Another writer here at Seeking Alpha just made a suggestion that received quite a bit of positive feedback. I strongly disagree with the idea, and think it's probably the worst business move I've heard of in several years.
The suggestion was that Facebook (FB) should make users pay to keep the full capabilities of the site, and that free users would either not exist or get limited functionality.
I can't imagine a worse strategy for Facebook to implement. This is a great example of why Facebook isn't a traditional business. It doesn't exist to charge for a regular product or membership -- its profits are long-term, the inevitable results of being the social framework people will use to experience the web and eventually the cloud.
Let's look at some reasons Facebook shouldn't charge a dime to any regular users:
- Google Plus will explode in popularity.
Google Plus (GOOG) is sitting on the edges just waiting for Facebook to make the worst decision possible like this. The huge portion of people who would leave Facebook would just go to Google Plus, meaning suddenly Google's social network site wouldn't be a ghost town like it is now.
- Facebook works because everyone's there.
In line with the above, Facebook works because almost everyone is there. Almost everyone who uses social media uses the FB system. If suddenly half of the users stopped using, it would destroy growth and the entire appeal of Facebook's business model. It would kill Facebook.
- Facebook doesn't need to be hated by everyone.
Facebook has had enough bad publicity as it is. This is absolutely the worst marketing move in the history of tech companies. This will make users want to leave if there's a competitor. That's not what you want. You want to build loyalty, not undermine it.
- Long-term growth > short-term profits.
Facebook isn't an income company yet. It's all about long-term growth. There's quite of "long shot" potential in the company, because Facebook is ambitious. It wants to be the framework through which people experience all electronic social communication. Online commenting, forums, advertising, social networking, gaming, etc. It's all part of Facebook's long-term goal.
That's why the company is talking about the Facebook phone. I wouldn't doubt that the company will create a browser at some point. It's all part of a growth plan.
Destroying its growth right now for some cash is a horrible idea, and destroys the entire long-term goal and strategy Zuckerberg has created. I suppose this is why he still has full control over the company rather than allowing investors to come up with ideas to influence business choices. Because investors are looking for money now, and Zuckerberg wants to build a long-term company.
Don't get me wrong. I think Facebook is still a long-shot company and is a little expensive. Maybe I'll buy at some point if it shows some more promise with some side projects in the next year, but not right now. It's too expensive.
But that doesn't mean Facebook needs to sacrifice its long-term potential to somehow "prove" its earnings to short-sighted investors. Facebook shouldn't charge users at all.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
