Following Mark Zuckerberg’s Congressional testimony in March, Len Sherman wrote:

Other companies can only dream of running a company with essentially:

• No cost of goods sold (individual users and companies provide content for free)
• No marketing costs (user word-of-mouth and viral network effects spur continuous growth)
• No selling costs (most advertisements are purchased through a self-service, automated ad placement platform)

If you were in charge of such a money-making machine, would you be eager to change this business model?

But if Facebook provides such a valuable service to its more than 2 billion users, several Congressmen wondered aloud why the company couldn’t replace its ad-supported business model with user fees? Zuckerberg responded with a maudlin regurgitation of Facebook’s mission to “give people the power to build community and bring the world closer together,” which, he explained could only be accomplished with a free service.

Zuckerberg amplified on this theme in his recent war of words with Apple CEO Tim Cook, who had publicly chastised Facebook for selling access to user data. Zuckerberg called Cook’s comments “extremely glib and not at all aligned with the truth,” going on to say:

The reality here is that if you want to build a service that helps connect everyone in the world, then there are a lot of people who can’t afford to pay. And therefore, as with a lot of media, having an advertising-supported model is the only rational model that can support building this service to reach people…But if you want to build a service which is not just serving rich people, then you need to have something that people can afford.

Zuckerberg’s impassioned rhetoric suggests that Facebook’s primary concern is to provide an affordable, valued service to its vast global community of users, many of whom have limited disposable income. But the second real reason Facebook is committed to its current business model is that the price advertisers are willing to pay Facebook to invade users’ privacy is vastly greater than the price most consumers would be willing to pay Facebook to protect their privacy. [Continue reading…]