Meta is the leading example of a business that is built on a value exchange where consumer trade their data for advertising which in turn funds the platform to offer a suite of products and services that are relevant and personalized. To comply with the evolving European privacy regulations, they introduced a new subscription option last week.
From November 2023, they will offer the citizens and residents of EU, EEA and Switzerland who use Facebook or Instagram, the choice to continue using their personalised services for free with advertisements or “subscribe” to stop seeing ads. The fundamental principle is that a subscription model, is a valid form of consent for an ads funded service.
For a subscription price of approximately 900 INR/month, consumers can access personalized products and services from Facebook and Instagram on a desktop; and should the consumer prefer to access it on a mobile phone, they will need to pay 1,200 INR/month, out of which 300 INR/month will go to Apple and Google for using their respective operating systems. The pricing increases to 1,500 INR per month on a desktop and 1,800 INR per month on a mobile phone, effective March 2024. This sets the stage for a very interesting debate for the advertising industry.
Firstly, the focus has now squarely, shifted from consumer privacy to securing consent. Secondly, subscription will now start influencing advertising efficiency, albeit in a strange way. When a consumer is willing to “subscribe”, they are paying a price to use the platform and to benefit from making some informed choices. Their data will not be “mixed” with those who have not “subscribed”, negating the benefits that accrue from overall network effects. Growth in subscription is inversely proportional to the network effects offered by any online platform.
Not many publishers have found the sweet spot between advertising and subscription. They are two different revenue models, so far managed as a portfolio to maximise revenues. The online world has been surviving an ad-supported internet, one that gives people access to personalized products and services regardless of their economic status. This in turn helped small and medium businesses reach their potential consumers at a fractional cost due to overall network effects from the world wide web. Subscription business is as much an alien concept to the online world, as the network effects is to the offline businesses.
There are two significant insights/interpretation from this announcement:
1.The table is now set at INR 900 /month as the price a consumer is willing to pay for their data, in Europe. The jury is out on adoption, even as we have the next 6 months to validate this pricing particularly when the pricing gets revised upwards from March 2024. With some broad purchase power parity benchmarks, with Germany as a base, this translates to INR 300/month for an Indian consumer. Will there be any takers in India?
2.The subscription pricing also establishes a new approach by offering “connected experiences” across Facebook, Instagram, and other Meta accounts from a single “account centre”. This helps Meta use the information across different accounts of the same consumer to provide more personalized experiences including any other new services from their stable. A “Super App” without being a Super App. Can this model be replicated by others in creating a consented marketplace?
Ten years back, social media platforms exploded into the advertising ecosystem and introduced a whole new approach of paid, owned and earned marketing framework. This “POEM” framework surprisingly stayed relevant for more years, than I thought, it would. Privacy regulations and the related consent management framework along with the above fresh debate on advertising vs subscription, will finally put an end to this POEM framework. Earned media will lose its relevance. Owned media will become more important. Paid media will start migrating towards owned media. Every brand will want to become a publisher and every publisher will want to become a brand.
What Meta has proposed in the EU, in response to the privacy regulations will have far reaching implications in the advertising industry. In my view, this will act as a strong catalyst in the migration of the internet from the world of web2 to web3, where the focus shifts from “communities” to “individuals” through a subscriber-to-subscriber engagement from their account centres. A peer-to-peer network. Is the current AdTech ecosystem built for a peer-to-peer network? That is for another week.
Gowthaman Ragothaman is a 30-year media, advertising and marketing professional and CEO of Aqilliz, a blockchain solutions company for the marketing industry.