The Case For A Facebook Premium (Paid) Account

At the beginning of 2019 Facebook had 2.4 billions active users (source). For the previous year, it reported approximately 55 billions USD in revenue, with a net income of approximately 22 billions (source).

I find these numbers very interesting. Especially in the context of Libra, Facebook own "crypto-currency" (quotes are intentional, as Libra is not a permisionless crypto-currency, like Bitcoin or Ethereum, but a private one, or permissioned).

I think this context calls for a new approach in the business model. Specifically, I think this context favors the introduction of a paid membership, or switching Facebook to a freemium business model, in which the current platform will be available for free to anyone, whereas a new, streamlined and more performant platform will be available at a monthly cost.

Here are the pros and cons for this switch. Let's start with the pros:

1. The User Base Is Plateauing

Until now, Facebook premium asset was its user base. With 2.4 billion, we're touching on an area where the growth will slow down dramatically. According to index mundi, the population between 15 and 56 years (targetable by advertising, that is) was, in 2018, of 4.8 billions people. It's worth noting that 0.8 billions are in China - which is a very opaque market for Facebook - which leaves us with 4 billion people.

At 2.4 billions active users, Facebook already has 67.5% market share. From here on, the growth is expected to be slower and more expensive. Even if we have a target of 80% market place dominance - which is highly unlikely, due to competition, regulations and many other factors - Facebook is still very close to reach that threshold, and that will make it increasingly difficult to squeeze value from it.

Hence, the need for some segmentation of their current base and splitting the product on various "layers".

2. A Premium Account, Paid In Libra, Will Generate Demand For The Token

This seems like a perfect use case for such a currency. Its main advantage: it is cross-borders and dramatically lowers the entry level. Everybody can use it and it will work in any country (where it's accepted, that is). Also, the fact that every month some Libra will go back and forth between fiat and users, will add to its credibility. Facebook will also have a much more credible way to indicate "the value per customer" that is has. Even if this will not be much, it will still be a very good metric for the company, as it will be the biggest and most important entity capable of doing this.

3. The "Noise" In The Regular User Feed Will Be Slashed In The Premium Account

Here I'm talking mostly about fake-news and garbage information. Facebook has the technological ability to stop, or at least minimize the impact of it, but this comes at a cost. At this moment there is no incentive for Facebook to pay more for filtering the noise (there is no economical benefit) but if there will be such an incentive, they will use their massive AI power to counter-effect all these campaigns.

A "cleaner" Facebook feed will also increase its credibility as a legit source of data (not news, just data, most of it opinion, but still). People will feel less reluctant to use it and will credit it more - hence, increasing usage.

4. The Math Behind It

Let's talk some numbers.

22 billions / 2.4 users = 9.15

That's the "average" value of a Facebook user, just a little over $9. Now, there are many formulas that can be applied to this freemium business model (and the user price is a very gross approximation) but for the sake of analysis, let's assume that only 10% of Facebook user base will eventually go for this premium layer.

In practice, freemium business models are based on the "5% rule", which means 5% of the paying users are supporting the remaining 95%. In our case, this is not entirely true, as Facebook already has a huge user base that will continue to use the service while seeing ads. So I think we can see a significantly higher conversion.

So, let's talk about a 10% paid, 90% advertising scenario. In this scenario, 240 million users will pay around $10 (in Libra) per year, while the rest will continue to use Facebook for free. At this cost, it's less than $1/month per user, a price which is borderline service commissions, not even felt for most of the Facebook users. Less than a Starbucks coffee.

Which makes me think that the cost will probably be a bit higher, between $2.99 and $4.99 / month. At these numbers, the 10% is multiplied 3 times (on average), which means Facebook will increase its total revenue with 20% only by converting 10% of the user base.

I leave other scenarios to you, if you want to do it (leave a comment if you have something interesting to add to this, please).

The cons:

1. Regulation

The key point for this potential change is Libra. Without it, it's very difficult to make it happen. So if the token will face powerful opposition from some countries or areas, then this process will be delayed. Or it will be available only in some countries - hard to believe, since the main incentive is to have something that will "work everywhere". Some voices are already against it (in Europe, especially) and that means we may have to wait a while until a clear trend is formed. But Facebook's army of lawyers and the proverbial stubbornness of Mark Zuckerberg, which is more and more influential in his own company, lately, will push very hard in this direction.


I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.

Dragos Roua

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Comments 6

If I am not mistaken they are planning to peg LIBRA to $1. If so they have to print huge number of tokens to the market isn't it?


01.10.2019 10:57

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01.10.2019 10:58

Yes, that's what the base of my scenario, their peg to $1.

01.10.2019 11:09

There are not many companies so limited by the world population. They will have to charge for more things to make more money. I recently set up a page for my band and it keeps saying I could pay for more exposure. I'm not going to.

Does a company have to keep growing? They could have more competitors, but it may be harder to grow that big now. Interesting times.

01.10.2019 11:46

Never pay F-c-book for more exposure!

What happens is that a lot of those adverts will be clicked on by bot / click farms and a lot of bot / sock puppet accounts will follow you.

And then, the thing that kills your page. They only show your post to a percentage of your followers. If it doesn't get much traction, it isn't shown at all. And this percentage that was shown can easily be all those sock puppet accounts. Or, your post just went down the drain, and you would never no.

Further, you can't get rid of all of these empty accounts.
So, once you pay... you lose, and lose, and lose

01.10.2019 13:22

I have no intention of paying. We just need some presence that we can direct people to and we are only interested in real fans. Those will mostly be people we know.

01.10.2019 13:25