A few months back, we wrote a post about how there was this idea gaining steam that somehow a fee-based service (such as a fee-based Twitter clone) would likely result in better service
for users than a free one, in which revenue was paid by other third parties (advertisers and others). While I understand why the idea is compelling
, it's hogwash. There are plenty of examples of companies who you pay who still treat you like crap (think: pay TV providers, mobile phone providers, airlines, etc.). The simplistic argument is that when users pay, the company's interests and the consumers' interests are "aligned." But that's not true. The company's interests remain to get more money out of you, and your interest (generally speaking) is to not have to pay that much more money (there's more to it than that, but...). Furthermore, the idea that a service that shoots for volume via free services, and then supports it with third party revenue still has tons of incentives to treat users right: because if they don't, those users go elsewhere, and the third parties no longer want to pay. Yes, there are some exceptions on both sides, but the idea that one automatically leads to better service than the other just doesn't seem supportable.
And yet... we're still seeing people arguing this. The latest is from Alexis Madrigal at The Atlantic -- someone I tend to agree with more often than not. But, this time he falls into that same simplistic argument
without thinking through what he's saying. The post complains about Instagram's overhyped
plan to change its terms of service, meaning that your photos might be associated with advertisements (which they later backtracked), and then quotes someone's silly, misleading and inaccurate "chart" about why only companies that make money directly from users should survive, and then assumes that all of that is true:
Truly, the only way to get around the privacy problems inherent in advertising-supported social networks is to pay for services that we value. It's amazing what power we gain in becoming paying customers instead of the product being sold.
Instagram has, what, 100 million users? If they got $5 a month from 20 million of those users, they'd be looking at $300 million in quarterly revenue. That's a nice chunk of change when you have a baker's dozen employees. You think those guys could split more than a billion dollars a year and call it good.
Of course, this is silly, top down math that never works. Here's what would actually happen in the scenario described above. If Instagram started charging $5/month, within two months, the vast majority of those 100 million users would have moved on to another competing service that does essentially the same thing for free. While I'm sure that some percentage (way, way, way, way, way below the 20% that he posits) would pay, the value
for them would actually decrease
since so many fewer people would be using Instagram. And, before too long, they would stop paying, because all their friends were using some other free service that does the same basic thing. And getting much more value out of it.
Yes, there are some services worth paying for, but it's ridiculous for people (especially those as knowledgeable and thoughtful as Madrigal) to fall for this silly claim that somehow "paid" online services automatically function better and treat users better than unpaid services.