Monday, April 16, 2018

How Much Would You Pay for an Ad-Free Facebook or Google Sites?

How much would you pay for a subscription-based Facebook or Google? The question now is more than academic as there are strains on the ad revenue model.

Facebook average revenue per user in the U.S. market was a bit more than $6 a month in the fourth quarter of 2017. So the question is what Facebook would have to do to create a revenue-neutral subscription product.

Using only the precedent of converting ad-supported, bundled TV channels into over-the-top streaming alternatives provides some guidance, if only rough guidance. Surveys have routinely shown that consumers deem the expected price for a single TV channel to be less than $2 each, per month.  

Suppliers have priced single-channel subscriptions in the $6 to $15 a month range, though.

If you apply the same ratio to Facebook, that implies a retail subscription price for a “no ads” service of perhaps $18 a month up to $32 a month. That is likely too high a replacement price, though, since Facebook cost of goods is far lower than is the case for TV content providers who have to buy rights to their content. So cut Facebook’s cost in half.

That implies monthly charges between $9 a month and $16 a month. How many people do you believe will pay that much?

Source: Facebook

Google ARPU in early 2016 was in the range of $13 per quarter. By some estimates, Google (Alphabet) reached  $7 average monthly revenue per user by the end of 2016.

Using the same methodology, a subscription-based set of Google products (all Google sites, for example) could cost $14 a month or more.

As always, there are a couple really-important questions: how much will consumers pay, and how many consumers will pay, instead of using ad-supported versions of these products?

Asking consumers whether they will pay for ad-free products is one thing. Actual behavior tends not to track such preferences in a linear way, and almost alw

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