Biz Stone, founder of Twitter and Blogger said that he likes to use Facebook Inc (NASDAQ:FB) to stay in touch with family and friends but finds advertisements annoying.
Solution from Stone
Twitter founder gives an idea to offer a $10 “Facebook Premium”, which will not have ads and would be stuffed with special features. He further notes that if only 10 percent of Facebook Inc (NASDAQ:FB) users subscribe to Facebook Premium, then it will earn revenue of $1 billion per month. It would be a better option for Facebook as it earned just $4.3 billion by selling ads last year and is looking forward to enhance that performance by 40 percent this year if the company performs the same way it did in the first quarter.
Is it feasible?
However, the idea does not seem to be feasible, says a report from Forbes by Mark Rogowsky, as it might not be correct to assume that around 10 percent of Facebook users will pay for it. Fee of $10 per month is way too high to be paid and should be much lower to lure the users. Every user who uses free Facebook will lower down the ad revenue.
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Facebook Inc (NASDAQ:FB) has a user base of 1.1 billion, but everyone is not a high earning individual. Facebook earns just around 200 million from North America and another 270 million in Europe.
For Facebook Inc (NASDAQ:FB), conversion ratio would be around 5 percent in Europe and North America, 3 percent in Asia and 2 percent, in the “rest of world”. This percentage implies that only about 38 million customers will go for paid service, which is far behind Stones 100 million customers.
Users would not like to pay more than what they pay for Pandora. Some may agree at $99 like Dropbox charges or Evernote’s $45 annually. However, other than North America, these prices will be in the ‘High’ category not just because on an average North Americans are richer but also because there are so many ads on Facebook and a user might have to pay a higher price for removing all of them.
If Facebook Inc (NASDAQ:FB) provides Premium Service then it might lose a considerable amount of advertising customers. Over the past 12 months, Facebook lost $230 million by losing 10 million advertising customers. In Europe, it lost another $68 million. Facebook might also see parting of advertisers and less spending on the ads, which will further decline the ad revenues for the social networking giant.
Facebook known for trying new ideas
Facebook Inc (NASDAQ:FB) in the past has come up with new ideas, which has earned the company revenues. In the past, Facebook tried to offer promoted posts so that everyone sees what the user posts. So there are chances that Facebook would want to test the Premium Facebook idea also, but it will not produce revenue of $12 billion annually.