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You are here: Home / Business Briefing / Facebook Paywall Seen as Unlikely
As IPO Nears, Facebook Paywall Seen as Unlikely
As IPO Nears, Facebook Paywall Seen as Unlikely
By Adam Dickter / CRM Daily Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
PUBLISHED:
FEBRUARY
02
2012
As Facebook heads toward its IPO destiny on Wall Street, speculation grows over whether the world's leading social network can and will continue to offer its service for free.

The company has long boasted that it's "free and always will be," even featuring that phrase on its sign-up page.

Meeting Expectations

But will that change when investors start demanding even bigger returns than Facebook can provide from their current application partnerships and ad sales, which generated a $1 billion profit last year?

"Typically, investors put new pressures on a company that the company is not ready for," said technology analyst Jeff Kagan. "Investors always mean there are too many captains on the bridge. Do you focus on the customer, on the competitors, on the workers or on the investors? This is where many companies get it wrong and end up in trouble."

Even a $1 fee per month from what Facebook says are 850 million users would bring in more than $10 billion a year, offsetting operating expenses to maximize profit from traditional revenue streams. How many people addicted to sharing status updates and other information with their network of friends would bail rather than pay that nominal fee?

Alternatively, Facebook could set up a premium service, similar to Microsoft's Xbox Live membership that offers enhanced features over the free membership. Many newspapers now offer additional services and content behind a paywall.

Rumors Swirl

Paid Facebook accounts would run contrary to the path of Internet trailblazer America Online, which started out with a range of account levels based on time spent online and is now free.

Perhaps because the progression seems so natural, rumors have long persisted that paid use is right around the corner. A viral hoax spread via status updates last fall said the new Timeline changes coming to user profiles would usher in membership fees.

There was also a hoax about a Facebook premium as far back as 2009. Facebook Chief Operating Officer Sheryl Sandberg told BusinessWeek then that "we are not planning on charging a basic fee for our basic services. That question stems from people thinking we're growing so quickly, we're running out of money. We're growing really quickly, but we can finance that growth."

More People are Paying

The Web site VentureBeat speculated on Thursday that Facebook might well be considering a paywall, given the success in 2011 of companies from newspapers to Netflix, Hulu and digital music service Spotify.

"As apps, add-ons, and subscription sites continue to populate the zeitgeist, it seems people are less averse to paying for quality content," said VentureBeat's Jeff Tinsley.

But Kagan said Facebook's Mark Zuckerberg and his management team won't necessarily be swayed by those pressures.

"I think they will simply ignore whatever they don't want to focus on and stay on target," Kagan said. "That is based on the youthful nature of the CEO and executives who don't think of money the same way as investors."

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