What are the tradeoffs between having advertisements vs. no advertisements on Facebook?

What are Facebook ads? On your FB feed, FB chooses to display ads that it thinks are relevant to you.

The goal of the feature was revenue generation. FB has a lot of user data, which it uses to help advertisers reach out to users. It generates data when companies pay it to display their ads or when a user views/ clicks on the ad.

For this problem, I have assumed Facebook feeds only.

I would divide this into 3 stakeholders and evaluate the Pros and Cons of the ad service for each user.

1. Facebook

2. Users

3. Advertisers

 

Facebook: 

Pros	Cons
Generates revenue	May redirect users to an external website, hence decreasing their time spent on FB
Increases user  engagement	The risk of showing irrelevant ads might get the user dis-interested
Generates more user data	Too many ads on the screen are not appealing to a user, and they may look for alternatives.

 

User:

Pros	Cons
Shows me interesting articles and products to buy	Distracting scrolling experience
Users feel more secure about not having their data being used

 

Advertisers:

Pros	Cons
Use FB data to reach a wider audience	Reduced engagement with their potential user base

 

Assumptions:

1. Understand the tradeoff of showing no ads on Facebook feed (this is likely the highest revenue driver)

2. across all platforms (mobile, web)

3. Facebook is a publicly-traded company. Assuming that we will explore alternative revenue sources  

There are three players in this ecosystem who will get impacted - Facebook users, Advertisers, Facebook

Facebook Users:

Pros:

1. For some users, who likely get irked by ads, with this move it will improve engagement. They will likely come back more to the platform

2. Improve brand image across all users as users are concerned about the privacy of their data and how Facebook mines the information

3. Facebook can create more innovative design experiences (visual, interactions) as ads are not in the mix

Cons:

1. For users who like to discover new brands and products, they will no longer be able to discover

2. They will miss new products from their favorite brands

Advertisers

Pros:

There are really no pros here as they will grossly miss an acquisition channel for their customers

Cons:

1. Will miss an acquisition channel for their customers. Facebook is one of the best acquisitions channels for brands

Facebook:

Pros:

1. Improvement in the brand image especially at a time when Facebook is mired in deep scandals

2. Can innovative on improving new design experiences (visual, interaction)

Cons:

1. Big loss in revenue stream

Experimental alternative revenue streams:

1. Charge brands to create Facebook pages

2. Freemium model for customers. Customer will get limited access to Facebook but with paid they will unlock all features

3. Voluntary enrollment in advertisements (they can opt out anytime)

4. Go full steam on the Marketplace product. Now that the trust is improved, likely more users will engage in the marketplace product

Some clarifying questions and assumptions first:

1. Assuming when we say facebook we mean the “Facebook” product and not the company. 

2. Assuming that by “not having” ads on facebook, we are targetting a specific part of the product? Perhaps the Facebook feed?

3. Does no-ads have an expiry date? Or this becomes a long term strategy?

4. How will FB offset the loss in revenue due to this change?

Based on the above questions (since the interviewer’s reply may change the course of our reasoning) I will move forward with articulating possible business goals for facebook that may require us to think about this tradeoff.

Cause n effect framework: 

Say Facebook becomes an ad-free service. What would be some possible effects of this?

On Facebook:

1. Perhaps the brand trust factor goes up and as a result user acquisition may go up.

2. FB will lose ad revenue but gain a new reputation. Reputation doesn’t earn money, so there has to be clearly thought out plan on where the revenue goal may be met instead.

3. Frees up capacities to innovate around user’s behaviour to deepen the community dynamics and not related to improving the profile for the “targetted ads”.

Users:

4. No ads will lead to a frustration-free user engagement but it may mean less time spent in-app without the distracting ads (especially the videos).

5. May lead to a more meaningful engagement but it is hard to measure “meaningful social interaction”.

First and foremost, I would see what goals are really calling us to think in this direction. Is it to make a statement to the existing users that ultimately facebook cares about their user and not the money?

On the other hand, having ads on FB:

1. Doesn’t sent a radical message to the world about the core values of FB and the opportunity to regain the loyalty is missed.

2. Ad revenue grows as long as the user base stays engaged.

3. Short term play is good with the ad-revenue, longer-term FB will need to continue spending resources in the direction of surfacing more and better ads for the user.

4. Doesn’t allow for FB to focus on other forms of revenue generated as a result of no-ad. Things such as user loyalty, transparency and deeper social insights may be the trade-off. 

Summary,

Short term FB will lose ad revenue which means there has to be a plan-B of making that revenue elsewhere in the ecosystem (and perhaps framing it such that people use the product with a clear understanding of what they can expect out of it). The reasons to pursue this would be to reclaim the image of a company that cares about meaningful user interactions as opposed to their immediate profit. If executed correctly, FB may be able to improve the trust scores and as a result both user acquisition, loyalty. Loss of revenue has to be proportioned in the gain of the users.

Longer-term, the emphasis on ad-free and hence commodity free online community may result in a very loyal customer base and a product image that is very different from the status quo. It may also align facebook to design for other forms of capital that may very well be tied to revenue over a long period.