Since the Cambridge Analytics data scandal, there have been calls for Facebook to develop a premium business model — users who would pay a subscription fee to shield their data from advertisers. Consumers are more serious than ever about protecting their data from tech companies. On Thursday, California passed a digital privacy law giving consumers more control over their personal information online. This new law is one of the most significant regulations overseeing the data-collection practices of technology companies in the United States.
While Facebook founder and CEO Mark Zuckerberg hasn't ruled out the idea of a premium Facebook, he has indicated he doesn't see how a premium version of the social network would ever become its primary global business model.
The latest CNBC Millionaire Survey shows why Zuckerberg isn't jumping on the idea. Even among the wealthy, the majority of Facebook users have no interest in paying for it — 83 percent said they would not pay to use the social network.
The CNBC Millionaire Survey was conducted by the Spectrem Group in April to assess the investment attitudes and behaviors of U.S. millionaires. It studied 750 Americans nationwide with $1 million or more of investable assets. Respondents were both male and female with political affiliations to the Republican, Democratic and Independent parties.
There is money to be made. Some wealthy Americans indicated they would pay $15 or more a month, but only in a minority of cases. The millionaire survey found that Facebook premium revenue from the U.S. affluent market could reach roughly $100 million annually, but for a company on track for $50 billion in revenue this year, there’s little impetus for a major shift in revenue focus.
There are approximately 11.5 million millionaire households in the United States, according to Spectrem Group. Seventeen percent of millionaires disclosed that they would be willing to pay per month in exchange for personal data privacy on Facebook. Millionaires were willing to pay anywhere from just $1 a month to $15 or more a month. Based on the number of millionaire households — and assuming a millionaire willing to pay $1 to $4 a month would also be willing to pay $15 or more a month — that represents a potential revenue range of roughly $25 million to $100 million annually.
As an example, if Facebook charged $10 a month for a premium account, or $120 a year, the company could raise revenue of $90 million dollars, based on the X percent of millionaires who said they would be willing to pay for the service.
The North American market remains the revenue juggernaut for Facebook, with just under $5.7 billion booked in the first quarter and almost double European revenue, which is the second-largest source of revenue globally. North America also is the outlier by ad revenue per user. Facebook reported worldwide per-user advertising revenue of $5.45 in Q1 2018, versus $23.14 per user in the United States and Canada.
“Facebook makes about $50 billion a year in advertising revenue; $100 million would be a rounding error,” said Daniel Ives, chief strategy officer at GBH Insight, which covers the stock.
Ives said that there is a “less than 15 percent chance” that Facebook would consider the premium model in the United States.
On Thursday, Facebook released a transparency update for users to gain greater understanding of why they see certain ads and who is paying for ads.
At Zuckerberg’s testimony on Capitol Hill in April 2018, the Facebook founder and CEO said, “There will always be a version of Facebook that is free.” He added, “In general, we believe the ad model is the right one for us.”
Ives said a premium model might prove more popular in Europe, where privacy regulation is more strict and privacy concerns are greater. Ives thinks the damage from the Cambridge Analytics data scandal has been contained in the United States — Facebook shares reached a new all-time high after the scandal headlines waned — but Facebook might consider this model overseas due to regulatory pressures, possibly by late 2019, Ives said.
In Europe, Facebook’s revenue per user in Q1 2018 was $8.01.