Internet radio app Pandora allows users to pay $36 per year to remove all ads from the service. About 14 percent of Pandora’s revenue comes from this subscription service. I’m a subscriber and I happily pay the annual fee.
That got me thinking about Facebook and whether there was an appetite for an “ad-free” version — and how much revenue it might generate. An ad-free Facebook that didn’t do data-mining or target ads based on the content of posts would address many of the privacy problems and objections that Facebook is confronting right now.
It would also open up a promising new revenue stream and probably offer some “political cover” for Facebook’s privacy and ad targeting practices, which have upset consumer groups and regulators. Those who were truly concerned about targeting could pay for the ad-free version and those who didn’t object would be clearly signaling their acceptance of Facebook advertising.
In order to test potential demand for an ad-free Facebook, I conducted an online survey (n=1,509 US adults) earlier this month. I provided different pricing levels to determine how much people would pay.
Source: Greg Sterling/Opus Research (8/12)
Overall 10.3 percent of respondents said they would pay at least $9.99 annually (the lowest price point I offered) to get rid of ads on Facebook. Conversely, almost 90 percent said they had no problem with the ads and wouldn’t pay anything to remove them. Among those willing to pay, men were slightly more interested than women. And users over 35 were also somewhat more inclined to pay to get rid of ads.
If we extrapolate these figures to Facebook’s overall user base it gets pretty interesting.
Based on Facebook’s most recent, public numbers the company has roughly 182 million “monthly active” US users (out of 955 million total). If 10.3 percent of these people were willing to pay at least $9.99 per year to remove ads, Facebook would make approximately $187 million in the US annually.
I asked a few friends informally whether they would pay $9.99 annually to get rid of the ads on the “right rail” and they said “yes,” without hesitation.
The second largest group of people interested in paying to remove ads (3.4 percent) were willing to pay up to $100 per year. That really took me by surprise.
Using a hypothetical annual price point of just $19.99 — just $10 more than the baseline $9.99 I asked about — Facebook would make about $374 million annually from subscribers if only 10% bought in. Recall that Pandora’s annual subscription costs $36 and roughly 10 percent of its users buy it.
If there were a similar appetite for an ad-free version of Facebook globally (10 percent at $9.99 per year this time) the company could make something like $979 million annually. Admittedly it’s extremely unlikely that 10 percent of Facebook’s entire global user base would opt in to a paid-subscription plan.
However this exercise argues there is some meaningful demand — and therefore some serious money — potentially out there for an ad-free subscription offering from Zuckerberg and Co.