Apple, Google, Facebook et al. – Schadenfreude

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Apple rubs Facebook’s nose in it.

• While, Apple has received a free pass from the outrage derived from the public’s awakening to the realities of the internet economics, a move to subscription could increase Google’s revenues.
• Apple has played the privacy card for a long time and just could not resist the temptation to rub the collective nose of Facebook, Google et al in the mess that they have made.
• Apple has once again highlighted its focus on privacy and berated Facebook for its opaqueness when it comes to how it uses customer data to make money.
• It went as far to say that it thought that it could have made a lot more money if had monetized its customers’ data should it have chosen to do so.
• This comment is disingenuous as RFM research (see here) has shown:
  • First, monetisation by hardware and monetisation by advertising have historically been mutually exclusive.
  • Those that have charged a premium for their devices have tended to be unable to also monetise via advertising.
  • Second, that monetisation by hardware is 5-10x more effective than monetisation by advertising or subscription (see here).
  • This means that if Apple was to monetise the data that it collects as effectively as Google, the best it could ever hope to achieve would be a 20% increase in revenue.
  • Consequently, there is everything to risk in annoying its customers but not much to gain by going down this route.
• However, Apple is currently in a good position as Google remains incapable of improving the quality of Android to the point at which it can compete head on with iOS.
• Hence, there is no reason why it cannot continue to monetise its ecosystem through premium device pricing
• This whole issue stems from the choices that a digital ecosystem makes when it comes to deciding which business model to pursue to earn revenue.
• RFM’s ecosystem monetisation model sees three methods of monetisation for any digital ecosystem:
  • First, hardware: Own the hardware and keep the ecosystem or the service exclusive to that hardware and charge a premium for it.
  • This is what Apple does so effectively and where the Android makers are really struggling.
  • Second, Advertising: Make the ecosystem or service available on as many devices as possible.
  • The experience is “free” but a return is earned by using users’ personal data to generate advertising or relevant marketing.
  • This is Google, Facebook, Twitter and so on.
  • Third, Subscription: Charge the user a per month fee to get access to the service and keep it free of annoying advertising.
  • This is beginning to emerge for ecosystems but individual services like Netflix, Spotify, Amazon Prime and Xbox Live are already well established.
• I continue to think that Facebook, and by association everyone else who uses advertising, have made this problem for themselves by not being clear and upfront with their users.
• I suspect that users would have been far more wary about exposing their entire lives on Facebook had they been fully aware of this reality but this is what needs to made clear now.
• Consequently, something along the lines of: “We are able to provide this service to you by selling using your data for targeted advertising. If you would like us not to do this, we can offer you a subscription for $X per month.” will be needed to ensure that the relationship is clear.
• This is how digital ecosystems based on advertising can put an end to this problem and I see no reason why this should result in lower revenues.
• For example, RFM estimates that Google earns around on average $1.50 per user per month on Android devices and so giving everyone a choice between advertising and $2 a month on Android could actually make revenues increase.
• The current fuss being made around data privacy is awakening users to the consequences of trading their personal data for services bringing the day when Google or Facebook offer users a simple choice, that much closer.
• I think Google is in a much better position to whether this storm than Facebook which combined with its difficult short-term outlook leads to an increase in my conviction that profits should be taken.