Should Facebook continue to be free?

Gregory Warner May 18, 2012

Jeremy Hobson: Facebook finally goes public today in the biggest IPO in Silicon Valley history. The market valuation will surpass $100 billion; that’s more than well-established companies like Disney and Kraft. And a lot of people are wondering: how in the world can a free site like Facebook be worth that much?

Marketplace’s Gregory Warner joins us now to discuss. Good morning.

Gregory Warner: Good morning.

Hobson: So, Gregory, you know, everybody’s saying there’s no way Facebook could be worth this much. And we got to thinking:  well, what if there were to just charge users $1 a month? That would bring in some money.

Warner: Right — you were thinking, and lot of nervous investors are thinking about this — because, calculate it: just a dollar a month with that many users could net $10 billion a year, solve all of Facebook’s profit worries…
But Niklas Myhr — he’s a professor of marketing and social media at Chapman University in Orange, Calif. — he says Facebook only became Facebook by being patient with monetizing the site.

Niklas Myhr: Facebook has to look into ways to be contemporary, to be cool, to be with the times, without being too much of a moneygrabber that is trying to profit from you.

Hobson: So they can’t be cool if they’re going to charge a user fee?

Warner: Right. But here’s the other side of it: Facebook isn’t free. I mean, neither is G-mail. All these sites, when we use them we pay — but we pay in personal information that’s been sold to marketers.

So Eric Clemons, a professor at Wharton Business School, he suggests this model: some users could choose to pay a monthly fee in exchange for keeping their data private.

Eric Clemons: Facebook is demonstrating that it does provide value, it is not justifying its operating expense through selling your confidential information, but it’s indeed providing a service you can’t get anywhere for free.

Of course here’s the problem with that “brave new world,” is that the people who would most likely pay the fee are the people with disposable income whose data the advertising companies probably most want to mine.

Hobson: Isn’t it always like that? Marketplace’s Gregory Warner, thanks a lot.

Warner: Thanks Jeremy.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.