Saving Facebook

A Business Plan for Mark Zuckerberg to Save Face

“In the past eight years, all of you out there have built the largest community in the history of the world,” Facebook founder Mark Zuckerberg crowed to his newly-minted millionaire employees on the Friday morning of the Facebook IPO.

Zuckerberg got it right. The Facebook community of 900 million is nearly twice as large as the entire European Union and creeping up on the 1.1 billion population of India.

One out of every eight people on earth uses Facebook.

Zuckerberg’s is an astonishing achievement!

Facebook—an Incredible Gift!
I don’t know what I pay for my website on an annual basis, but it’s a fair pinch of change. Facebookers are given the equivalent of a website for free.

Further, with the miracle of technology, Facebook users have a worldwide presence. Travel to Nepal and hire a Sherpa to guide you up Everest, and that Sherpa can become your Facebook friend, instantly in touch with you and all your friends, even though he’s 7,500 miles away.

The question dogging Facebook management—and investors—is quite simply: How do you turn the thing into a moneymaker?

The 10-Word Answer: You get the users to damn well pay for it.

Am I nuts?

Don’t I know that the Annenberg’s Center for the Digital Future polled the Twitterverse in 2010 and found no one would pay for using Twitter.

Not one person. Zero. Zip. Nada. Bupkis.

Am I ignoring the dictum of Richard Nixon’s thuggish gatekeeper, H.R. (Bob) Haldeman, who said: “Once the toothpaste is out of the tube, it’s hard to get it back in!”

Quite simply, Facebook ain’t Twitter. For example, I tweet occasionally. At the end of all my e-correspondence is the following:

P.P.S. Follow me on Twitter. I guarantee no waste of your time. http://twitter.com/dennyhatch

In my daily prowl of the Internet, I come up with a dozen or more stories of interest to me that I download into my massive private archive of 70,000 news stories. Every couple of days I see something that might be of interest to everybody and I tweet it with a provocative headline and a hyperlink, just like Drudge.

Would I pay Twitter for the privilege of tweeting? Absolutely not. It’s no big deal. I have no personal investment in Twitter. It’s something I do in about 20 seconds to inform or amuse my 600+ followers.

The Personal Investment in Facebook
Since Facebook is free, technically no user has a financial investment in the site.

However, the average user spends roughly eight hours per month on Facebook—or about one working day a month. That’s 12 days a year.

Twelve working days are equal to two weeks. So in terms of time spent, the average Facebook person invests the equivalent of two weeks pay per year.

If the average is eight hours per month, how many members spend a lot more time—perhaps 16 or 20 hours a month, or more. For tens of millions of stay-at-homes and travelers, Facebook is the centerpiece of their lives—a huge emotional investment.

According to Facebook’s own statistics, the average user’s circle of friends is 120, an extraordinary series of interpersonal networks with which users can stay in touch instantly from any point on earth. What a giggle!

Hey, Mark, Here’s Your Business Plan
1. I would test this as snail mail vs. email.

2. You write a letter describing the fantastic gift you have given 900 million people, where they are members of an extraordinary community that lets them throw a marvelous party, putting them in the epicenter of a swirling mini-universe of friends and family, enabling them to share news, gossip, opinion, photos, adventure and fun.

3. Nothing like this has ever existed in the world before, and these folks are part of it—a social revolution!

4. Although it’s free to the Facebook users, it is horrendously expensive for Zuckerberg to maintain. And it is now owned by millions of investors. After all the money that’s been spent getting up and running, it is time for backers to start receiving a payback for their magnificent gift to the world.

5. Two plans are available:

Bronze Membership: Free. Everything is the same as before. However, you are limited to text only and a maximum of 5,000 words.

Platinum Membership: A buck a month or $9 a year to continue your splendid party.

There should be price tests, including a test panel offering a one-year introductory Charter Membership for $4.

  • Bonus to Platinum Members—Confidentiality: Facebook will not mine the personal and professional information revealed on Facebook pages and make it available to advertisers.
  • Additional Bonuses to Platinum Members: All kinds of tremendous deals on travel, merchandise, fine dining, etc. The goodies that AOL never figured out and came within a whisker of going bust.

Backfire?
As guys with live-in girlfriends in the 1960s used to say about marriage, “Why buy the cow when the milk is free?”

A goodly number will opt out. Those that take the free Bronze membership will look like cheapskates to their friends. But hey, their friends probably know that about them anyway.

Put another way: Imagine being a world-class Facebooker with a couple of hundred friends, who is so adamant about not paying the piper that you would shut down your Facebook page. That would be like committing suicide in public. You would literally lose “face” (and your circle of friends), which would be emotionally devastating.

Replacing the Facebook experience on your own in some other venue would be far more expensive than $9 a year. We are all used to paying hundreds of dollars for cable and satellite TV, as well as phone and cellphone service, DSL, and Wi-Fi. What could possibly be the hang-up with paying a paltry 3¢ a day for Facebook that gives you a glorious, interactive worldwide reach?

The Benefit to Mark Zuckerberg
Let’s say 200 million members are so bummed out at only getting 5,000 words—or are so incensed at the idea of having to open their wallets a tiny crack—that they drop out. So what? Who needs these freeloaders?

This leaves 700 million folks who love Facebook and who pay $9 a year.

That’s gross revenue of $6.3 billion a year—roughly a 6 percent ROI, which is more than generous in this epoch of teeny interest rates.

Even if 500 million cancel, the remaining 400 million would generate $3.6 billion—not exactly chopped liver.

What’s more, the revenue is almost entirely net profit, because Facebook is dealing in wee spritzes of electricity. No raw materials, no manufacturing, no marketing and advertising costs, no warehousing, no shipping, no returns, no sending trashed merchandise to a landfill.

In addition, unlike most other Websites, Facebook has no editorial costs because the members create all the content.

God, what beautiful business model!

Suddenly Facebook looks interesting to investors again.

Two Words of Advice, Mark: Hire Professionals
I realize that in the world of social media and blogging, the mantra is for everything to be free.

However, with a promotion this serious—on which so much depends—you do not want to put it into the hands of chatty well-meaning bloggers who have never asked for an order in their lives.

Instead, find top-flight professional copywriters, designers and consultants.

And Mark, I know how this would pain you in your fantasy world where everything should be free, but I urge you to PAY THEM CASH MONEY.

I would hire 10 copywriters to create 10 approaches and test them to 250,000 Facebook users by snail mail (at roughly 80¢ a pop) and 500,000 emails (which are essentially free) and see what the hell happens.

Good hunting, Mark.

Takeaways to Consider

  • The tragedy of the Internet is that back in the 1990s, the hotshot kids, whom investors trusted, determined that everything on the Internet should be free—including material under copyright.
  • “Once the toothpaste is out of the tube, it’s hard to get it back in!”
    —H.R. Haldeman (1926-1993), presidential assistant and gatekeeper
  • One out of every 8 people on earth uses Facebook.
  • Zuckerberg’s is an astonishing achievement!
  • Facebook is a marvelous party that puts users in the epicenter of a swirling mini-universe of friends and family worldwide, enabling them to share news, gossip, opinion, photos, adventure, and fun.
  • How do you turn a splendid Web service into a moneymaker?
  • The 10-Word Answer: You get the users to damn well pay for it.
  • You may lose some of them along the way, but so what? They are freeloaders.
  • Two rules and two rules only exist in direct marketing. Rule No. 1: Test everything. Rule No. 2: See Rule No. 1.
    —Malcolm Decker

Denny Hatch is a direct marketing consultant and author. Reach him at dennyhatch@yahoo.com and visit dennyhatch.com.

Denny Hatch is the author of six books on marketing and four novels, and is a direct marketing writer, designer and consultant. His latest book is “Write Everything Right!” Visit him at dennyhatch.com.
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Comments
  • Gail

    Denny- That makes sense but there is no way that will ever work. The internet community can mobilize quickly and another free Facebook clone would pop up (um Google +) and poof – they just shot themselves in the other foot and all users jump ship (remember MySpace?!). I think in this case, it’s impossible to get the Facebook flavored toothpaste back in the tube. The idea is sound but it ignores the core sociological and cultural realities of online consumers. They will have to be a little more creative than this.

    -Gail T.

  • James Hutcheson

    As usual, sage advice from Denny. I hope Mark is listening to you!

  • Will Ezell

    Face what??

    All these so-called "Social Media Experts", and I have yet to meet one person in business who is measurably benefiting from FaceBook or Twitter.

    I have however met some very desperate and lonely people who are proud to tell me that they have more than 2,000 "friends" on FaceBook… I just shake my head.

    Your idea is brilliant – I’d pay 9 bucks just so I won’t look "cheap"!! And please everyone reading this – friend me! I need 2,000 "friends" too!! NOT!

  • Peter Rosenwald

    Beautiful piece Denny.

    The only problem is you should have charged Mark for it.

    Regards,

    Peter

  • realdeal17

    GREAT article, Denny! I agree 100% and love your suggestions to Mark Z. I would pay for Facebook in a heartbeat and so would most people, as you described.

    Even though you aren’t big on Twitter, I’m sure you won’t mind if I tweet your article out to my followers! :-)

    Thanks again! Keep up the great work.

  • Karen

    If Facebook users go down, then there will be less ad inventory, and less ad revenue.

  • BrianCarl

    The main benefit of Facebook is that everyone is on it and everyone can create. If you decide to start charging people to use the basic features of the service, many people will leave and as users see their friends lists decrease, they’ll be less likely to use the service and then it’s a snow ball effect.

    My the ship at MySpace sank it wasn’t overnight, but most people I know eventually left, because their friends started using Facebook more, no one wants to share content in a Ghost Town.

    I like Google Plus way better than Facebook, but no one I know uses it, so I don’t use it.

    In addition, I don’t see how you can test the offer that you’re suggesting. Are you saying that Facebook should select certain users and tell them they need to pay or their accounts will be deactivated? I can already see the media backlash of the Facebook "Hit List", singling out users.

    If Facebook wants to start charging, it’ll have to be on premium features that aren’t already offered. An offer to opt out of ads, increase privacy, etc may have some legs.

  • FactChecker

    Maybe you haven’t checked, Denny…but FB is PROFITABLE…Helloooooo? Anyone home? Try doing some basic research before claiming a business model isn’t valid or profitable. Theirs is on both counts. Here…take a look: http://www.insidefacebook.com/2012/02/01/facebooks-net-income-and-revenues-1-billion-on-3-71-billion-in-2011/ . 30 seconds of due diligence would prevent you from looking like a total idiot.

  • Barry Dennis

    Denny, Mark Z. didn’t want investors, didn’t want to be publicly-owned, just didn’t. But, his advisors early on convinced him that he needed somewhat professional "management," needed capital and lots of it if he were to realize the part of his dream that pertained to making "social" have value for everybody, aimed primarily at the "family and friends" cohorts. Now, FB has evolved. I don’t know whether FB can prosper, even if it can survive the way the current model works. But, the Billions raised gives them some time to try different models. While subscription-based tiering may work, there are other models that could well work too. Not the least is Google’s advertising model, modified to fit the Facebook "mission."

  • Armando Ortega

    Facebook can exploit at least everyone of the twenty income sources described in the books by David A. Silver. Plus Denny Hatch could devise anoher 20 income streams. Problem is Facebook has thought only about advertising as an income source. Even the SOLE adertising idea could be twisted a dozen ways to make it more productive. ARMANDO ORTEGA.

  • Jon Doer

    You’re finally showing your senior moment. When advertisers are pulling out of Facebook because it is largely ineffective as a marketing vehicle (i.e., its not resulting in increased sales), it shows you that by and large, the Facebook users are cheap freeloaders who don’t buy anything.

    The day Facebook charges a fee is the day an alternative service gets launched and starts siphoning Facebook users.

    Remember when Yahoo was king and decided it was launching a premium level. How’d that work out for them? And BTW, I would bet that 1/2 of those so-called Facebook users probably only created an account to check out what a time-waster it is.

  • John Bogdanski

    Denny, you make terrific sense…

    But will Mark pay attention or will he wait until the next phenom comes along and disrupts his party?

    More importantly does he have the guts to even test your concept?

    At this point I’d wager that ego has gotten in the way and until investors step away and the stock price tumbles, it’ll be business as usual.

    Always love your take Denny.

    Respectfully
    John

  • Dean

    Hi Denny –

    Great insight and advice. I actually deactivated my FB account the day before the IPO – the reason I gave in the deactivation process: the IPO. (Incidentally you cannot, to my knowledge, delete your FB account or I would have.) How can a company that has no product be valued at over $100 BILLION??? Insanity. It’s all a house of cards. No?

    – Dean

  • JA T

    Somebody pass this along to Mr. Z. The only thing you left out of your plan was that FB should hire you to do it. I know, you’re far too modest…

  • Barbara Graham

    This is a brilliant solution, Denny. The benefit to those who pay $9/year (a great price point, by the way) would be that so much of the dreck might disappear from the site, making it easier for users to do what Facebook does best: communicate with groups of friends. I hate how difficult Facebook has become to navigate, and the continual invitations I receive to play games, send virtual flowers, etc. A paid service would hopefully eliminate this kind of time-wasting drivel.

  • Barbara

    When I was in college, the hot thing was LiveJournal (before they got sold to the Russians).

    LiveJournal had two revenue streams: Ads for free accounts and a variety of paid accounts. I paid for my account and went advertisement-free for my LiveJournal experience. If I could PAY Facebook and avoid the stupid advertising, I would.

    These days, everyone who did LJ went to Dreamwidth, Blogger or WordPress. I admit, I preferred the LJ engine and aggregator. It was just so much smoother.

  • Rick Ritter

    Denny,
    I was thinking much the same thing, except I’d charge at least $5.00 per month. Interesting idea about using snail mail, but it’s antithetical to the on-line, real time universe. Oh how I miss junk mail.