Does Facebook’s Business Plan Include Premium Memberships?

Posted by: Douglas Macmillan on April 9, 2009

The world’s largest social network sometimes gets flack from bloggers and industry pundits for not having much of a business model. It’s true that for now, Facebook is more focused on growing its number of users – which passed 200 million this week – than its bottom line. But the company is generating revenue from advertising, as chief operating officer Sheryl Sandberg pointed out in her talks with BusinessWeek editor-in-chief Stephen Adler on Apr. 7:

There is a lot of like, “What is the business? What is your business model?” And it’s a really simple answer, which is that our business is advertising. We’re not waiting to find our business, but we found it and it’s actually working very well.

As Adler pointed out in the interview, most estimates peg Facebook’s revenue at something between $1 and $2 per user annually – assuming $300 million (an unconfirmed figure) from 200 million people – which is quite small for a site with that many regular users, even for a free Web service. Rival social network MySpace, for example, is estimated to take in between $6 and $7 in ad revenues per user.

Sandberg is optimistic that the sales number will grow as more advertisers dream up fun ways to engage social networkers with their brand, and as advertising begins to roll out to international users. But is she so confident in ad profits piling up that she rules out other forms of revenue, such as charging fees for a premium membership to the site?

ADLER: Does Facebook plan on charging a membership fee? Over three-quarters of its users are going into a panic-induced assumption that this is true, even though there hasn't been talk of a membership fee from the business press or Facebook itself. So can you calm the panic?

SANDBERG: The answer is no, we are not planning on charging a basic fee for our basic services. Once again, that question stems from people thinking we're growing so quickly we're running out of money. We're growing really quickly, but we can finance that growth. We're not going to charge for our basic services.

Basic services? This term was not part of the question, and we haven’t heard it used by Facebook management in the past. Sandberg is a seasoned executive and a polished speaker – could she have been intentionally leaving a door open for the company to introduce some type of paid membership?

Company spokeswoman Brandee Barker only reiterates that Facebook “is a free service to users and we intend to keep it that way” – herself not eliminating the possibility of an additional paid service. Barker adds that the company may introduce new ways to charge brands for engaging with users, saying, “We certainly don’t want to rule out exploring other types of commercial services at some point.”

According to Jeremiah Owyang, senior analyst with Forrester Research who covers social media, a premium membership is an unlikely option for the company right now. “It’s hard to imagine that they would be able to create a premium version and be successful in the near future,” he says. Owyang believes Sandberg may have been referring to the small fees Facebook charges third-party developers to build on its platform, or the tiny amounts users pay to send each other virtual gifts.

That said, Owyang does not think “advertising is the primary route of revenue that they’ll pursue in the future.” He sees e-commerce, media services, and new branding tools as more promising paths to profitability for Facebook in the long term.

Are there any services you would pay Facebook a small fee for? What if you could have a vanity URL, or customize the look of your profile page? Let us know in the comments.

Reader Comments

Kawika Holbrook

April 9, 2009 8:17 PM

I'd pay a buck for the ability to export all my data any time I wanted.

Tom. H.

April 10, 2009 1:49 AM

A business model encompasses more than just generating revenue, Ms. Sandberg. Apparently FB is run by the Underpants Gnomes.

Robert

April 10, 2009 2:51 AM

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Chad

April 10, 2009 4:58 AM

As an entrepreneur and a marketer, I would like to have the ability to create an online storefront - kind of like eBay Stores. I wouldn't mind paying $XX/month for the ability not only to easily reach a HUGE market, but to be able to interact with that market and figure out its wants and needs.

Stefano

April 10, 2009 5:18 AM

I'd pay to export data too.
All the pics in which i'm tagged. It would be awesome if in original quality but I guess that's kind of impossible.

Tim Owen with Internet Marketing Guide

April 10, 2009 6:35 AM

Thanks for the insight into paid advertising/marketing on Facebook, or better yet what you offered us is insight into how Facebook is thinking about it.

Appreciated.

I might pay Facebook to not limit the number of new friends I can add in a day to my profile before I get their warning message and then account freeze if I don't stop at the warning.

ballistik696

April 10, 2009 8:26 AM

A vanity URL is worth a few bucks a month to me.

Andrea Hill

April 10, 2009 9:44 AM

Recent developments have made "pages" more prominent in the stream of info sent to members. I can see Facebook starting to charge to set up pages. (This actually may also help with legitimacy, as right now it may not be clear if a page is official or not).

It would REALLY be interesting if they charged based on the number of fans.. it would likely encourage brands to cultivate a strong community rather than just a large one

rk

April 10, 2009 11:25 AM

Pretty soon websites with same kind of offeings(like facebook) with more user freindly features will be cropping up or become popular in several other countries and In US and until facebook have a revenue generating model pretty soon they might end up as NON PROFIT Organization.

Laurent / Social media reloaded

April 10, 2009 11:36 AM

I'm pretty surprized:

http://liquidnotflat.blogspot.com/2009/04/facebook-business-model-visual.html because Blake Chandlee gave a clear biz model vision @Ad Tech.

Question now is: do consumers & citizens agree for such an unpleasant model?

Bob Barnett

April 10, 2009 1:45 PM

I would pay to get rid of the ads altogether. Only $2/yr per user? I'd happily give $10 or more to be rid of ads.

Jennifer

April 10, 2009 3:21 PM

I'd pay to get rid of ads. Also to get "live feed" back. Also to be able to pick and choose what I see and what I don't see on my home page. I don't want to have to block someone entirely from having info posted to the home page but I don't really care if they gave a damn gift to somebody. I might want to see what apps my friends added in the home page feed as well as what friends certain of my close friends have added without having to go to their individual pages.

Mergen

April 11, 2009 7:19 AM

I would pay to have better privacy. WebGuru

Vanchinathan AC

April 11, 2009 9:59 PM

I would say , with such a huge set of users, they should step into online business too. How about a facebook shop? where you get stuff's like, gifts, books etc etc.

Deena Still

April 12, 2009 7:15 AM

I believe charging a fee in a market where people are tightening their belts, would not be prudent.

Maggie

April 13, 2009 12:25 PM

I work for a nonprofit and would love to be able to eliminate ads and get a vanity url. I could also see companies paying Facebook to develop custom pages for them and for being listed in some kind of Facebook directory (better than the search function).

I know Facebook would never do it so it's a moot point to recommend it, but companies would, I'm sure, pay a fortune to be able to export their fans' data. Maybe a business model where users could opt in if they'd be willing to have companies "purchase" their data in some way--then the users could get credits for stuff like virtual gifts or whatever. I'm sure it would never happen because the world would riot about the invasion of privacy, but if users were able to opt in only if they wanted to maybe it could work. Twitter users are willing to pimp their profiles for money; I'm sure many Facebook users would be willing to as well.

J

April 15, 2009 8:32 AM

A facebook portfolio, facebook report and an eBay store front that is friendly to not only customers, but also sellers. As you know, eBay is having a mass exodus of sellers. Plus, anything that tailors to entrepreneurs - perhaps SAS, aggregation of some of the best business productivity tools or other types of similar concepts, aggregating GoogleAnalytics type reports in creative ways.

Tauna

April 20, 2009 4:26 PM

I would pay a monthly fee not to have all of the advertising stuff.

Vac

May 26, 2009 8:50 AM

Not a good time for facebook to go public. But, They need some urgent cash flow. How about collecting funds like Wikipedia?

Vac
http://eatoutbuddy.com

JoeM

June 5, 2009 12:59 AM

I don't think it would be in FB best interest to charge for anything right now. They are still in a growth period and finding new investors. To charge a fee would create a backlash that would be unpredictable. Well, predictable in the way that I would use it much less. I like classmates.com when it came around. But I hated the idea of getting enticed into paying fees to see old friends. I passed on it. I would do the same for Facebook if need be. But taking something away never goes over well at all. And throwing up banner ads royally sux. FB already needs dramatic improvements. They need to get rid of the spam and security issues.

Thomas

June 19, 2009 1:01 PM

Quote - "I would pay a monthly fee not to have all of the advertising stuff."

If this was an option then most businesses would opt out to have advertising on FaceBook, because their ads would not be shown on potential clients.

Ted

June 22, 2009 12:17 PM

Not a chance. I already have to pay too much to have a moderately reliable connection the internet. Facebook is a fun distraction, and a nice way to keep in touch. But I wont pay a penny for it. I certainly dont begrudge FB the right to make money for their services...But in these budget-conscious times, they wont make any off of me.

don

July 15, 2009 10:10 PM

I'm actually surprised advertisers are willing to pay for ad space on FB. The site's largely a waste of time, in my experience. Clearly not worth paying for. It would need to advance far beyond what it is now to claim to offer anything even remotely resembling a "premium" service. It doesn't deliver what it promises most of the time - and the nature of many of the ads seems consistent with this non-added-value aspect...

Stan

December 20, 2009 10:19 AM

I enjoy Facebook for it's ability to keep me in touch with friends and family. But if they started charging fees I would migrate elsewhere!
(Or some place else if I were American! LoL!)

louis

December 20, 2009 1:51 PM

I wont pay for anything if they try and make me i will go to myspace

Ashley

December 20, 2009 3:36 PM

I would pay if i was able to extract all images of myself from facebook into jpeg format.. Most of the images i have on my profile have either been lost or are from people i dont keep in touch with anymore.

maggie

December 20, 2009 8:57 PM

i would not pay for anything on facebook.i use this service to keep in contact with family members who live away from me.i pay enough for my internet accsess without having to pay more for using facebook.i think it would be upsetting to others if they had to pay.we are in a ressecion and money is tight all round.so you wont get none out of me or hundreds of others.

rock wallaby

December 21, 2009 7:47 AM

Why should we pay for anything, when Facebook owns the rights to our data and all our pics.
Maybe they should charge for group pages instead, so that zynga mafia clans and all these various fan pages have to pay for their group pages.
That leaves it free for common users who dont use it much. Always the little man gets slugged.

zulfiqar

December 21, 2009 11:47 AM

Maggie is right.
there may start couple of such sites and start their services for free.
or maybe re-switch to orkut.

pashmina

December 21, 2009 5:11 PM

I'd pay for a service that sends one of those slutty women in the "dating" adverts round to my house just by clicking on her picture.

Fedge No

December 28, 2009 2:46 PM

Seems like people didn't even read this article lol. They are STILL going on about how they won't pay!

FACEBOOK IS NOT GOING TO CHARGE USERS!

Facebook is a data mining operation run by DARPA, CIA and other letter agencies to collect information on you. It has nothing to do with making money.

WATCH THIS

Fedge

Northwest Lady

December 28, 2009 2:51 PM

If they could let you select your types of ads, instead of playing off words in my conversations, I might be more interested in what vendors are selling.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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