Can social network Ello stay ad-free for long?

Brand new social networking site Ello - touted as the ad-free alternative to Facebook - is confident that its promise of a non-intrusive social network will be sustainable.

The site, developed by seven designers and programmers, went live in August with just 90 users. Featuring a minimalist design, Ello has spurred internet buzz despite lacking many of its established rivals' features.

In an interview with CNBC on Tuesday, founder Paul Budnitz described Ello as a "simple, beautiful, and ad-free social network" that will "never sell user data."

Budnitz said the platform's main features will remain free, and the site will sell "special features" that users can consider adding to their accounts, such as video games and services.

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But analysts CNBC spoke to are doubtful about the sustainability of this model.

"They first have to show they can make a profit this way. Coming up with a stream of features people will pay for and not find annoying has always been a very difficult path," Rob Enderle, principal analyst at Enderle Group, said in an email to CNBC. "Eventually the features may look more like fixes for things that should have worked in the first place, and the model [might] collapse."

Even though the freemium model has met with skepticism, Ello has been able to find financial backers, raising a total of $5.5 million in additional funds to grow its business. But that's a drop in the bucket compared with other recent tech deals, such as Facebook's acquisition of ad technology firm LiveRail earlier this year reportedly for $400 million or valuations home-design website Houzz at around $2 billion.

"It was all about the control of our company and also the right amount of money with very little dilutions. To me, it's better to choose the right deal, not just the most money," Ello's Budnitz said.

Others have struggled to make a freemium model work. Videogame developer Zynga, at one time the top gaming company on FaceBook and creator of the popular FarmVille, has repeatedly disappointed earnings expectations after its initial public offering (IPO) in 2011 proved a dud. Most of its players don't pay for its games and some analysts have estimated that less than 2 percent of its monthly unique users are cash contributors.

The website of Ello, described as the 'anti-Facebook' for its stand on privacy and advertising, is seen on a monitor screen.
Paul J. Richards | AFP | Getty Images
The website of Ello, described as the 'anti-Facebook' for its stand on privacy and advertising, is seen on a monitor screen.


Four-month-old Ello has been dubbed the "anti-Facebook" and the "Facebook killer" for its stance against paid advertisements, and Budnitz believes his network can attract more users based on its features.

"On an ad-based social network, the customer is the advertiser and the user is the product being bought. But at Ello, we design features that we and the users want to use. We never had to think of advertisers and for that reason, Ello is just better," Budnitz said.

But Ello remains comparatively tiny, with its user base growing to nearly 1 million users in October, according to figures by Business Insider, making it a gnat against Facebook's 1.28 billion and Google's Google+ has 300 million active monthly users.

When it comes to poaching users, "Google+ may be an easier target because Google appears to have lost interest in the property," Enderle said.

"For Facebook, one of Ello's core advantages is exclusivity but that feature fails at the scale that would worry Facebook. However, a bunch of services that are exclusive may collectively make a general service like Facebook redundant, since it meets the needs of a well-defined group better," he added.

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Plans for 2015

Ello is marching ahead with development plans, including a redesign of its website and the launch of its first iOS and Android mobile apps. Currently, the social networking site is only accessible through desktop platforms.

"We started as a web-only desktop app because we didn't want to become another chat app or photo-sharing app. We want richer content with large format images and a close community," said Ello's Budnitz.

The founder also shed light on user growth, telling CNBC that nearly half of Ello's registered users now come from outside the U.S., even though it is based there.

"We have a worldwide user base now, with many in Europe, Asia, Australia and Brazil," Budnitz, who is also founder of luxury bicycle company Budnitz Bicycles and Kidrobot, said.

-- Chris Morris contributed to this article.


This story has been updated to remove an erroneous reference to Houzz's revenue.