If they won’t pay for Facebook, they won’t pay for your city hall reporter

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If they won’t pay for Facebook, they won’t pay for your city hall reporter

I gave a talk to a high school in Toledo on Friday, which gave me a chance to do some ad hoc focus-grouping of how teenagers engage with media. (To put the demographics in perspective, this is a private school that, beyond some scholarship kids, is mostly upper-middle class and up.) We covered a lot of interesting ground: They don’t care much about blogs or Twitter, for instance, and they get more news from The Daily Show and Colbert than anywhere else.

But the most surprising topic we covered was Facebook. Well, it wasn’t a surprise to learn they live on Facebook; the consensus was that they spent about 60-90 minutes each night on the site, not counting the midday checks at computers in the school library or on their phones. These kids (there were about 80 or so) are smack in the middle of the Facebook demo. But here’s what surprised me:

I asked them what they would do if Facebook announced tomorrow that it now cost $10 a month. Not one teen was willing to pay.

This, after we’d spent 20 minutes talking about their well-nigh addiction to Facebook, about the way their entire social lives revolved around it. Despite all that, despite its centrality to their lives, they were willing to toss it aside because they wouldn’t pay $10 a month. (And remember, these are well-off kids — they could afford it.)

So if they all had Facebook taken away, what would they do?

— “We’d go to MySpace or something.”
— “Something new would come along to take its place.”
— “We’d just IM or text more.”
— “Maybe we’d all be on Twitter.”

In other words, these kids have complete faith in the availability of a substitute good — that is, something else that would come along, serve as a decent Facebook surrogate, and be free.

Why would they have such faith? Because the Internet has proven that faith right so far. There’s always something newer and better coming along, and it’s been free.

So, I ask you: If these kids aren’t willing to pay for Facebook — something they engage with every single day, something they love, something they have already invested countless hours into to build up a network of friends and apps and what have you — what’s the chance they’re ever going to pay half a penny to read a news story?

To me, what those kids are telling us is that the barrier to charging even small sums is extremely high online — and it’s higher the younger you are. If you’ve grown up in a free online environment, paying for digital content isn’t just a pain — it’s unthinkable.

Which is why I think the debate over micropayments really should be a debate over macropayments. If only a small fraction of people are willing to pay for news, then why bother charging them a fraction of a penny? I suspect the future of news will involve a lot more $200-a-year payments from the small fraction of the audience that is willing to pay than tiny payments from the masses.

The masses aren’t going to pay for anything.

[Addendum: Since iTunes always comes up whenever payment models for news are discussed, I asked them about that too. About 80-90 percent of the kids said they had illegally downloaded music. But some had also used iTunes to download music legally. Why?

— "My iTunes account is connected to my dad's credit card."
— "I got an iTunes gift card and I had to spend it."
— "It's easier to find stuff on iTunes, and you get the album art."
— "There was an EP from a band I liked that was only on iTunes."

Those last two comments were the only ones I heard that involved kids actually paying for something via iTunes. So ease of use, searchability, and exclusivity are all good things when trying to sell content online. But they still only appeal to a small minority.]

What to read next

Mark Coddington February 3, 2012

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Plus: News Corp.’s growing scandal and Rupert Murdoch’s Twitter candor, the hazards of Facebook Subscribe, and the rest of the week’s must-reads.

http://blog.jeffreymcmanus.com/ Jeffrey McManus

What you proved here is not that consumers aren’t willing to pay for web sites, but that they’re not willing to pay your arbitrarily-selected price point.

At $1.99 a week, the Wall Street Journal (that great white hope of for-pay news sites) actually costs less than the price point you proposed, and its target audience is millionaire stock traders and captains of industry — people whose avocations don’t typically include eating Top Ramen out of a styrofoam cup.

I’m willing to bet that good chunk of Facebook users, perhaps a majority, would pay if the site were, say, $1 per week or $52 per year. But that would cause to cause a fundamental change in Facebook’s business and it would greatly reduce its value. We don’t have to guess about what this would look like — we need only look at Classmates.com.

People aren’t just Facebook’s customers, they’re also Facebook’s inventory. Facebook can’t monetize their business by throwing up walls and barriers to entry. And this could be true for news sites as well.
http://www.niemanlab.org/ Joshua Benton

Actually, I didn’t mention it in the post, Jeffrey, but I asked them if they would be willing to pay anything, just to see if $10 a month (vs. your proposed $4.33 a month) was too high. They weren’t willing to pay anything. Not a penny.
Tom Davidson

I know you were being gentle with your language, Joshua – but the availability of a substitute good is not an article of faith, but a demonstrable result of economics.*

If there’s value in amassing an audience AND IF the cost of reaching that audience is LOWER than that value, then someone will provide the substitute good.

(People far better at economics than I could write the appropriate equation. In the words of one of my old econ professors, however, there are two kinds of econ students: Those who get the equations, and those who only get the pictures/charts. I only get the pictures ;-). )

*I offer this not to brag (hey, among econ geeks, being unable to decipher the equations is considered embarassing), but to try yet again to drive the stake into the heart of the paid content argument. Too many people argue this as a religious issue or philosophical disagreement. It isn’t. It’s economics – and the economic principles make it extremely unlikely we’ll find any model that will generate significant revenue from consumers directly.
http://www.niemanlab.org/ Joshua Benton

You’re right, Tom. And I think the substitute-good issue goes to the heart of the paid-content debate. Because I think a lot of it is based on different ideas of what the substitute good can be.

Let’s say you cover city council for The Toledo Blade, as I did years ago.

Is the appropriate substitute good “stories about Toledo city council”? That is: Is the issue whether someone can produce Toledo city council coverage at a lower price than you can?

Or is the appropriate substitute good “something that can fill a Toledoan’s time and attention for five minutes or so”?

A lot of reporters tend to argue the former; I think for the most part it’s the latter. Most people have always viewed stories about Toledo city council as something entertaining or interesting to fill a slot of their time. That slot can now be filled with a gazillion other things, for free, online.

I think the number of people who really, really care about Toledo city council is a small fraction of the total audience. What, maybe 5%, tops? Which is why I think if news orgs are going to charge for things online, they can only do so through targeted products or services that go after the small fraction of their audience who actually care about the news qua news.

Anything that tries to get the large majority of readers to pay (like most micropayment plans) just won’t work — there are too many free options.
http://nonvivant.com John

But users create the content on Facebook, and free alternatives are available because a business like that can live off advertising.

Is that really going to apply to newspapers, where content is only undervalued because there are still places offering it for free?
http://www.patthorntonfiles.com Patrick Thornton

$10 a month is a cubic crapload of money. There are not many things I’d be willing to spend $120 a year on. But how about $10 a year?

But charging for basic content doesn’t work on the Web.

Rather, I’d be interesting in knowing if some of these students would be willing to pay for premium features. Facebook rivals Flickr for the amount of photos on it. Yet, Flickr has a premium account they make money off of, while Facebook does not. This is clearly and area where Facebook could make money.

Why not charge for the ability to store more photos (say over 500 or something along those lines). Or how about charge for the ability to store full-resolution photos. This would make Facebook into a defacto online backup solution for photos. I would also aggressively pursue a way to sell photos, photo albums, etc on Facebook.

There is money to be made off of Facebook. But if you think charging for the basic service makes sense, you’re crazy. That’s not how you make money off the Web.
http://www.patthorntonfiles.com Patrick Thornton

Excuse my poor English in the last post.

I believe Facebook is weighing different ways to make money besides advertising. In fact, Facebook is still hammering out what kind of social network it ultimately wants to be. But I wouldn’t compare a startup culture to that of an established business. Many Web startups resist trying to seriously monetize their work for years, because first they want to build as big of an audience as possible.

You have to keep in mind that Facebook suffers if there is a barrier to entry for those creating content — the users. Whereas newspapers are the opposite.

But I believe that premium content/features are the best way to make money off the Web beyond advertising. Newspapers should figure out what people are willing to pay for, rather than trying to force people to pay for content that they clearly don’t value.
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Sergio Bustos

Joshua:
I suppose it’s not surprising.
I think the best newspaper model for the Web might be some kind of PBS-like sponsorship model.
Perhaps establishing a non-profit organization and then finding an advertiser/sponsor willing to support your journalism venture in exchange for appearing on every page of your site.
But the problem is that you cannot possibly have the kind of current staffing now available at most newspapers. Yes, even in these turbulent times, newspapers have lots of staff producing a print and online product. That, of course, is rapidling changing.
The model I’m suggesting has to be small. I’m saying a staff of say five or six reporters, a pair of editors, a web person (programmer). And the web site has to be focused on a clear subject like government, crime or schools.
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http://kencarpenter.com Ken Carpenter

I asked my Mass Comm 101 class at Valencia Community College a slightly different question — “How much would you be willing to pay, per year, to keep your Facebook or Myspace account?”

The majority answer was zero, but some students said they’d paid $10 or $15 a year. One said she’d pay $60. I said I’d pay a dime a day — $36.50.

Then I challenged those who said zero. “You’re all liars,” I said, “because most of you would not cancel your account if they charged a small fee. If you would, go on there right now and cancel it.”

No one was willing to cancel. “So now you’re telling me the account has some value.”

If Facebook has 175 million members, and it institutes a $10 annual fee, that would be $1.75 billion. Of course, they would not retain 100 percent of its membership. But if 75 million cancelled, they’d still take in $1 billion in revenue — without lifting a finger.
http://blog.jeffreymcmanus.com/ Jeffrey McManus

>>> I’d be interesting in knowing if some of these students would be willing to pay for premium features

They do that today. It’s called digital gifts. A venture firm estimates that this is a 35 million dollar annual business for Facebook — more than 10% of the company’s current revenue.

http://lsvp.wordpress.com/2008/09/02/facebook-selling-digital-gifts-at-a-35m-run-rate/
Dean Miller

Morph Carpenter’s remarks with Benton’s and you’re about right: people WILL pay for service, but only if there’s no suitable freeby alternative.
And that’s where traditional news is screwed. As long as a few outlets continue to give it away, the rest have to follow.
http://www.niemanlab.org/ Joshua Benton

Dean, and that’s why I’m worried — because I don’t think the universe of potential freebie alternatives isn’t “other quality journalism about my community,” or even “low-quality journalism about my community.” I think for a lot of people it’s “something marginally interesting to fill 10 minutes a day.”
Tom Davidson

Sergio – long time, no jabber.

You’re onto something. With the right six people, you can raise a considerable amount of hell. I can’t prove it, but I suspect you could even cover your expenses with sponsorship ads (without resorting to the PBS/NPR-style beg-a-thon twice a year). I’d humbly suggest ditching the editors. Treat it like my first small daily: edit each other, everybody writes.

That gets at the real frustration of the paid-content debate, however: The argument that we must save newspapers – complete with their existing organizational structures, which were driven by print production cycles and monopoly economics. (You might recall certain deputy managing editors in charge of lunch and rearranging furniture at that Former Shop of Ours.)

Happy to bust hump to save journalism. To save newspapers? Not so much.
http://www.marketingtactics.com Dave Barnes

So, let’s say that Facebook starts to charge a measly $10 USD per annum to be a member.
Let’s assume that many “members” will pay the money.

Then, let’s assume that 6 clever Indians figure that they can duplicate Facebook and make a good living from the adverts.

Overnight, with the speed of light, Facebook members will move to the new site. No one cares who created it. No one cares where it is hosted. Free is better than paying.
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http://www.caveon.com Don Sorensen

Reading this post started a very interesting conversation with my children. I asked them the same question: Would you continue using Facebook if you had to pay monthly? I got back the same answer: Nope. They (just like the Toledo students) thought that if that were to happen some other Internet startup would jump in to fill the [free] space. For a generation the Internet is completely synonymous with FREE.
April

I think you are totally off on this. I’m an adult and I won’t pay for Facebook either. You are correct when you say something else will come along that is free. Yes. And I do acknowledge that kids today are a different generation. They believe in different things and see the world entirely different than we do. They are willing to chance alot of things and tend to jump to things rather than settle down and stick to something. However, facebook is about relationships more than anything. The games are okay but this is just a different way that young people can connect. Just because they aren’t willing to pay for something like Facebook, doesn’t mean they won’t pay for something as important as what you mention here. Asking them the right questions would net you better results than doing what I suspect happened here. They are young people and they connect. They will do it either at the mall, on the streets, schools, etc but they WILL do it. What you are discussing is totally different. Apples and oranges. There is alot of blind judgment going on from the perspective that young people talk alot different now. Their definitions of things are totally different than the older generations’. They don’t mean the same thing anymore. This article sounds a bit biased and not unbiased which it should be. But I suspect it was to just lend credence to your ideals or agenda rather than getting down to the true core of what Facebook is to the members.
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http://www.mb-blog.com Nigel Hollis

Interesting discussion. I raised the same issue on my blog but used a different price point – $10-20 a year – and got a less one sided response. A follow-up survey suggested that there is a minority of people who would be willing to pay for access to Facebook if it was ad free. (Post with results can be found here: http://www.mb-blog.com/index.php/2009/03/09/help-facebook-find-the-money/ ) As Ken Carpenter suggests we have to be careful taking people’s comments at face value, the more friends you have on Facebook the greater the barrier to exit. Not all of them are going to follow if you jump ship for thelatestsocialnetwork.com and few people will take that into account when answering the question about payment.
http://www.myspace.com/chrisparkermusicnc Christopher

I think you’ve missed the point here a few times:

I’m 33 and have used facebook since 2005 (I went back to college then). It was free and was a great tool for communicating with my fellow classmates (it was only college students using it then I believe). Over the last year or two, there has been an explosion in the number of people using FB, and it is still free. It’s been great getting to talk to old friends I haven’t talked to since graduating high school in 94. But if FB were to charge, I wouldn’t pay.

Imagine for a minute that you were to eat at a restaurant every day for 4 years free of charge. Then one day you walk in and have to pay. Well, for me, I wouldn’t pay because I could just go buy the food myself and cook it. I rarely ever go out to eat because I can cook better and healthier than most restaurants…and the ones that do cook better than me are way too expensive for me to spend on a regular basis.

Even though people do pay to go out to eat, there is something about suddenly not being able to eat for free at this one place that has ALWAYS been free. I know people who don’t eat in a restaurant when they raise prices…simply because they were keeping up with inflation! So suddenly charging for something that was previously free is a tough hurdle to get over.

Not to mention that with FB, if they started charging there would be other sites that would start (not to mention current sites that are still free) that people would go to. Many of my friends belong to other sites already as well.

Also bear in mind that long before FB came along, there was classmates.com. Sure you can join for free, but in order to send and receive messages you have to pay for a membership…or the other person does….at least one person must pay. A lot of people have registered on there for free, but they did not bother to pay for a membership because they don’t see the point. Why pay to talk to people you haven’t seen in 15 years…you still talk to you good friends and those others just fade away (as has been tradition for years as people grow and move).

Now, take a look at music. Sure, most people have illegally downloaded a free song or two. Some have illegaly downloaded TONS of free songs. And there are a very small minority of people who illegally download and NEVER pay for music. Most people don’t have a problem paying for digital downloads or buying CDs. Why? Because there has always been a cost to buying CDs…and some people like buying digital music because you can pay $1 for that one song you want instead of $20 for a whole CD that you aren’t going to enjoy. What about those that never pay? Well there are thieves that never pay for food or clothing. There will always be someone who steals.

The point I’m trying to make is that people don’t want to pay for something that was previously free. If there had always been a cost to use it, then people would be more willing to pay. But not when you add a cost to it.

Look at email as well. I have a few yahoo accounts…one is my personal email. Another is one I use when I sign up for anything so it gets the spam. Another is one I use while job hunting. I have three because they are free. If Yahoo were to start charging, I would simply use the email provided by my ISP or my college. I wouldn’t pay for an additional email and I’d just deal with the spam like everyone else.
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Sandy

okay, i offer one word – marketing. the right marketing campaign will make kids buy anything at any price…even facebook. but i agree, its not in facebook’s interest to charge….
http://www.unionroom.com WDN

I think a lot of people would go back to MySpace, although I think a charge of $10 – $20 per year wouldn’t turn off a lot of people for advanced use.

We just wrote about this on our blog http://www.unionroom.com/blog/would-you-pay-to-use-facebook/
Johnathon

I think the term everyone is hitting around, in regards to Facebook, is “unnecessary convenience”. It is a convenient way of connecting with friends, but, with the many options available, it is totally unnecessary.

Thus, it only exists because it is free and convenient. But, because it is a totally unnecessary in making connections, and this generation understands that, it ceasing to exists or the equivalent via charging would not phase them one bit.

And I use the term necessary because this generation has a very narrow definition of necessary. This generation was raised to believe that to prevent the world from destroying itself, they would have to sacrifice a lot of things that older generations take for granted as necessities. As they age into adults, they are living a lot more streamlined lives than older generations.

Raised to work as teams, they don’t see a necessity for privacy. Raised with collective mentality, they don’t see a necessity for getting their own place. And, living with instant communication via numerous avenues, they don’t see the necessity for paying for information. Landlines are a thing of the past and TV is a dying breed, so, why should traditional newspapers have a hope.

Not burdened with the older generations rigid concepts of what is necessary, and with the usual vitality of youth, they are much more flexible and adaptable. Thus, they are very confident that they can either create it themselves via other avenues or survive without.

Unnecessary convenience.
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Scribbler

Seems to me you’re all trying to analyse to death something that’s very much alive and kicking, if the mix is right.

Look again at the last two kids’ comments on Benton’s blog:

“It’s easier to find stuff on iTunes, and you get the album art.”
— “There was an EP from a band I liked that was only on iTunes.”

So while they’d sooner have it for free they’ll pay if it’s exclusive, or the best.

It’s always been that way.
Simon

Hello,
I think you’re grossly mistaken in your assumptions. The reason that kids won’t pay for facebook is because there ARE other alternatives. Why should we pay for something that was once free?

I believe it is patriotic of them to act as such. If you remember the times leading up to the revolution, taxes were being imposed on the colonists where there had been none before.

In this day and age of electronics, a 10 year old can make a website. I’m a junior in college, majoring in Aerospace Engineering, and I guarantee you that I could make an alternative to facebook in a month. The source code is out there, its not that hard.

The push in IT is towards FREE. Google has an entire suite of free apps, open office and ubuntu are completely free. why shouldnt facebook be the same?
Simon

Ken Carpenter:

You’re argument is flawed. The fact that nobody would cancel their accounts when you told them to does not mean that they were liars. It means that they haven’t been charged for facebook usage yet…

I don’t think that any of you understand the point of facebook. Kids like it because the emphasis wasn’t on adults, and payment was never a factor when it was created. It was a place where you could exist without your parents, without the economy, without trouble.

That iss why people left myspace, and that is where facebook is going now, and that is why it is having economic troubles.
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