz listed six ways to monetize a community:
(Photo Credit: Anne Lee Skates)
As you start to think about the alternative ways to monetize, you begin to see how users and revenue can scale.
The series covers a lot on social networks. But, I want to cover two topics that they didn't discuss (perhaps intentionally)
The Rise of the New Small Business Owner
Audience-First Products
The Rise of the New Small Business Owner
Between 1993 and 2011, small businesses created 64% of the jobs in the United States. Over the past few years, there has been this sentiment that small business creation is dying. This isn't true and data supports it. But the days of the mom and pop store are dead. At least the physical mom and pop store. What I'm most excited about it is the optimism taking place in the internet community today. Creators can form their "small business". This is possible because the infrastructure finally exists, but also the mindset shift. People are willing to pay for communities and it's easier than ever to monetize.
Do you remember all those people who used to run large Facebook groups or pages? They had this huge following, but couldn't do anything with it. Those issues are no longer. The creators can monetize and live off these audiences. It's not only good for the creators but also for the economy because it will help create jobs.
Audience-First Products
The word creator is mentioned a lot in their series. I’m still not clear on a good definition of a "creator". To me it’s someone who makes money off their audience by creating a product. This means if they only offer sponsorships, they’re not a creator, but an influencer. An influencer can be a creator, but a creator can't be an influencer. (DM me if you have a better definition).
People Are Cool, Companies Aren’t
Facebook, Snapchat, TikTok and other social networks are corporations, but they’re not people. At some point, a corporation ceases to be "cool". A startup matures into a publicly-traded company with a board, executives and bureaucracy. A person, on the other hand, can stay cool forever. It's amazing to see the obsession people have with celebrities or influencers.
In "Quibi Can Turn It Around By Doing This", I wrote:
" Spending money doesn't change the fundamental laws of supply and demand. There is a ton of content out there, but the next generation of consumers want content by people they understand. 40% of millennials believe their favorite creators understand them better than their friends."
It continues to baffle me that people think someone who never met them understand them better than their friends. But, alas, the research supports it.
Abby Norman does a good job of explaining it in "The Psychology of Fandom: Why We Get Attached to Fictional Characters":
"One thing that helps us empathize with family and friends, no matter what our baseline capabilities to do so are, is trying to fill in the details of what we don’t know about their situation. Interestingly enough, this is also more or less what we do with fictional characters; in fact, it’s sometimes easier to empathize with them because we are often given, expositionally, far more detailed and intimate knowledge of a character than we would ever know about someone in our real lives. And, as in life, it’s our nature to fill in the blanks when we’re presented with a character that we haven’t gotten to know very well yet. Fanfiction is one way that we do this on a community level. Headcanons, a term in fandom that refers to what an individual believes to be true about a character, even though it’s not “canon”, are another way that we flesh out the details of these character’s lives as we attempt to understand and, ultimately, feel for them on some level."
And now creators, influencers and celebrities are cashing in on this phenomenon. Cameo, the celebrity shoutout platform, is one example. Before, Cameo it wasn’t that easy to interact with a celebrity. You could hope they replied to your tweet or show up at an autograph signing. But that is a hassle. Now you can pay to get a guaranteed response from your favorite person.
The Internet Creates Endless Opportunities
So going back to the original question. What if we paid for Facebook? I don't think people are going to pay for Facebook. I think that ship has sailed. Facebook makes too much money from advertising and we, the users, are conditioned that Facebook is free.
However, I believe we will pay for the next generation of social networks. You might not think of it as paying. Some might be positioned as "paying for an experience".
And the reasoning is simple. The internet for all its connectivity has made us lonely. Facebook, Instagram, and YouTube seem infinite. They can overwhelm us. We want to feel like we belong. We want to hang out with a group of people that have overlapping interests.
I'm excited for the next generation of social products and seeing what Andreessen Horowitz and other VCs will fund. But I’m really looking forward to the new opportunities for creators. People can now make a living off their "weird" internet hobbies. How can you not love the internet?