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Exactly. FB would never do this, and google would never do it for search. It's adverse selection. Spotify is a good example. The ad supported version has uses:

Exactly. FB would never do this, and google would never do it for search. It's adverse selection. Spotify is a good example. The ad supported version has uses: it's a funnel for paid users, a deterrent to competition, a data farm, etc. Making money is not one of those uses. I suspect that this is because the best advertisers audience subscribes. Also, opt out ads also harms your upside. EG, fb make more in ad revenue than they could ever make in subs. You don't want to pursue an ad-based strategy that excludes the possibility of a win like that, even if it's a long shot.

wdb 6y ago
I think Spotify makes their ads purposely annoying to use it as funnel for paid plans. I have the feeling the ads got worse over time so stopped using the app. I normally don't mind listening to the news and commercial breaks on the good old radio.
- dalbasal 6y ago
  Well... that's part of the premise of freemium. They could probably kill ads entirely and like without that revenue, but then why would people subscribe? For spotify this is tolerable. Network effects exist, but they aren't everything. For telegram, network effects are the whole thing. "Freemium" doesn't usually work the way people think it does. "Just let me pay to remove ads" is rarely good business advice. If your business model is ads, you stick with ads. If your business model is subs, you might have an ad-supported version for other reasons. Even in old media, paid channels/papers/etc. still have ads. They don't make an ad free version.
- skinnymuch 6y ago
  Yes. Spotify makes very little from the ads. Spotify would like to cripple the payment free version as much as possible. It is only there to move you over to the paid version and possibly as a helpful network effects way.
missedthecue 6y ago
Ignoring the adverse selection problem for a moment, why don't you think FB could make more money on subs? Facebook revenue per user is $30 in the US. As long as the monthly subscription is greater than $2.50 a month, they are making more that way.
- thrwaway-adtech 6y ago
  Because many people would not spend 2.50 a month for Facebook, and their value prop of “all your friends are here” would collapse for many users. And then you have adverse selection putting downward pressure on the revenue per free user.
  - loonster 6y ago
    Your argument would be stronger if you used the same one that you used in your initial post. As you previously stated, revenue is not distributed evenly. For sake of argument, the actual numbers for 5 users could be: 120, 30, 0, 0, 0 . The ad-free subscriber would not pay the average profit, they would need to pay the average profit of a paid subscriber. If we assume only the whales would pay for an ad-free experience, they would need to pay $10/month and not $2.50.
- dalbasal 6y ago
  So, two points. First, I think facebook's global revenue per user is $30. US should be much higher. My back-of the envelope has it @ $225 per year currently ($43bn revenue from 190m users)... I may be wrong. Don't hurt me. Second, they make $225 (or $30) per user while also maintaining a very high number of users. You can't expect to put up a paywall and not lose users. So, to reach parity, you need to charge enough for subs to replace those. For FB, it's flat impossible. That's why I picked it as an example. You cannot have 190 million americans as paying users at any price. You definitely can't have that many @ $20 per month.
loonster 6y ago
As a user, I'm wouldn't want my searches to be ad-free. Companies pay good money to put their ads there, and they may outperform the search algorithms. Practices I don't like: - Making sponsored searches look like regular searches. - Pay to Play, where your content gets demoted if not a paid subscriber (Thinking of a non-google websites here).

wdb 6y ago

I think Spotify makes their ads purposely annoying to use it as funnel for paid plans. I have the feeling the ads got worse over time so stopped using the app. I normally don't mind listening to the news and commercial breaks on the good old radio.

dalbasal 6y ago
Well... that's part of the premise of freemium. They could probably kill ads entirely and like without that revenue, but then why would people subscribe? For spotify this is tolerable. Network effects exist, but they aren't everything. For telegram, network effects are the whole thing. "Freemium" doesn't usually work the way people think it does. "Just let me pay to remove ads" is rarely good business advice. If your business model is ads, you stick with ads. If your business model is subs, you might have an ad-supported version for other reasons. Even in old media, paid channels/papers/etc. still have ads. They don't make an ad free version.
skinnymuch 6y ago
Yes. Spotify makes very little from the ads. Spotify would like to cripple the payment free version as much as possible. It is only there to move you over to the paid version and possibly as a helpful network effects way.

missedthecue 6y ago

Ignoring the adverse selection problem for a moment, why don't you think FB could make more money on subs? Facebook revenue per user is $30 in the US. As long as the monthly subscription is greater than $2.50 a month, they are making more that way.

thrwaway-adtech 6y ago
Because many people would not spend 2.50 a month for Facebook, and their value prop of “all your friends are here” would collapse for many users. And then you have adverse selection putting downward pressure on the revenue per free user.
- loonster 6y ago
  Your argument would be stronger if you used the same one that you used in your initial post. As you previously stated, revenue is not distributed evenly. For sake of argument, the actual numbers for 5 users could be: 120, 30, 0, 0, 0 . The ad-free subscriber would not pay the average profit, they would need to pay the average profit of a paid subscriber. If we assume only the whales would pay for an ad-free experience, they would need to pay $10/month and not $2.50.
dalbasal 6y ago
So, two points. First, I think facebook's global revenue per user is $30. US should be much higher. My back-of the envelope has it @ $225 per year currently ($43bn revenue from 190m users)... I may be wrong. Don't hurt me. Second, they make $225 (or $30) per user while also maintaining a very high number of users. You can't expect to put up a paywall and not lose users. So, to reach parity, you need to charge enough for subs to replace those. For FB, it's flat impossible. That's why I picked it as an example. You cannot have 190 million americans as paying users at any price. You definitely can't have that many @ $20 per month.

loonster 6y ago

As a user, I'm wouldn't want my searches to be ad-free. Companies pay good money to put their ads there, and they may outperform the search algorithms. Practices I don't like: - Making sponsored searches look like regular searches. - Pay to Play, where your content gets demoted if not a paid subscriber (Thinking of a non-google websites here).