After struggling with various privacy disputes and dropping stock prices of roughly 20% shredding about $119 billion of its value in one single day, what is next for Facebook?
Is the data giant going to come up with a new revenue model?
When you have 2.23 billion monthly active users across the world, the stakes involved are high. Every small or big mistake is heightened and a microscopic view of everything is being presented to the world. Naturally, the consequences in this scenario are enhanced.
However, the opportunities also increase looking at how Facebook has become an important part of everyone’s daily life.
So, what if Facebook shifts to freemium? Freemium is a business model where basic level functions and features are free and advanced version is paid.
Let’s analyze some facts and figures to find out an answer to this.
WhatsApp’s Revenue Model
According to the latest statistics, WhatsApp users send 65 billion messages on daily basis. Moreover, 2 billion minutes of video and voice calls are made using WhatsApp every day.
Although charges on sending messages will be negatively received worldwide, nominal charges can be applied to voice and video calls, replicating Telcos revenue model.
Suppose, Facebook starts charging $0.005 (or half a cent) per minute from users. Then, this would alone generate a revenue of $10 million every day. Now, this means that Facebook can earn approximately $3.65 billion yearly by just charging half a cent per minute on calls.
If a user makes 30 of voice or video calls via WhatsApp in a day, it would cost only $0.15 per day. For a month, these charges will be only $4.50 - the price of a Frappuccino.
Facebook’s Revenue Model or Facebook Freemium
If we look at this research by Accenture, then, it reveals that 71% of customers don’t feel confident about their data security. In fact, customers are likely to avoid doing business with a company if they don’t trust this company with their data.
If we go back to previous statistics and see the combined effect, then Facebook has 2.23 billion active users in a month, Instagram has 1 billion active users in a month, and 71% of these are concerned about their data security.
Suppose, if 2.23 billion users are the 100% active customers of Facebook, then 71% of customers concerned about data security are 1.58 billion (71%) approximately. If only 50% of these 1.58 billion people are ready to pay a price for data privacy, we have 790 million people.
Assuming that Facebook launched a new revenue model (Freemium), wherein free users’ data will be commercialized or shared with advertisers. However, paid users can avail anonymity if they pay only $0.95 per month. With such a small fee from one user, Facebook can make revenue of approx $750 million monthly and $9 billion yearly.
This is not it. Around 50% revenue will also be generated by ads and from customers using the free version.
In the year 2017, Facebook generated $39.9 billion via advertising. If we assume, that there was no change in the year 2018, then 50% of this revenue will be $19.95 billion. This amount is generated by ads.
If we add all of it now, then the formula turns out to be this:
$3.65 billion (WhatsApp Paid Calling) + $9 billion (Facebook Privacy Shield) + $19.95 billion (Facebook Free) + $3 billion (other sources including Facebook Payment, WhatsApp for Business, etc)
Based on the above scenario, the total revenue would be approximately $35.6 billion.
Although I have calculated this amount based on approximate values accumulated from different sources, the revenue count is still remarkable. With real statistics and proper implementation, Facebook can do even better than this.
Would User be Willing to Pay to Protect their Privacy?
One major question that most organizations ask is that if customers are ready to pay for protecting their data.
If somebody would have asked me this question a decade back, I would have simply said no. But, today, looking at recent researches, security mishaps, and GDPR (General Data Protection Regulation), I would say yes. And I believe many customers will say yes too.
Do you think you would have paid for cloud storage 10 years ago? Probably not. But, today, many customers are paying for it and using the services on daily basis. Similarly, if users are given an option, then you would have at least given them a choice.
How Effective Is This Model?
The model may or may not work.
The USP of the proposed model lies in the fact that Facebook could commercialize user data via ads and still offer a choice to customers to protect their privacy.
It has to be mentioned that Facebook averages most of their ads revenue per user from the USA and Canada - approx. $26 ARPU / quarter in Q4 2017. The Privacy Shield service might actually find a fit in those countries in which Facebook is earning the most through ads, as we might want to assume that these would be more sensitive to the topic of privacy. Using the suggested model, in fact, might translate into revenue cannibalization.
The above revenue simulation might have several loopholes. However, the motive is to point out that alternative models that do not entail monetizing users’ personal privacy might exist.