Blogs

Facebook moving to the subscription model

  • Phenomenal growth of social networking in the new millennium
  • The success story of the world’s largest social network
  • Competitors of Facebook
  • Why did Facebook decide to foray into subscription model?

 

Facebook, the company or more precisely the social network need no introduction. It has finally decided to launch a subscription-based service for its users. In this blog, Televisory has tried to explore the reasons for this move.

Facebook, no doubt is the world’s largest social network with a market capitalisation of $600 billion and 2.129 billion monthly active users. However, the platform has been free for its users since the inception. Facebook earns almost all of its revenue from advertisements displayed by businesses to its users while they browse through the Facebook. It is, therefore, obvious that a high number of daily active users and more time spent by users on the platform will result in a higher revenue-generating potential for Facebook. Understandably, the success of Facebook lies in keeping its users engaged and addicted to the website.

But, why would a user want to login into Facebook every day? What would make a user spend most of his or her leisure time on Facebook?

Facebook as a social network, which helps people to keep in touch with their friends, relatives and acquaintances. The concept of social networking began in the new millennium with the launch of websites like Orkut and hi5, long after the internet came into existence. The concept of social networking helps long lost friends to connect. People feel happy to get in touch with their friends and relatives they had lost contact with. However, what sets Facebook apart from other social networking sites are additional features such as regular updates on one’s Facebook friends’ activities, the ability to upload unlimited pictures, liking and commenting on friends’ pictures and updates. Facebook was able to beat its competitors through these added features and achieved deep penetration around the globe. The below chart shows that the daily active users on Facebook increased at a steep pace from 0.62 billion (2012) to 1.4 billion (2017). Further, users enjoy to spend time on Facebook and upload quality pictures for likes. Users post updates on their recent excursions, like and comment on updates of their friends and watch shared videos. The increase in the number of users and the time spent by them brought in more advertisers to Facebook and resulted in a steep increase in revenue for the company. Facebook’s revenue increased eight-fold from USD 5.09 billion to USD 40.65 billion over 2012-2017 with advertisement income contribution to the total revenue increasing from 84% to 98% during the same period.

Additionally, the time spent by users on Facebook is more for entertainment (apart from developing a social network to stay in touch). The primary competitors of Facebook are websites with large daily active users, where businesses can place advertisements. The secondary competitors are other online sources of entertainment, where users would like to spend their leisure time. Finally, the last level of competitors for Facebook are other social networking websites and applications. Facebook does not have a well-defined purpose and it can be used by people for a broad spectrum of purposes other than creating a social network such as dating, watching photographs, forming a community of people with like-minded interests and spreading knowledge. The needs served by Facebook are also served by competing businesses which specialise in serving those specific needs. For example, LinkedIn, the competing social networking website operates in a niche segment and serves the purpose of connecting professionals and also serves as a job search portal. Uploading photographs and viewing photographs of others in the network can also be done on Instagram, which specialises as a picture sharing platform and allows users to edit photographs to make them look more attractive. The messaging applications such as WhatsApp and WeChat help people remain connected through the internet. Online video streaming for entertainment can be done on specialised websites such as YouTube and Netflix. Quora has emerged as a knowledge sharing platform that seeks information through crowdsourcing. These alternate platforms are growing in terms of the number of users and this poses a challenge for Facebook to ensure that its registered users continue to spend their time on Facebook to sustain its growth. One way to do so would be to offer something unique or different like its competitors. It is possible that the same person may use YouTube to watch videos and Instagram to post pictures, though Facebook provides the medium for both the activities. This is so because YouTube and Netflix have a much larger collection of videos than Facebook and Instagram offer innovative ways to upload and view photos and videos with better quality. The same user would use LinkedIn if the purpose of networking is purely professional as LinkedIn specialises in professional networking, although the same can be done on Facebook as well.

Moreover, Facebook took a strategically right decision to acquire its competitors; WhatsApp and Instagram. WhatsApp was acquired in 2014 for USD 16 billion and Instagram in 2012 for USD 1 billion. The number of monthly active users on Instagram has grown from 1 million (Dec. 2010) to 1 billion (Apr. 2018). In case, Facebook had not acquired Instagram, it would have posed a strong competition to the Facebook today. The acquisition of these competitors has helped Facebook to sustain its growth. However, these acquisitions were pricey and also to an extent reflect Facebook’s inability to bring something innovative to satisfy the needs of its users. YouTube with 1.5 billion monthly active users is currently offering a tough competition to Facebook. In response, Facebook has also launched Facebook Watch and the IGTV on Instagram. However, YouTube is owned by Alphabet (Google) and the synergies associated with Alphabet poses a threat of surpassing Facebook’s active users count. 

Though Facebook is a social networking platform, it is used more for entertainment and it is the time spent on entertainment that contributes to the revenue of Facebook. It is not in the interest of Facebook to ignore the alternative sources of entertainment that are gaining traction. Therefore, in a bid to search for alternative sources of revenue, Facebook has decided to launch a paid subscription-based version, in addition to the free one. This would be similar to LinkedIn, which has a free basic account and a paid premium account comprising additional features. How would Facebook distinguish its paid account from the free account? The charges for its paid account and the most important, how many users would choose the paid subscription? Is yet to be seen.

Your Rating

Slack set out to kill E-mail

Started as a side project for internal use in a gaming company High revenue growth with recurring revenues Went Public by offering shares through the Direct Public Offering ...

Will the Big Bang merger drive, of Indian Public Sector banks, provide the required impetus to the slowing economy?

India’s Government announces plans to merge 10 of the country’s public sector banks Probable impact of the mergers   India’s Finance Minister, Nirmala Sitharaman,...

Is Mothercare on the verge of collapse?

History of Mothercare What went wrong? Company moved into administration   Mothercare, an iconic brand for babies, children and parents to be, went into...

Rapidly growing Indian online food delivery industry and its unrealised profits

Evolution of online food delivery industry in India Geographical penetration and scope for expansion Key players and their zeal to balance revenue and costs   Online...

Tire manufacturing industry, analysing the cost and margin trends

The global market for tire manufacturing stands at $180 billion. Michelin anticipates the long-term demand to rise at the rate of 5 to 10% a year in developing markets and 1 to 2% a year in mature...

An analysis of Malaysian rubber glove industry

How big is the international rubber gloves market? Reasons behind the healthy and steady growth Malaysia’s role in the industry Why are companies struggling for stable...

Failure of Amazon in China, an analysis

E-commerce market in China Online consumer product retailers in China Performance of Amazon in China   Amazon is a global e-commerce player selling a wide...

Can lithium-ion anode demand for needle coke reduce availability for electrode players?

What is needle coke? Uses of needle coke Lithium-ion battery manufacturers demand needle coke   Needle coke? Needle coke is a specialised form of petroleum coke...

Is the radio broadcasting industry in the U.S. dying? An analysis

Radio, the most powerful medium of reach in the U.S. Why the industry is moving at a slow pace? Radio’s health is still sound, will it continue in the long-term?   ...

Carbon black industry, strong potential for supernormal profitability?

What is carbon black? Its uses Impact of the environmental curbs in China   What is carbon black? Carbon black is a fine carbon powder and it is a disorderly...

Indian wood panel industry, growth drivers and present trends

Current market scenario in the Indian plywood industry Growth in the housing sector and rapid urbanisation to provide the boost GST rationalization to reduce price difference...

Housing finance market in India. Is affordable housing driving the growth?

Overview of the housing finance sector in India Key players dominating the segment and their dynamics Factors driving aggressive demand for housing   The housing...

Rice industry outlook 2018

Major rice producers and consumers Global rice trade Factors dominating the trade   Rice is the 3 rd largest produced agricultural commodity in the world, after...

Sri Lankan economic and political crisis

Sri Lanka’s latest political crisis, who governs the nation? Poor economic indicators adding to the nation’s woes   Sri Lanka is currently embroiled in a political crisis,...

Blockchain, an emerging concept, a disruptive technology (Part 1)

What is blockchain? How is blockchain revolutionary? Cryptocurrency, the new money ICOs, the new way of raising money Summary Blockchain is a software architecture...

Malaysian rubber glove industry, an update

Rising global demand for gloves Impact of USP 800’s implementation and the US-China trade war on Malaysia’s rubber gloves industry Key challenges for the Malaysian rubber...

Rise of Ant Financial, will the success story continue?

What is Ant Financial? Journey to become king of unicorn Will regulatory curbs hinder its success journey?    Ant Financial, an affiliate and integral part...

Battle for the textile and apparel industry in Southeast Asia

The reasons for China’s decreasing presence in the industry Initiatives by the governments in Southeast Asia to boost the textile trade Vietnam and Bangladesh’s quest to conquer...

Unnoticed growth of the media and entertainment industry in India

Overall industry brief Growth of the M&E industry and its segments Major supporting elements of this growth   Media and Entertainment (M&E) is a very wide industry...

Education industry in India, an overview

Growth of private universities in the nation Future potential of the education industry in India   The education sector in India is estimated to be worth USD 91.7 billion...