Sometime in 2012 or 2013, things went horribly wrong at Facebook headquarters. Sitting in a planning room, a team of developers, business strategists and mid-level executives sat wringing their hands over the fact that Facebook wasn’t generating enough revenue to keep its stockholders and board members happy. Times were getting desperate, and they needed to do something. As it was, Facebook stock took a huge plunge after its initial IPO, as many experts felt the stock was over-valued. When the dust settled, Facebook’s stock value dropped 11 points in one month, and then to its lowest point just five months later at 21 points below its initial value.
Understandably, people were angry, frustrated, and desperate. Facebook’s management decided to make a major switch to a new business model; one that I call “Reach Extortion.” In the good ol’ days, when you liked someone’s business page, you received a notification each time they posted content. Over time, Facebook changed it so that you had to explicitly state that you wanted to receive updates by selecting “Get Notifications” on that page. Merely saying you were a fan was no longer enough. This was still okay, however, because you were getting notified of content updates. As long as you or other fans interacted with the post by liking, commenting on, or sharing it, the post reached exponentially more people.
Free is Not Free
This is where things took a horrible direction. In its desperate attempt gain more income traction, Facebook decided to hold your “fan reach” hostage by saying to the Page Owners, “Pay us, or we’ll keep your content from reaching your fans,” who by the way, asked to receive updates. Not only is this a terrible way to treat your customers (i.e., those of us who try to run a small business using Facebook’s business pages), but I also consider it a shakedown.
Now some of you may be saying, “What’s the big deal? It’s their application and they can run it the way they want. Besides, it’s free. You don’t have to use it.” That’s where you’re wrong. It’s NOT free; it never was.
Believe me, no corporation that asks for your private information is giving you something for free because they’re altruistic. They’re offering it in exchange for your information because it’s VALUABLE. To address the other part of people’s claims that you don’t have to use it, you’re right, we don’t. But we’ve already given up all of our currency. Does Facebook delete everything it’s gained or learned from you when you decide to stop using the application?
Value Added Business Model
Back to the point of the article…the reason Facebook’s decision to engage in “Reach Extortion” is egregious is because it removes value from the deal. You don’t make people want to do business with you when you say “Pay me or I’m taking away value from our deal.” Instead, you entice customers by ADDING value. You say “Okay, I’d really like you to spend more. Here’s what I’m willing to do to sweeten the deal.”
Take Amazon Prime, for example. Their initial membership cost was $79. For that you received free two-day shipping. As an added benefit, they gave access to their Instant Video library and free access to the Kindle lending library. Personally, I was happy just with the two-day shipping; the Instant Video library was just icing on the cake. Then I received an email stating they were raising their membership cost to $99. I understood this as a business owner—the popularity of Prime taxed the system more so they needed to recoup more income to continue the expansion—and as I said, I was already pretty happy with my membership. They went further to say they were expanding Prime membership to include Cloud Storage and free membership to their streaming music library.
Do you see? They’re ADDING value so I don’t mind the price increase. This makes me want to continue to do business with Amazon. Facebook on the other hand turned me off completely. I refuse to give them money to advertise my business while they continue to engage in shakedown tactics.
That being said, we can learn a lot from both companies. What are you doing to add value to your business? Does your business model turn customers off or entice them to spend more?