Copyright: wrightstudio

Social networks have unprecedented impact on society. They bring friends closer together, but also allow enemies to harass each other constantly.  They spread news as well as fake news, distribute information as well as disinformation, enable love speech as well as hate speech. Their engagement-oriented revenue model glues consumers and citizens to their screens, and at the same time generates unprecedented revenue for social network providers.

But is engagement-maximization the only revenue model of social media? Are there viable alternatives? In this blog I review the revenue models currently in use by social media providers and propose that the model carefully avoided by social media providers, the pay-per-use model, may have a promising future.

Donation-based revenue models

For any business, social media or other, there are only a few kinds of revenue models [1]. Some revenue models depend on donation, such as the Wikipedia, which has a yearly funding round of donations. Some social media providers too depend on donations in one form or another, such as Gettr and Gab (crowdfunding), Telegram (donations from Pavel Durov), Discord, Signal, and Mastodon (crowdfunding through Patreon). For some providers it is not very clear how they are funded. 4Chan may be funded by volunteer work, TruthSocial was funded by a SPAC and by loans.

Donation-based businesses are close to NGOs in that they have a non-commercial mission, often with ideological motivation, that attracts donors. The mission of Discord is to connect people around games, and of Mastodon to provide a decentralized federated social network infrastructure. The mission of Signal and Telegram is to provide private communication to their users. The mission of Gettr, Gab, 4Chan and Truth Social is to provide a platform for expression of opinions that would be actively contradicted by users on other platforms, with a broader audience. For each of these networks, the mission is important enough to motivate people to donate their money or time..

Some donation-based platforms, such as Telegram, Discord, and Signal, additionally have other sources of income, which I discuss next.

Payment-based revenue models

Most business models in the world are payment-based, which means the provider sells a product, delivers a service, or realizes an outcome, for which the buyer, receiver or user pays. There are three possibilities, with a few variations [1].

• Product sales. A seller transfers ownership of a product to a buyer, against a payment.
• Service delivery. The provider delivers a service to the user, which can generate revenue in two possible ways.
  • The user pays for access. For example, a traveler may pay rent for lodging.
  • The user pays for usage. For example, a rider pays for the distance traveled in a taxi rider
  • The user may also pay for access and usage. For example, a telco user pays a base fee for accessing the network and a fee for every minute called.
• Outcome provision. The provider guarantees an outcome, and the user only pays when this outcome is realized. For example, Rolls Royce does not sell jet engines, it provides thrust to airplanes and is paid for how well it does this.

Which revenue models do we find in social networks?

Product sale models

Although not widely known, at least in the global North, some social media providers sell virtual products. TikTok implements TikTok coins, a virtual token bought by users with real money, which they can donate to TikTokers they like. The social superplatform WeChat sells virtual products such popular manga, anime and cartoon characters from Disney, Sanrio, Pixar and others. Some observers estimate that this is the biggest money maker for WeChat [2].

Access models

Access models ask their customers to pay some kind of subscription to get access to a valuable resource. WhatsApp started with a subscription model but this was dropped once it was bought by Facebook.

Twitter provides access to its data by means of a subscription, called a data license. This is mostly used by businesses but is also useful for academics who do social network research. Under Elon Musk, Twitter is experimenting with a user subscription plan.

LinkedIn provides access to its user data for recruiters using a premium subscription. YouTube, Discord and Reddit too offer premium features by a premium subscription. What the subscription gives access to differs: absence of ads, live streaming (YouTube TV), custom emojis (Discord), improved streaming quality, etc.

Usage models

Usage models ask some fee per unit of usage. For example, telco’s ask some fee per minute called. Many social network providers offer ad space to advertisers and ask advertisers a fee for each time a user sees an ad. Facebook, Instagram, Twitter, LinkedIn, Pinterest, YouTube, Snap Chat, TikTok, Tumblr, Tinder, WeChat, Gab, Telegram and Reddit all capture revenue through targeted advertising. For some of them, this is the greatest or even the only moneymaker.

The forms of advertisement differ greatly: display ads, in-feed video ads, brand takeover ads, top-view ads, branded hashtag challenges on TikTok, and many more. In addition to the usual product advertisements, LinkedIn offers targeted placement of job advertisements, which are paid per click like other advertisements.

There are a few other, lesser known, usage revenue models of social networks. WhatsApp charges businesses for conversations with users, where a conversation is a set of messages delivered in a 24-hour session. End-users of YouTube can buy superstickers, superchats and other virtual items from influencers where YouTube (Google) receives 30% of the price of these virtual items. And then there are in-app purchase by end-users, where the platform enables the sale of a product by a third party to end-users and captures a percentage of the transaction.

Outcome models

Outcome models are common in industrial applications. Instead of selling a device, a manufacturer may sell the outcome of using the device at a guaranteed performance level. Service level agreements specify exactly how performance is measured, what the price for guaranteed performance is and the penalty for malperformance is. This kind of revenue model is not applicable to social networking, and no social network provider uses it.

What value is created by social media?

The value created by social network providers is global 24/7 connectivity among people and companies. In all business models, connectivity is free for people and, for revenue-driven providers, paid for by companies, usually by advertisers. Some social media offer additional perks to users (people and companies) who pay a premium subscription, such as faster download time, higher graphics quality, information about who viewed their profile, etc.

For donation-based media, the value created is the contribution to some ideal, such as confidential connectivity or unrestricted speech.

And what value is captured by social media?

Facebook, Instagram, Pinterest, YouTube, TikTok, Snap Chat, Tumblr and Tinder generate nearly all of their revenue from advertisements. LinkedIn, Tumblr, Tinder and WeChat in addition have other sizeable revenue sources, such as premium subscriptions, paid access to user data, and in-app purchases.

These revenue-driven providers use a matching algorithm to present people with content that keeps them glued to the screen and allows the providers to maximize their revenue.

Revenue can be outsized: $67 bn for Facebook in 2022, $29 bn for YouTube in 2021, and Tencent, the owner of WeChat, generated over $17 bn in 2021. Even a small player like Snap Chat a respectable $4.6 bn in 2022. TikTok is growing fast with $4.6 bn in 2021. In Silicon Valley parlance, ad-based social network revenue “scales.”

For donation-based social media, the value captured by the donors is non-monetary. Donors are satisfied when the network implements their ideology. The value captured by them is this satisfaction.

There is room for a base-fee-with-usage revenue model

Revenue models of traditional infrastructure like water, electricity or natural gas ask a base fee for access and a small fee per unit of usage. Telco providers use the same model, with a usage fee per tick. Why can’t social media use the same model?

Well, they can, but they don’t. Social media are not just addictive to end-users, their revenue seems to be addictive to their executives.

The current frame seems to be that either social networks are free and don’t collect user data (Mastodon, Signal, Telegram) or are paid for by advertisers but then collect all data about users that they can, and glue users to the screen to maximize their ad revenue. This not only increases ad revenue, it also increases the motivation of bad actors to generate addictive trash content.

In a 2019 interview, Mark Zuckerberg said that he did not believe people where much bothered by ads, and he did not expect people to want to pay for an ad-free experience. I think that he is wrong, and that people would be willing to pay a few cents for an ad-free experience that does not exploit their addictive vulnerabilities and presents them with content that enriches their life. What would keep them from doing so is not the usage fee, which should be small, but the loss of all their current connections. In the current state of the social network ecosystem, when users switch to a new network, they leave their existing network connections behind.

The EU Digital markets Act promises to enforce interoperability among large social networks, so that users from one network can still communicate with their friends on another network. Given their addiction to outsize revenues, social media executives will try to block, prevent, or avoid implementation of this requirement, or perhaps implement it incorrectly, partly, or clumsily.  But if interoperability becomes a usable reality for large social networks, then the road to a base-fee-and-usage social network will be wide open.

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