Why We Might See ‘Facebook Prime’ in the Near Future
Alarm bells went off last week when Facebook’s disappointing earnings report caused the company’s stock to drop nearly $150 billion, more than 20% of its market value, due to lower-than-expected user growth and revenue.
But valuing Facebook based on its user growth, at this point, is like valuing gold based on its shine. Facebook has more users and knows more about them than any other company on the planet. Over the years, the company has learned how to effectively match advertisers with these users. While this has unleashed the economic potential of its vast network, it has also pushed Facebook along a growth trajectory in which its innovations and progress are almost exclusively tied to ad revenue and active users.
As most progress trajectories go, this one is likely to follow an S-shaped curve, with slow but gradual initial improvement, a period of steep growth, and a leveling off with the onset of maturity. The top of Facebook’s curve may be starting to flatten out.
Perhaps it’s time for the company to start aggressively pushing alternative revenue streams that emphasize improving users’ experience over adding more users to its network.
Let’s call one of these potential paths the “Facebook Prime” trajectory: a premium subscription model that is premised on giving more value to paying users. This could be achieved by creating bundles of subscriptions to Facebook-developed games or enabling ad-free browsing. “Facebook Prime” could provide new innovative ways to create and share content, send out weekly updates on new services or perks for subscribers, or offer offline access to work and social spaces owned by companies with which Facebook has business relationships.
Facebook could also pursue a premium subscription model for businesses, in which Facebook moves beyond being primarily a social media-based marketing channel to being a long-term strategic partner. The company could use its vats of data and artificial intelligence expertise to predict trends and sentiments for different types of products and services, and even help match businesses with their target customers. Facebook could provide clients with real-time insights on how their marketing efforts are translating to sales and show clients how to integrate sales data into future marketing efforts.
Mobile payments are another enormous opportunity for Facebook, but this has lagged compared to social networking giants in China, most notably Tencent. A strong push to make Facebook’s mobile payments more popular could also create synergies with online commerce vendors operating within the Facebook network.
Facebook is certainly capable of making such a shift and is exploring several of these avenues, but the crucial question is whether it can start translating hunches and experiments into persistent strategic actions—or instead keep focusing on more ad clicks. This may be the right time for Facebook to dictate what it wants to be, rather than comply with what it has become.
Rahul Kapoor is an associate professor of management at the Wharton School.