Digital Ecosystems – Privacy as a product

Subscription is unlikely to do very much for anyone.

• In response to slower growth and Apple’s depredations upon data collection, the digital ecosystems are experimenting with subscriptions, but RFM research has long indicated that this is not a particularly viable alternative.
• Meta Platforms is the latest ecosystem that monetizes through advertising to try its hand at subscription with an $11.99 per month package that offers a verification mark, extra account protection, customer service and improved visibility and reach.
• This will be available on both the Facebook and the Instagram service, but users will require a separate subscription if they wish to use it on both services.
• This looks to me to be targeted at content creators or those that use Facebook and Instagram for marketing their wares rather than regular users as most of the additional features being offered are not going to appeal to regular users.
• This makes sense because RFM research has previously concluded that switching from an advertising model to a subscription model is not a viable option for the large digital ecosystems.
• This is because all users are not created equal, and some users are far more valuable than others.
• The best example of this is the USA vs. the rest of the world where despite having only a small percentage of their users based in the USA both Meta Platforms and Google generate almost half of their revenues there.
• Distributions of this nature tend to follow the Pareto distribution which is better known as the 80:20 rule which is that 20% of the users generate 80% of the value.
• RFM has previously calculated (see here) that if Google and Facebook were to switch from advertising to subscription, they would need to charge between $30-40 per month in order to be certain that they would not lose any revenues.
• Google is pretty much the only one I would consider paying for meaning that a move from advertising would probably trigger a collapse in the user base which neither can afford.
• Twitter and Snap are more viable options as they would have to charge less than $5 per month, but because their services are used much less, even this might be a stretch.
• By all accounts, the Twitter Blue program which is priced at $8 per month is not faring particularly well which again does not come as a big surprise.
• Users like monetization by advertising because they tend to think that they are getting something for nothing.
• In fact, what they are doing is selling some of their privacy in return for a service and becoming the product rather than the customer.
• The customer is the advertiser who then pays the digital ecosystem to send advertisements in a targeted fashion to its users.
• This is evidenced by the fact that 97% of all users never pay anything to play games on their smartphones but are content to consume advertising in order to get access to the game.
• One downside for Apple in its war on the advertising business model is that the epicentre of gaming on smartphones has now shifted from iOS to Android due to developer difficulties with monetizing via advertising on iOS.
• The net result is that these moves by the digital ecosystems to offer subscriptions are really about squeezing more money out of the traffic that they have than a real switch of monetization method.
• This will be done by offering premium services on top of what is already there rather than switching from advertising to subscription.
• However, I am not convinced that this is going to make any meaningful difference to the financial performance of any of these companies and so it may be quietly dropped if they turn out to be more trouble than they are worth.
• Meta Platforms has rallied strongly and is now discounting better 2023 performance than its guidance indicates, implying that there are more cost cuts on the way.
• However, I am not inclined to chase this one but would wait on the off chance sentiment badly sours once again.