General Motors recently reported that it will pull its advertising from Facebook, citing a low click-through rate among other indications that its advertising there isn't effective. I'm not surprised -- I for one have never clicked on a Facebook ad and in fact don't even notice them. Like most people, I have trained myself to tune them out.
The problem of how to make money off its user base is not unique to Facebook. Some ways that websites make money are as follows, and all of them are problematic:
1. Erecting a pay wall or requiring a paid subscription. Problem: users will just migrate to other sites where they don't have to pay.
2. Piggybacking value-added services such as technical consulting, premium content, etc. Problem: it works only for certain types of businesses; plus even the premium content often has free alternatives, while technical expertise can sometimes be crowdsourced.
3. Advertising. Problem: people like me tune it out, and in any event total adspend, shared among Internet and traditional media, just isn't sufficient to generate significant profits for most companies.
4. Selling products. Problem: it's fine for shopping sites like Amazon, but not every site can build a retail business.
There are some other strategies as well, but so far no obvious monetization strategy has emerged for Facebook. I think that problem is fundamental to the nature of Facebook. Facebook is essentially a gift-based site. Few if any of its users are motivated by money when they post their photos, status updates, links, and so forth. They produce content and then give it away. While Facebook might make some ad revenue by diverting people from their purpose for logging in, that revenue is limited because if Facebook becomes to obtrusive with its ads, people will eventually stop using it.
With this in mind, I have a modest proposal for Facebook. I will even be so presumptuous to say that it is a solution to all of its problems. Basically, Facebook should fully embrace its gift essence and take a bold step into new territory by announcing that henceforth, it will be a gift-supported website. It could make an announcement like this:
Facebook's value lies in you, its 900 million users. You are what make Facebook what it is. Therefore, we are laying out a new goal: to remove all advertising from Facebook and make it a 100% donation-supported site, dedicated to serving its members, not extracting money from them. We envision Facebook pages with more artwork and personalization where advertisements are today.
We are starting this transition right now. We leave it up to you, the user, to donate what feels right to support an ad-free Facebook. $10 a year, $5 a year, even $1 a year might be the right level of support, depending on your means and the value you get from this site.
In addition, we would like to transition Facebook to a democratic model of governance. We are therefore retracting our planned Initial Public Offering and instituting a new one, open only to Facebook members, with a limit of one share per member. One person, one vote. You can also buy shares on behalf of your Facebook friends, so that people with limited means can vote too. Members will elect Facebook's Board of Directors and ultimately determine company policy. Basically, we Facebook's owners are going to turn the company over to you.
Facebook has come under increasing criticism for its attempts to create a "walled garden" in the Internet, as well as for its potential (or in the case of Wikileaks) actual censorship power. Putting its governance in the hands of its users would allay some of these concerns. It would also create a fierce brand loyalty and ensure that it truly serves its users.
Of course, for the present owners of Facebook this idea would mean a loss of control that might be a little bit scary. Indeed, this would be a very bold move that would shake the IT world. Ultimately, though, I think it is in their best interests too -- much better than clinging to a business model that is fundamentally at odds with the nature of the medium. The monetization problem will not go away. Facebook could go down in history as a pioneer of a new (and very ancient) business model -- the model of the gift. The present owners won't do too badly financially either with an unorthodox IPO (the details of which can be worked out to maximize or minimize their enrichment.)
The monetization problem for social media hints at a deeper and more general phenomenon: deflation. Difficulty in monetization is just one facet of a falling return on capital investment and, even more fundamentally, the end of the era of economic growth. A shift toward steady-state or degrowth economics is approaching. Part of that transition is a conversion of money-mediated relationships into gift relationships, as is happening on the Internet when so much content and information is provided voluntarily by numerous, distributed, unremunerated peers. Since our current monetary and economic system only works in the presence of growth, the transition we face will necessarily involve profound systemic change. Wise businesses will anticipate those changes by aligning their business models with gift economics. As artists, musicians, content providers, and software companies are discovering, increasingly, we cannot compel our customers to pay. We can instead rely on their feelings of gratitude and fairness; we can rely on their desire to pay, their desire to give something in return for what they have received.
I am not proposing this idea to Facebook as some quixotic exercise in altruism. I am making a serious business proposal. And I'm offering it free of charge! If, however, the good folks at Facebook would like to express their gratitude for my idea, donations will be cheerfully accepted.