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Comment by michaelchisari | Hacker News Reader

Subscription services (at very low cost) could achieve this.

In 2019, Instagram only made around $11.98 per user annually.

Imagine if you could pay $12 a year and never see an ad, never be manipulated by an algorithm, never have to worry about any of that. All engineering would be focused on retaining you as a user, not as a market segment for advertisers. The incentive wouldn't be to addict you with an infinite scroll but to provide enough value for you to maintain the annual cost. Possibly even minimizing the attention it demands because the greatest profits is in justifying the subscription while encouraging the least amount of resource use.

Unfortunately, growth-hacking meant VC subsidized growth with free services and there was no way that subscriptions could compete.

The question is if anyone could ever sell low cost, user-centric subscription-based apps in a world where free (but not really) is taken for granted.

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Last quarter, they made $10.12 per user[1, slide 4], however that's not evenly distributed. They made $53.01 per user in US and Canada. But even that isn't evenly distributed. The users who are likely to pay for the subscription are also the most valuable to advertisers because they have disposable income. Some Instagram users see ads for luxury cars, real estate, and vacations, while other users see ads for dollar stores and dropshipped junk. FB earns much more in their auction from that first set of users, but those will be the first users willing to pay to opt out of ads.

Dynamic pricing would probably offend both audiences - "what do you mean the algorithm thinks I'm worthless?" "what do you mean that I'm worth thousands of dollars to you?"

[1] https://s21.q4cdn.com/399680738/files/doc_financials/2021/q2...

That's for Facebook broadly, which is a beast of a corporation that encompasses dozens of services and properties. I'm talking about instagram specifically.

those will be the first users willing to pay to opt out of ads.

The service would have to be built from the ground-up to not have a free option, it would have to be equalized across all users. Again, this is where the difficulty lies in an economy that already offers so much for free.

IF someone could pull it off, they would benefit from the gym membership effect of people keeping the subscription while barely using the service (and it's resources).

There would also be considerable savings on the engineering and sales side if you cut all adtech out of the equation and provide a simple time-series feed.

I felt this way when Hulu gave me the option to opt out of ads for $4 a month extra…

“Wait that’s all my eyes are worth?!”

It’ll be less than $4/mo: part of that $4 will have to pay for building-out the ad-free experience.

$12 a year is misleading. Paying users are much more valuable ad targets than free users once you start segmenting them.

So now you need to charge significantly more than $12 to make up for that. The higher price makes the paid users even more valuable to advertisers. Eventually the service slips in a few ads because it’s just too much money to leave on the table.

Cable TV started as an ad free subscription service. I’m not saying it can’t work, but historically most subscription services don’t stay ad free forever.

most subscription services don’t stay ad free forever.

This is true, for two reasons: Declining profit as markets mature and the need for investors to see greater returns YOY. Eventually, all companies turn to more intense methods of profit extraction.

This isn't specific to digital services of course, we're seeing the effects of this broadly across the economy.

One way to put off the inevitable (for potentially quite some time) would be to bootstrap instead of taking investment. Easier said than done, of course, but maybe not impossible since the hardest part may be breaking open the market in the first place and it might be a lot easier to build an alternative app in a mature space than it was to create Instagram in 2010.

This is extremely important, and something I think many people don't realize. Charging a fee might make it possible for a company to be profitable without needing ad revenue, but it likely won't change the underlying economics such that also showing ads won't be even more profitable. The only ways around this that I can see are 1) a company steadfastly choosing to forgo the ad revenue, 2) a company maintaining a customer base that is willing to pay the subscription fee and has a principled opposition to ads such that introducing ads wouldn't be viable, or 3) somehow reorganizing the economy such that the negative externalities of advertising are greatly reduced.

> somehow reorganizing the economy such that the negative externalities of advertising are greatly reduced.

What “negative externalities” are you referring to?

Some simple and direct ones to start with: bandwidth and CPU usage, blatant malware, annoyance.

Strictly speaking, I don't think those are "externalities" though

This reminds me of the NYT banner ad prompting subscribers to allow ads on articles. $35/month and ads? Yeah, no.

Before being acquired, WhatsApp served a half a billion users on a $1 per year subscription model (first year was free, and they were competing against comparatively high charges for sms), and apparently only a few dozen engineers. Signal manages a similar feat on a handful of (large) donations. It's possible to have a profitable business while charging users a small fee, but once a public company achieves network effects and a captured user base, there is a pressure to milk it for all it is worth.

In a normal market there would be competition and an equilibrium would be reached, but where network effects dominate, it takes something like Signal to make a dent in this regard. That said, there's no reason that a non-profit version of instagram couldn't eventually compete or dominate by charging users a pittance.

Lets be honest here, they'd just charge you the money as an added bonus on top of productizing you as a user

Moving to a subscription fee model is dangerous for a service that's reached saturation point. They can no longer project infinite growth in value extracted from eyeballs going into the future, and are stuck with whatever they choose to charge (along with some limited increases in fees. Building a better service cannot be fully leveraged into higher fees, since there's only so much YoY increase in costs users will stomach.)

On the other hand, subscription models are fine for new entrants, even with VC hyper-growth expectations - there are still billions of users to capture even if per-user revenue is fixed! Then the game becomes delivering as much value to these customers as possible to attract more paying users.

Perhaps this is another malincentive that comes about from monopolies.

They can no longer project infinite growth

This is true, but only applies to the "tech unicorn" VC-funded model. There are other ways to build businesses and if the model we're used to always ends up with such terrible social results, maybe it's time we strongly considered them.

> The question is if anyone could ever sell low cost, user-centric subscription-based apps in a world where free (but not really) is taken for granted.

Well, yes, it does come down to this, and I'd say the answer is very clearly that this cannot be done, at least not at any scale remotely close to the scale of the big free social media networks.

I came here to say I am ready to pay for that service!

There's always Glass. $5 / month, no ads, no VC funding, no manipulative algorithm.

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