Rethinking Revenue Models of Social Media Companies
By: Julian Drach
Tags: Law, Politics, Business, Marketing, Social Media

The status quo

Today’s major networks are mostly monetizing in the same way across the board: advertisements.

Ads alone are annoying and damaging enough. On the surface, people are impulsively buying useless gadgets because the advertisement was perfectly tailored to their instincts. But the problem runs deeper.

We are in the midst of a war of disinformation. People and bots are pushing conspiracy theories and disinformation into our daily feeds, hijacking our minds and our seemingly freely formed opinions. Disinformation has become such an apparent problem that even the European Union is currently figuring out the needed steps to take against it. One of these possible measurements is particularly promising: membership fees. The EU proposed that social media companies switch from having an ad-based revenue model to monthly membership fees.

To understand the reasoning behind this proposal, we first have to look at the actual danger of the current monetization.

Ad-based revenue models

When you are running a website that contains ad-banners, you have one goal: keep the user on your website for as long as possible. As a single blogger, the way you could go about this goal is to produce high-quality articles. I don’t think there is any harm in this, so you can probably stay with ad-banners as a form of monetization.

It changes once a billion-dollar company is running the website. Today’s technology is unbelievably advanced and capable of achieving things thought of impossible. Tech companies can predict human behavior more precisely with every input we give them to analyze. These algorithms learn which picture we need to see next to stay as long as possible on the app. We voluntarily expose ourselves to the same mechanism used in slot machines to turn their users into addicts.

And it makes sense. The more time we spent on a social network, the more revenue it can generate. If we are helplessly addicted to an app and revert to opening it up habitually, we will tremendously increase the company's profit. As social media companies have to optimize their revenue to please their shareholders, turning their social networks into an addictive slot machine is inevitable.

Turning users into addicts is one problem. A completely new issue is which content should be used to achieve this. You can see the amount someone spends on social media based on the number of conspiracy theories they believe. It is more addictive than regular content or credible news sources and will be promoted and pushed by the algorithms.

According to an Avaaz study, conspiracy theories attract four times as many views as information from credible sources.

Conspiracy theories are attractive to users. Once you buy into a conspiracy theory, you will think of yourself as smarter than everybody else. You are the one that is intelligent enough and can see through the schemes of whoever is currently the one controlling the world according to the newest conspiracies.

As a result, ad-revenue models are not only turning us into addicts and worsen our lives but are also dividing our society by not only stirring us up but by providing different alleged facts to different people. With all this being said, there has to be an alternative to such a destructive practice. The European Union is regulating social media companies continuously and recently announced a new set of rules.

“In my mind no doubt that platforms — and the algorithms they use — can have an enormous impact on the way we see the world around us. We need to know why we are shown what we are shown.”

- Margrethe Vestager

As the executive vice-president of the European Commission, Vestager proposed another regulatory concept: membership fees.

Membership models

Adding another monthly fee to your expenses may seem like a bad idea. But I think membership models for social networks offer excellent benefits.

With ad-based revenue models, social media companies’ goal is to turn users into addicts, ultimately worsening their lives massively. This changes once social networks demand a monthly fee. Suddenly, the companies have no value in users spending hours daily on their apps, but rather in them renewing their memberships. Optimizing an algorithm to addict people will become an unnecessary expense.

When we are paying for a social network, we are not only paying for the service itself. We are also paying to stay in control. We are paying for the company to respect us, and our interests.

Addictive content would drastically decrease in its value. And if a user is addicted, it's easier to quit by canceling the membership, and the hurdle for a potential relapse increases with the necessity to pay money for it.

Another benefit membership models would provide us with is privacy. Our data is analyzed and used against us daily. We are training the same algorithms that are planning to addict and divide us further. This is why the EU recently prohibited Facebook to send European users’ data to the U.S. By sending data to the U.S., Facebook is improving its algorithms to target people more directly and keep them engaged longer. The terrific outcome of such improved algorithms became visible in the recent Cambridge Analytica scandal. A company that used targeted ads and posts with the help of Facebooks’s algorithm to massively influence the U.S. election in 2016. As a response to the prohibited data transfers, Facebook threatened to leave the EU since its revenue would take a severe hit. Implementing a monthly fee would, therefore, not only keep the users healthier but also their data private.

The bots on social media would also decrease massively once every account would have to pay a fee. Using social media during the past few months has been a nightmare. Comment sections below pictures were dominated by conspiracy theory spreading bots, decreasing my user experience, and increasing Weltschmerz — a german philosophical term describing the feeling of sadness for humanity's current course. My main concern has been the possibility that some people might fall for these bots’ conspiracy content. This terrible feeling alone made me quit social media during this pandemic.

The challenge ahead

With all the positive benefits of switching from ad-based to membership models, there is one seemingly insurmountable challenge ahead of us: The membership fee itself.

One could argue that social networks are only popular because they are free. And this argument has a point. Social media would have never reached the growth it did if it wasn’t free. But it already grew by now. People know about the possibilities of social networks, and although this article may have suggested otherwise, they can be fantastic tools, too. Hence, people would pay for using these tools, especially once the addictive and invaluable features are removed.

Also, membership sites are currently on the rise. If you are reading this article, you already know one of them. Magazines and other successful content-focused social networks are also running on fees instead of ads. And I believe that the more people become aware of the negative impacts the attention-grabbing culture is having on us and realize the hidden cost of a seemingly free product, the more prone they will be to pay a membership fee.

According to this analysis, users would have to pay between $7 and $14 per month to make up for the lost revenue caused by the removal of ads. And although this cost could even decrease, as it would be tolerable for Facebook to generate a little less money while transitioning between the two models, the price would be worth it. Switching the revenue models would increase the service's value while decreasing the adverse effects on society and the individual. Just imagine the mental relief you would achieve by a less addicting and dividing social network, as well as the additional time you will have at your disposal. And with several companies switching their models, they might even have to add discounts to compete for users, which would ultimately benefit the latter, instead of already insanely rich tech companies.