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Therese Poletti’s Tech Tales: The era of free social media may be at an end

With tech giants under the gun to ramp up revenue and reduce costs, the era of free social media may be at an end.

In the past few months, as overall internet advertising revenue has tumbled, both Twitter and Facebook parent Meta Platforms Inc. META, +0.52%, looking for alternatives to advertisers, began offering consumers a verification service for those willing to pay a monthly fee. But it’s not cheap: Facebook is charging $14 a month to users who verify with their smartphone (to cover the app-fee costs) or $11.99 for verification via the web. Instagram is the same, and to verify both accounts, it will cost between $24 and $28 a month.

“They are trying to wean themselves from dependence on ad revenue, which is really volatile,” said Robbie Kellman Baxter, an author of two books on subscription pricing and founder of Peninsula Strategies, a consulting firm. “We have seen this already with the news industry, which has already gone through this.”

Elon Musk is also embracing the trend at Twitter, which he took private last year, and the blue check mark has been part of his strategy as he slashed costs, including laying off nearly 80% of its staff. The subscription program Twitter Blue — which costs $8 a month, or $84 a year — earned just $11 million in its first three months since relaunching under Musk, according to analytics company Sensor Tower. Twitter touts the service by noting users can edit tweets within 30 minutes, send longer tweets, see more tweets in between ads and their tweets will have prioritized rankings.

“Twitter has shown tepid success with its verification service and I think it will be an uphill climb for Zuckerberg and Facebook, but it is clearly heading into this direction, where Silicon Valley is no longer going to give services away for free,” Dan Ives, a Wedbush Securities analyst, told MarketWatch.

With earnings season starting up, and tech companies beginning to report in full force next week, Meta investors are going to be seeing perhaps the first dribbles of revenue as a result of this new strategy.

“I expect we are only seeing the very beginning of this overall trend, because they have to make up for a lot of revenue,” said Rob Enderle, principal analyst for the Enderle Group. “They realize that the customer paying them is not the one using the service.” He added that privacy changes in Europe, which may eventually be mirrored in the U.S., if Congress ever enacts any national data-privacy laws, are giving social-media companies a sample of what is potentially to come in the future.

“A lot of these services see the writing on the wall, and they are not able to sell this data,” he said.

Snap Inc. SNAP, -0.47% was one of the earliest social-media companies to begin to charge for a monthly subscription. Last July, as it was starting to see a huge drop in the advertising climate, it began offering Snapchat+ for $3.99 a month, giving users early access to new experimental and pre-release features. Over the holiday season, Snap offered discounts on its subscriptions, telling analysts in its earnings call in February that the service was still in its infancy. The company did not break out its revenue from subscriptions, only saying that it had over 2 million subscribers in the fourth quarter.

Kellman Baxter noted that for social-media companies, and especially Facebook, which started out as a free service for college students, subscriptions are really counter to the founding principles of the company. “It feels like they are going back on their original promise,” she said.

Indeed, Meta CEO Mark Zuckerberg has said — including in a congressional hearing — that there will “always be a free version of Facebook.” Kellman Baxter also said that for the current offering, consumers are not getting much, especially compared to a service such as Microsoft’s MSFT, -1.28% LinkedIn, which she said offers many benefits for subscribing to LinkedIn Premium, including the ability to directly message people who are not in your direct network, a useful tool for recruiters.

“It seems like the value they are offering is not enough to justify switching,” she said.

In his congressional testimony in 2018, back during the Cambridge Analytica scandal, Zuckerberg noted that Facebook did not have a version where its users could pay to avoid ads — which is exactly what Netflix Inc. NFLX, -2.18% and other streaming services are now offering. According to a recent Bloomberg report, Netflix’s new ad-supported tier, where consumers pay a lower monthly price of $6.99 but must watch commercials, is gaining momentum.

Netflix co-founder Reed Hastings had long promised there would never be advertising on Netflix. However, late last year he changed his tune, admitting to the New York Times that he should have added commercials years ago.

Kellman Baxter does not believe that advertising will completely go away as a key source of online revenue, but as companies grapple with data privacy and ad-tracking issues, they need to find other sources of revenue. “I cannot imagine that they completely wean themselves from all ads,” she said. “People hate inappropriate ads delivered at the wrong time. But the right ads and service can be a thoughtful.” The benefit of a subscription model, she noted, is that it is much more predictable.

Whether these first forays to subscription models will really turn into major revenue streams is still a big question. Investors will get a glimpse of whether they amount to anything when Meta and Snap report earnings over the next few weeks, and will get a sense if other companies are debating subscriptions in the near future.

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