10 min read

Shifting Social Media Incentives with the Subscription Model

The individual cost for a free service may be unquantifiable, but the societal damage is undeniable. The ad revenue model skews the incentives for tech platforms to optimize for engagement, even if it’s at the cost of public health.
Shifting Social Media Incentives with the Subscription Model
Illustration by Carlos PX (http://payforlayers.com/)

Hello all! Remember when I said in my last post that I would post every 10 days? Yeah...I already fumbled that goal a bit. BUT, I've reframed my goal to write for 4 out of the 5 weekdays (anything on weekends is extra) to build momentum and to focus more on writing as opposed to publishing. This past week went well (hence, this blog post), and I'm now crossing my fingers for the weeks to come.

I hope you enjoy this one, and as always, share it with a friend if it gets you thinking!

In 2019, the Netflix documentary, The Great Hack, unveiled the Cambridge Analytica-Facebook data scandal. The documentary reveals how data, through influencing elections and instigating social dilemmas, can be weaponized for political gain.

The following year, Netflix released The Social Dilemma, the documentary/docudrama alarming viewers of the deleterious impacts of social media platforms on public health. In the film, tech experts reveal that these social media platforms are designed to fragment our attention and manipulate our biological reward systems.

There is obvious thematic overlap between these two pieces. Big Tech has weaved itself in the fabric of our reality, and we must consider the repercussions of allowing these forces to operate unencumbered and in such ubiquity. The two films not only expose many of Tech’s pernicious activities, but their box score success also highlight a growing public dissatisfaction and distrust for these companies.

Social Media Dissatisfaction and Distrust:

A 2021 Washington Post-Schar School survey  found that across a random sample of 1,122 adults in the United States, the majority did not trust social media platforms such as Facebook, Instagram, TikTok, WhatsApp and YouTube (72% distrust to 20% trust, 60% distrust to 19% trust, 63% distrust to 12% trust, 53% distrust to 15% trust, and 53% distrust to 35% trust, respectively).

Percent of internet users who trust/distrust technology companies.

This distrust has resulted in most Americans thinking that the government should do more to regulate how Internet companies handle privacy issues (from 38% in a 2012 Pew survey, to 64% in 2021). Unsurprisingly, 64% of Americans also believe that social media has a negative effect on the country.

Of this 64%, roughly 3 in 10 believe misinformation is the main reason they think social media has a negative effect on the country. This has lead to many discussions of social media censorship and fact checking, a topic which I attempted to unbiasedly address in a previous blog post.

Other main contributors to social media’s negative effect that users identified include extremism, negativity, polarization, and privacy. On face value, these issues may appear disparate, but like how nausea, fever and shortness of breath can all be symptoms to a single illness, these societal issues are indicative of pervasive social media incentives.

Internet users main reason they think social media has a negative impact on the United States.

The Attention Economy and the Ad Revenue Model

While Americans have a wide range of reasons to distrust social media platforms, these issues can be grouped as a byproduct of the attention economy. The attention economy defines the market competition for tech user’s dwindling attention. More attention guarantees more advertisement views which equals more money. The unfortunate reality is that maximizing attention leads to detrimental social outcomes: addiction, psychological harm, and virtual echo-chambers that fuel polarization. As companies deploy techniques to keep us engaged in their services—endless recommended content, alerts of a friend’s activity and auto-playing videos— we inevitably become the product of these platforms.

Social media usage has proliferated since the early 2000s with the ubiquity of personal mobile device and ease of access. The ad revenue model has allowed social media platforms to provide their services for “free”, further promoting frictionless product use. As social media becomes more inseparable with daily life, the platforms benefit from the social repercussions of opting out and the few barriers that exist for social media usage. We’ve accepted that the cost of addicting and temporary entertainment is our time and attention. But it’s not a transaction, it’s a robbery. The ad revenue model promotes platforms to exploit our reward systems to bring us back to apps, and once we’re there, takes hold of us with environments that value engagement time more than user wellbeing. It’s a flawlessly wicked system that racks in billions in revenue.

Facebook, the most widely used social media platform worldwide, boasted 87 billion dollars in revenue in 2020, 97.9% of which was generated from advertisement revenues. Twitter, one of the smaller major social media platforms, generated 86.3% of its 3.7 billion dollars in revenue from advertisement in 2020. With advertisements as the overwhelming source of revenue, it’s no surprise that platforms have devolved into greedily maximizing activity and engagement at our cost.

Shifting Platform Incentives with the Subscription Model

A daunting, but possible solution would be for social media platforms to shift away from advertisements and adopt a subscription-based business model. Adopting a subscription revenue model alone will not immediately temper our social media distrust, however, doing so will remove platforms’ incentive to maximize views and clicks. Rather than appeasing advertisers, social media platforms will operate to increase user satisfaction.

Subscription based platforms like Patreon and Substack have demonstrated success in this field by creating a more personal experience between the audience and the content creators. Monetary investment allows for direct feedback between the users, and the platform and creators. If a Patreon patron is unhappy with a creator’s content they will be less inclined to pay. Similarly, if an audiophile is unsatisfied with a music streaming app, they’ll switch to another. Contrast this with the popular social media platforms where users are unlikely to ditch the medium altogether since it’s “free”. For us all, the damage to public discourse and health is intangible, so we accept these detrimental incentives and scroll on.

In a subscription model, the control is brought back to the users and market dynamics can help steer platforms to optimize for happiness rather than ad clicks. But this isn’t a decision that can be made overnight. It requires the cooperation of Tech giants who are far too comfortable to take a revenue hit. Adopting a new model also introduces big questions. Is this transition even feasible? Should we expect everyone to pay for a previously free service? And even if they should, can everyone afford to?

The Price

Of course, many people would be against paying for a service that has always been free, even if it may provide a solution to our dissatisfactions and distrust of social media platforms. YouTube is a prime example of this. Out of the average 2 billion daily users, only 10% (20 million) subscribe to the ad free YouTube Premium option. Even Patreon’s relative success of 3 million patrons is miniscule compared to Instagram’s 1.4 billion users and Twitters 330 million.

These statistics can be spun as a population wide disinterest in ad-free and subscription-based models or an incipient desire for them. Twitter recently launched the Twitter Blue subscription in the United States and New Zealand, after initial testing in Canada and Australia. The subscription promises ad-free articles and handful of new features like bookmarks and undoing.

If we entertain the idea that users would consider paying for social media, what would that price look like? There’s a metric called average revenue per user (ARPU) that is used as an indicator of the profitability of a product based on the amount of revenue it has generated from each of its users. Although ARPU is not a generally accepted accounting principles (the common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board), it can be used to predict what a new social media subscription would cost.

Facebook’s ARPU in 2020 was $32.03, which was up from 29.25 in 2019. It’s therefore possible for a new Facebook subscription to cost less than $3 a month per user (but realistically around $7-$12). Granted, this is cheaper than realistically possible (even Hulu with ads is $6.99 a month), it does suggest that a reasonable transition cost is not improbable.

With social media such an integral part of our lives, I wouldn’t discount an avenue for national governments to help cover these costs. Former Presidential and New York City Mayoral candidate Andrew Yang proposes a government subsidized budget for social media. Like his take on democracy dollars (where US citizens are allotted a fixed amount of an arbitrary currency to support presidential candidate to diminish the influence of lobbying and mega donors in presidential races), each individual would be awarded $X by the government to spend on social media subscriptions. This social media transition campaign would run for a few years to alleviate the transition and allow current social media users to be grandfathered in to an ad-revenue free social media world.

Unchartered Territory

As promising as current subscription models such as Twitter Blue, YouTube Premium, Netflix, and Patreon are, they are inherently different than big social media platforms like Facebook, Instagram, and TikTok. Currently, the subscription model works best for the creator/content-audience relationship and/or when there are special features users can’t resist.

For Netflix and Patreon the subscription model relies on the creator/content-audience relationship. Users pay to support their favorite creators on Patreon and similarly pay to support their favorite content on Netflix. YouTube Premium is close to this model too as they provide exclusive YouTube premium movies and TV shows.

The other approach that successful subscription model platforms deploy is luring users with special features. Twitter Blue is advertised more as a pseudo-news subscription, like the New York Times or the Washington Post. If you want to digest news unrestricted, or undo your last tweet (amazing!), you must pay the extra subscription cost. Dating apps, quasi-social media platforms, wave premium features too. Bumble Premium gives you advanced filters and the ability to undo left swipes and Tinder Gold (the second of three subscription tiers) grants you unlimited likes and new top picks every day.

In Facebook, there are no obvious creators and audiences, everyone is a user. The same loosely, but still mostly, applies to Instagram and TikTok. Although users can follow trending accounts, the app thrives when all users engage socially by consuming and creating content. Unless these platforms adopt new shiny features to reel in potential subscribers, there is little incentive for a shift in revenue models.

It’s possible that Twitter Blue is one of the many social media shifts we’ll see in the coming years, but until more follow, it’s difficult predict what changes can be made by the remaining Tech giants, especially when the overwhelming majority of their business stems from advertisements. However, even if all social media platforms agreed to shift away from the ad revenue model tomorrow, we still must consider how this transition impacts all their users.

Disproportionate Impact

Transitioning social media platforms to a subscription model pertains to more than whether users would pay for social media services, it also concerns whether they can. The percentage of adults who use social media is relatively similar across income groups in the United States . The great thing about the current ad revenue model is that it doesn’t discriminate on income. This and given that social media is now nearly a cultural necessity, brings forth questions of equity with transitioning to a subscription-based model.

Percentage of adults in the United States who use social networks as of February 2019, by income [statistica.com]

Requiring users to pay for previously free services impacts lower income populations disproportionately. The demographics of Netflix’s users versus traditional TV watchers support this point. According to a Pew Research Center survey, households with an annual income of less than $30,000 rely on traditional TV for their news and entertainment while those earning a median income of $50,000 are more likely to have a Netflix subscription. If consumers with incomes under $30,000 are unwilling to subscribe to Netflix it wouldn’t be surprising to learn that the 44% of Instagram users in that same income group would be against subscribing too.

And if somehow the U.S. government subsidized this transition, what does this mean for other countries? For the 350 million Facebook users from India (compared to 193 million in the United States), who should the companies expect to pay for these services? The people? The government? And what about for the 150 million total users in the Philippines, Argentina, and Nigeria?

A Way Forward

There is always something appealing about targeting an immovable force as a universal enemy. Some days it’s CEOs and other days it’s oil companies. Recently, this dissatisfaction and anger has been directed at Tech companies. Yet, despite the growing resentment, social media usage continues to climb as newer generations develop their social lives on platforms like Instagram and TikTok, while even the older one’s participate on Facebook. As a society, we’re locked into the digital world. Like an address or a phone number, a social media presence is expected in modern life. The subscription model may help combat the social media incentives that damage our public health and happiness, but as we’ve seen, such transition is hyper nuanced.

Nonetheless, that doesn’t mean hope is lost. I see a path forward similar to that of Google Photos and Twitter Blue. Google Photos, a cloud photo service, previously provided free unlimited compressed storage prior to 2021. Now, there is a 15 GB cap to the free service. A key point, however, is that this cap does not apply to photos already stored prior to the rule change.

I imagine social media platforms undergoing a similar strategy by providing a subscription package that gives users perks like viewed posts per day (like Tinder swipes) or total followings. Current users would still maintain the accounts they follow, but any additional would count towards the free amount. Current users could receive unlimited viewable posts, but new users would only receive the fixed amounts. And ideally, to mitigate the disproportionate impact and temper public backlash maybe even federal governments could financially support this grandfathering process.

I know what you may be thinking, “This ideal case isn’t great. I don’t want to pay “. And I hear you, I’m still on my student discounted Apple Music. But at some point, we must reconcile the design decisions made in the past. While there are numerous concerns with social media, one of the most pressing is the incentives the platforms operate on, thanks to the ad revenue model. The individual cost for a free service may be unquantifiable, but the societal damage is undeniable. The ad revenue model skews the incentives for tech platforms to optimize for engagement, even if it’s at the cost of public health.

We all recognize that social media incentives are broken, and this damages our culture. We live now in the digital world where social media platforms aren’t part of culture, they steer culture. If we don’t amend the broken incentives of the ad revenue model, we may lose traction and spiral out of control.

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