Mark Zuckerberg’s social media empire is built on billions of users – and the advertisers who pay vast sums to grab their attention.
But that business model is under pressure on several fronts. It is against this backdrop that Meta, the owner of Facebook and Instagram, said on Sunday it is trialling subscriptions for both social media platforms.
“Advertising has paid for editorial content and other things for centuries,” says Johnny Ryan, a senior fellow at the Irish Council for Civil Liberties and a campaigner for stronger protection of internet users’ data. “I do not see that changing. But the tracking-based ads that snoop on our every move are the historical anomaly, and they are on the way out.”
Facebook and Instagram offer a goldmine of user data for advertisers. Facebook alone has 2 billion daily users, while across all of Meta’s platforms including Instagram, WhatsApp and Messenger the total is just under 3 billion. Facebook generates revenue from building profiles of those users and matching them with advertisers, who direct ads at people targeting their specific interests and background.
This advertising-based model accounted for 98% of Meta’s $116.6bn in revenues last year, but it faces problems. In 2021, Apple introduced privacy changes that required apps sold on the Apple store to ask users permission to track their activity across other apps and the internet – a key means of gathering data for targeted adverts. Of course, many users have opted not to be tracked, and Meta warned that the change would reduce its 2022 ad revenue by $10bn.
Regulators loom as well. Last month Meta’s business model was dealt a blow by a ruling that the company’s legal justification for targeting users with personalised ads broke EU data laws. Meta said the ruling did not prevent targeted or personalised advertising, but it is very clear what the EU, which is a highly influential tech regulator, thinks about Meta’s user data-oriented business model.
Then there is general economic weakness, to which any advertising-dependent social media or search company is susceptible. In its most recent quarterly results, Meta reported a 4% drop in revenue while other platforms, including Snap, Google and Elon Musk’s Twitter, have also warned of a weak advertising environment. Musk has launched a revamped Twitter subscription service to offset the company reliance on advertising, although its ad business has also suffered self-inflicted blows.
Dan Ives, an analyst at the US financial services firm Wedbush Securities, says launching a subscription service is an obvious response to challenges that have already resulted in Meta announcing plans to cut 11,000 jobs.
“Meta is seeing clear headwinds on the digital advertising model and this is a low-hanging-fruit way to potentially pick up some incremental revenue,” he says.
Under the Meta Verified offering, users will pay a monthly subscription fee – $14.99 for people using the Facebook or Instagram app on an Apple iPhone or an Android phone, with a lower charge of $11.99 for web access – to enjoy features including: a verified badge on your account, certified by a piece of government ID; a monitoring service to deter account impersonators; increased visibility and reach for your account, such as in search and recommendations; and personal support for problems with your account.
It is being tested in Australia and New Zealand and Meta says it hopes to bring the new product to the rest of the world “soon”.
An obvious market for the service is the creators and influencers who use Meta’s platforms, particularly Instagram. Meta says it will help “up and coming” creators, adding that “subscribers with a smaller following may see a more noticeable impact to their reach”.
Kat Molesworth, co-founder of the Creator Union, which hopes to start recruiting members this year, says Meta should not be charging for services she suggests should come as standard: “I would question if it’s appropriate to charge creators, who contribute to Meta’s massive profits, for basic features.”
Referring to Google-owned YouTube’s practice of sharing advertising proceeds with creators, she adds: “YouTube shares revenues pretty much 50/50 with its creators and has done for over a decade. YouTube recognises that without creators it would not have an ad business.”
On Sunday, Musk described Meta’s move as “inevitable”; although whether it is destined to succeed, after nearly two decades of free-access orthodoxy at Zuckerberg’s business, is a different matter.