Farhad Manjoo recently wrote an article on Slate promoting the notion of online businesses like Facebook charging people for services. It’s an interesting business argument, but I wanted to address this situation from a more social perspective.
There’s some notable differences that emerge when I compare my two favorite web-based businesses, Google and Amazon. I feel very comfortable in my relationship with Amazon, largely because I understand how they help me and how I help them: I give them money, they give me goods or services. I know exactly how I’m helping them out, and I know exactly what I’m getting in return. It’s very easy for me to weigh the costs and benefits and make sound economic decisions based on them.
This kind of relationship is a well-known cultural norm that’s as old as our civilization: it’s called reciprocity. Assuming that all individuals and businesses have self-interest in mind, it’s actually a mechanism that helps build trust, because it makes intentions transparent. Almost everything that Amazon knows about me is based on the reciprocal relationship I’ve had with them, and as a result the information that they extrapolate based in it is not only highly accurate, but also welcome and appreciated. For instance, whenever I get an email from them suggesting a product that I might be interested in, there’s quite a good chance that I’ll actually be interested in it, because their suggestion is based on very good evidence—i.e., previous purchases myself and thousands of others have made with them. Because their business model is based around this reciprocal relationship, it’s in their best interests to offer supporting infrastructure to help their customers make informed decisions about their transactions with them. For them, this means my increased loyalty and purchasing; for me, this means an online resource that I find no less useful than Wikipedia.
Not having reciprocity in a relationship, on the other hand, can lead to suspicion and mistrust. If someone were to continuously give me, say, incredibly useful search results, an email client with an outstanding user interface, and an awesome code-hosting service completely free-of-charge, I’d wonder what their ulterior motive was. I’m referring, of course, to my relationship with Google, which I’ve received a tremendous boon from and Google has asked nothing for. Apparently they like to mine the personal data I’m giving them, but I have no idea what they’re doing with it. They throw ads at me, but I don’t visit Google to buy things; I visit them to search, receive and send email, and host my code, so the ads simply aren’t in the best interests of the user experience the way they are on Amazon.
It also makes no sense for Google to predict what I might pay money for, because they don’t know anything about what I’ve paid money for before. For instance, just because I have an email conversation with someone about our World of Warcraft raid last night doesn’t mean that I want to buy gold online. Even if the advertisement is potentially useful, there’s no social information to help me make a decision, such as the user-ranked ratings and reviews present on Amazon, and there also isn’t a trusted intermediary like Amazon to ensure that I’ll receive what I pay for. And I don’t expect Google to ever offer such things because they make money off selling advertisements to other companies, not selling products to me.
So, my relationship with Amazon mirrors my relationship with the store on main street, which itself is part of a functional social dynamic that’s been in place for hundreds of years, if not thousands. I’m not sure what my unbalanced relationship with Google mirrors, because technology has never actually allowed anything like it to exist before.
I do think there’s a word for a business relationship that doesn’t involve reciprocity, though: it’s called creepy. Check out Jenny Boriss’ excellent blog post titled Facebook is acting like your mother, and she’s very disappointed in you. The bottom line is that if I have to pay companies like these a monthly fee so that they can turn a profit and give me great service and not be creepy anymore, I’ll gladly do it.
Because reciprocity is awesome.
My name is Atul Varma, and I'm the co-founder of a small Chicago company called 
Hold on, man. You want to pay a company for doing something they’re already doing for you for free? I could see the appeal if the payment guaranteed I wouldn’t be shown ads or, failing that, that my personal information wouldn’t be mined for advertising purposes, but just having them ask for money disrupts the (creepy) equilibrium they’ve already set up: I get social networking of dubious utility, and in exchange they get access to my personal data to do God knows what with.
Plus, given the volatility of the social-networking space, I’d be hesitant to do anything that might drive fickle users to competitors. I mean, look at MySpace. They didn’t even really do anything wrong — people (meaning you and all your friends over eighteen) just started switching to Facebook without really having a solid reason. Sure, its design was less annoying and the photo-sharing system was better, but it’s still sort of baffling how quickly the wind changed. If Facebook starts charging, it’ll just drive people to the next up-and-coming site that’s sure to spring up once it recognizes the opportunity to snag the people annoyed by Facebook.
But hey, I could be wrong. And part of me hopes they do start charging and fail like I’ve described, just on the off chance that we might catch a glimpse of Mark Zuckerberg crying like a child.
Heh heh. Yeah, I guess that in the context of the rest of the market, it’s an interesting trade-off, especially when the utility of the system is based on how many people opt-in to it. In some ways it seems like the kind of service that should actually be as free and open as email, which is (I think) why Mozilla is offering their own solution through Weave.
There are some interesting examples of successful for-pay social networks out there… One mentioned recently in The Economist is a European equivalent of LinkedIn which, while it has way less users than LinkedIn, is financially successful. I forget what it’s called, though.
I’m actually pretty impressed with the utility of Facebook, now that I’ve actually joined it though. There’s a good New York Times article on ambient awareness that describes it pretty well, and while I think that there’s some unsettling things about the concept of ambient awareness, I wouldn’t say that it’s of dubious utility, personally. For instance, I was just able to syndicate this blog post to my Facebook page, which will result in a lot more of my friends and acquaintances reading it than have read my stuff before (because most people don’t have RSS readers, but they do check their Facebook friend feed thing).
Atul,
You work for Mozilla. Where is the reciprocity? You give away an excellent browser, the development which is done in part by the community, but is largely funded by money gathered from … Google.
By your logic, this seems like an even creepier relationship. Sure, Mozilla is non-profit, but it doesn’t seem to alter your logic. Although Amazon is getting paid in the transaction, are you really any more sure their data mining is only used to bring you other excellent impulse purchase options?
You’re absolutely right on the Mozilla count; I can’t say I’m very comfortable with our current revenue model, personally. I’d rather we had our funding through a government grant or something like that, though that would of course raise all kinds of other issues.
As for Amazon doing more creepy things with their data mining, I haven’t yet seen any evidence of it, though I certainly don’t deny that it can’t be done. And at the same time, this makes me think of where exactly the feeling of “creepiness” comes from. In some sense, creepiness can be defined as “providing irrelevant advice based on information that the user doesn’t expect a business to use, in a context that the business isn’t expected to participate in”. An example of this would be the case of Boriss’ Facebook advice, or my friend being shown Google ads to purchase a cat genie on a World of Warcraft website that he’s visiting for the first time when it’s the case that he already owns a cat genie. Amazon, on the other hand, only suggests products in what are judged by most to be appropriate contexts, and its suggestions are often useful. Perhaps it simply has more to do with social norms than reciprocity?
After all, if Google actually gave me useful ads that were somehow relevant to the website I was visiting, it might feel far less creepy and far more useful. And the minute I actually click on a Google ad and actually spend some money on that’s a direct result of Google’s ads, I suppose that’s when I’ll finally start feeling that my relationship with them is a little more reciprocal.
Oh God, ambient awareness. I’m probably being crotchety, but it freaks me out when I think about how there’s a whole generation of kids growing up who don’t seem to be aware that you continue to exist even if no one is looking at you.
Maybe that’s why I might be wrong about this. I look at Facebook as an inessential curiosity where younger people see it as a vital part of their self-image. Maybe they will pay for that. I’ll still think it’s stupid, though.
Oh, and your example of the for-pay business networking site is a little different, since a site like that can get you the tangible benefit of a new job, or at least contacts that can materially help you get that benefit. You don’t hear about people getting hired because of their not-as-clever-as-they-think Facebook status updates, though.
I wouldn’t necessarily say the lack of obvious reciprocity its a bad thing, just different. There have been a few similar models in the past - and in a way, some governments are a bit like that. But an important thing to remember is that not everyone has something that they can give back (or are willing to do so). In the past, these people would have either gone without or be forced to use a sub-standard service. So it evens the playing field, so to speak.
Of course, another way of thinking about it is that these business models DO involve reciprocity. The difference is that you, as a customer, give them something that has no (or very little) worth to you, to a company that either values that something or has a business model that allows them to create worth out of that something. In exchange, they give you something that you want or require.
Hank: Heh heh, I guess that I see a difference between people on, say, a college campus using FB versus someone like me using it. People in the same geographic area using it to see what each other are doing strikes me as a little unnecessary because they could just walk out the door and see each other. But over the course of the past ten years, I’ve lived in four different places that are hundreds or thousands of miles away from one another; the friends I’ve made at some of them have moved to new places themselves. So the NYT article basically argues that in a lot ways, social networking applications like FB, microblogging platforms like Twitter, as well as instant messaging apps, email, and so forth, are just making it that much easier to deal with a highly mobile society. Insofar as keeping in touch with everyone I know, FB seems to have both the critical mass and the functionality to make it quite possibly the “best tool for the job”–but then again I’ve only been using it for a few weeks.
Blair: Good points. I also just realized that I have potentially reciprocated to Google by raving about their products to all my friends and family, ultimately getting them to switch too; I’m sure that at some point one or two of them has probably clicked on an ad and even followed-through on a purchase that has ultimately helped both them and Google. I guess it’s just the sheer indirectness of the process of making money through advertising that puzzles me so much. But I guess that’s nothing compared to the indirectness of stock market derivatives and other kooky financial instruments.
I don’t see the Google relationship as anything new: it’s no different fom television. For 50 years we’ve had infinite entertainment streaming into our homes for “free”… it’s not creepy, is it? The media is selling your attention to advertisers, and Google is just another media company doing the same thing. They give you all sort of free internet services in return for your attention. The only difference between Google and TV is that Google ads are usually useful rather than annoying.
(Disclaimer: I work for Google.)
They sell you clicking links to other businesses, but why would you go to a site that sells links? The answer is that they need to provide a free service (or many) to get you to look. As time progressed, they learned they could mine actions of their free services similar to the way they mine how many paid links are clicked, and get even more information in it. Overall, it works for you because you get an even more relevant paid program and the actual buyers get more clicks. This only works best for free for life services.
I’ve been thinking about this a bit more…
A lot of businesses have an entry for “good will” in their accounting books. Its not something that can be easily measured, and its not something that customers will (generally) consider to be worth much to them. Its also not something that get much public acknowledgment. But it can make up a very significant portion of what some businesses are worth. With some online based businesses, it can be the most valuable asset they have. And yet it costs the customers/users nothing.
Ben: Ah, but that’s just the point. I think we *should* view TV as rather creepy. It’s goal is the acquisition and sale of the attention of millions of human beings. After 50 years of maturation, that relationship has been embraced, and most attempts at making TV anything else (e.g., a news source, a learning media, etc.) have ceased (or failed).
Admittedly, Google and the rest are quite a bit different, in two respects: First, their relationship with you is one-on-one, and in many cases (mail, calendar) personal; this increases the creepiness factor. Second, what you do is interactive rather than totally passive, which (I believe) somewhat reduces the creepiness factor.
All in all, I agree that TV and the free online service models are quite a good comparison; but I repeat: that just means TV should be viewed as creepy, not that online services aren’t.
Actually, Amazon is mining information about you, and in the past used it to change prices for books dynamically - based on your previous buys. I’m sure a google search could confirm the above…
I personally accept that every site is saving everything it can about me, and just not think about it… IPs are disposable…
I’m all for the _idea_ of direct-paying for something, the trouble comes with…direct paying for a bunch of stuff.
We’ve been 37signals Backpack subscribers for a long time, it’s only $5 / month. I’m not sure what our tolerance for $5 / month services is. If everything we used for free suddenly became $5 / month, we’d cut down pretty ferociously.
If everyone moves towards direct monetization, there’s going to be a significant evolutionary meteor moment. So long dinosaurs, hello mammals.