Guest Post: Meta’s Instagram Fee Proposal Priced to Fail?

Meta doesn’t expect anyone to pay for Instagram.

Meta’s proposal to charge $10.5 per month for Instagram looks deliberately priced to fail, creating a strong incentive for users in the EU to explicitly allow targeted advertising which will also test just how valuable the service is to its users. 

Meta Platforms is currently embroiled in negotiations with the EU with regard to its business model where the regulators’ view is that just because users clicked “Agree” to an agreement, this does not give Meta the right to target them with advertisements. This is an ongoing issue as Meta was fined €390 million by Ireland’s Data Privacy Commissioner for precisely this activity and was told it had to think of something else. 

The monetization model for digital ecosystems can have three methods – hardware, advertising and subscription. Advertising and subscription are mutually exclusive and the option for users to choose one or the other is now commonplace across many types of digital services. 

RFM Research conducted a study in 2018 that examined the viability of digital ecosystems switching from advertising to subscription as their source of revenue. The results of the study indicated that while X and Snap could probably make the switch without risking damage to their revenue base, the same was not true for the larger players such as Google and Meta Platforms. This is because although they generate an average revenue per user (ARPU) of around $3.00-$3.60 per month, the distribution of ARPU within the user base is very large. 

For example, even though the US makes up a small portion of the user base, it often accounts for as much as 50% of revenues, indicating that US users generate far more advertising revenues per user than non-US users. This creates a pricing problem for subscription because in order to ensure that revenue is not lost, the price would have to be so high that no one would ever pay it. 

The $3.00-$3.60 ARPU includes all of Meta’s properties and so it is easy to deduce that ARPUs for Instagram in the EU are likely to fall well short of $1 per user per month. Hence, a price of $10.5 per user per month represents a price increase of more than 950% and it’s pretty clear that no user in the EU will be willing to pay it. 

It seems that this is precisely what Meta Platforms is aiming at. In order to keep the regulator happy, it provides an option that no one will want, and assuming that the users still want to use Instagram, they will sign up for targeted advertising in a way that satisfies the EU. 

The risk of this strategy is that users decide that Instagram is actually not that important and stop using it entirely, although its engagement and user metrics indicate that this is a very small risk. Instead, what can be expected is that Meta makes this offer and almost all of its users sign up for targeted advertising and life returns to normal. 

Hence, there doesn’t seem to be any meaningful implications from this issue, although there may be another fine in the works for infractions that Meta may have committed in the past. 

(This guest post was written by Richard Windsor, our Research Director at Large.  This first appeared on Radio Free Mobile. All views expressed are Richard’s own.) 

Related Posts

Voice – A Multi-billion Dollar Opportunity for Social Media

If you have not heard about audio-based social media platforms like Clubhouse, Twitter Spaces and Facebook Live Audio, you are probably living under a rock. Humans, being social animals, need conversations. But the ongoing pandemic has made it a bit cumbersome to have them, just the right time for audio-based social media platforms to make an entry and take the internet by storm.

If the pandemic wasn’t enough to drive this growth, Tesla chief Elon Musk’s tweets about going live on Clubhouse added warp speed to it. According to Clubhouse CEO Paul Davidson, the app has 10 million weekly active users currently. Unofficial estimates put the startup’s value at over $4 billion.

Social Media Giants Late to the Party?

It is surprising how the incumbent social media giants missed this bus. After all, they spend a lot of time and money to identify the next growth opportunity to drive user engagement, which ultimately translates into ad revenue. But Clubhouse was not the first missed opportunity for them. Earlier, Instagram came up with stories which we now see across all social media platforms, including Twitter and LinkedIn. TikTok also disrupted social media with short-format videos and Instagram was quick to follow. But while large tech corporations can get blindsided in identifying elements of their growth strategy, their reach and scale give them the privilege to be late to the market and still remain a leader.

Can Voice be a Revenue Engine for Social Media, Streaming and Messaging Platforms?

Audio-based social media has drawn interest outside of social media too. Apart from Facebook Live Audio and Twitter Spaces, music-streaming giant Spotify has launched Greenroom, gaming chat app Discord has launched Stage, and Telegram has tweaked its audio features for live voice chat. Other players like Racket, Fireside, Soapbox and Air Time are also attempting to capture value from more customized experiences.

While everyone competes for monthly active users (MAUs) and user engagement, there are several opportunities to monetize the ever-growing audio-based social media.

Paid and brand sponsored community rooms could open a revenue opportunity for audio-based social media platforms. YouTube already has a community of content creators who monetize video content. Instagram influencers leverage their reach for sponsored brand posts while Discord channels have done the same with information and file sharing. Voice is no different and seems highly promising to become the next growth avenue for content creators. How about Spotify being a platform for live singing?

Similarly, brand sponsored community rooms can foster new ideas for marketers. They can connect with customers and open new interactions that could lead to stronger brand loyalty. Brands can further leverage voice platforms for product launch, flash sales, brand trivia contests, promotions, and much more.

Additionally, millions of daily conversations could be a goldmine. Voice data could be used to reveal and index user interests much more precisely than other user data. Synthesis of voice conversations has the potential to unlock billions in ad revenue.

Audio-based social media thrives on the intimacy, originality and immediacy that voice interactions provide. At present, audio-based social media is at a very early stage and has a long journey ahead. It will continue to evolve and create several monetization opportunities across the social media and other connectivity platforms. But who wins the race will solely depend on scalability, time to market and product innovation.

Deep Dive :: How will Facebook Recoup its US$5.7 Billion Investment in Reliance Jio?

My colleague Tarun eloquently summarized his perspective on how Facebook’s $5.7 billion investment in Reliance Jio platforms will help Facebook monetize Whatsapp. This can be the ‘eureka’ moment for the Indian digital commerce sector to offer a mobile platform and services to the businesses which are still not benefitting from intersection of mobile, software and internet.

This is one of the biggest deals in India’s telco history and second biggest for Facebook after its Whatsapp acquisition.

While it is quite straightforward how Reliance Jio, which has grown to become the top Indian operator, benefits from this deal. The mobile giant gets the dollars to reduce its debt & have access to Facebook’s technologies. However, the larger question here is what’s in it for Facebook? Even though it can be considered a long-term strategic bet, what will need to happen for Facebook to reap a healthy ROI on this huge $5.7 billion investment?

We see the opportunity for Facebook to recover at least 5x on its investment over the next few years. This deal is much more than Whatsapp-Jio digital commerce solutions. Not certain if this is what Mr. Zuckerberg had in mind, but certainly the expectation is a substantial return on this massive investment. For understanding it better, let’s deep-dive into the current capabilities of both of the tech giants and where there are synergies for deeper integration and who has the most to gain?

Counterpoint: How will Facebook Recoup its US$5.7 Billion Investment in Reliance Jio?

  1. Ad Platform Integration into Jio Platforms: This is the biggest and only way to recoup big $$$. By targeting the Jio user base, Facebook will be receiving a revenue % cut as Jio, thus far, has failed to monetize its ~400M subscribers via advertising.
  2. Digital Commerce: While Whatsapp is touted to be “the channel”, the real $$ will come from the % cut on the commerce transactions (margin and commissions) over the platform via millions of SMEs & users. Average transaction/SME for Facebook is the metric Facebook will be keeping an eye on.
  3. Whatsapp: Big opportunity to white label Whatsapp for Business into a platform powering Jio’s properties and monetizing via customization for different SMEs to setup channels/ store (Shopify model) or consumption model for communication & commerce.
  4. Social Graph: Obviously having access to close to half a billion subs (projected) will greatly enhance Facebook’s Social Graph, further attracting marketers & higher bid rates. The traditional Facebook advertising business will get a shot in the arm vs. Google and others.
  5. Facebook Connectivity: The business model is not entirely known but Facebook’s aggression to rope in ISPs and influence open network architecture (potentially to its long-term access benefit) and the current positioning of bringing Internet to masses which indirectly expands its TAM of potential advertisers and audience. With Jio this should be part of Facebook’s long-term strategy.
  6. Content: Jio TV has been the most successful of Jio’s digital properties. Facebook could see this as an opportunity to scale its content ambitions in the second largest market in the world (largest if you leave out China). Cross-selling gaming and video content to Jio’s growing user base would be lucrative. However, this is relatively tougher and has a high CAPEX vs. the above opportunities of monetization. We discussed this six years ago why Facebook should have gone aggressive with its content ambitions. Players such as Spotify and Netflix are leaders handsomely attracting ears and eyes and a greater share of digital life.

Privacy & Regulatory Hurdles Galore

Having said that, Facebook has multiple avenues to monetize this strategic investment but lot will depend also on how the government sees this (and potential competitors which will lobby hard against the deal). There will need to be high transparency on the data sharing agreements between the two giants. Further, the user data and platform cannot be misused for intrusive or targeted schemes similar to Facebook’s scandalous history, as the trust factor is fairly low. Thirdly, Indian government could be concerned about the amount of data access Facebook will have.

Future of Telcos

It is said that data is the new oil. I would argue data is the new “crude” and what companies like Jio or Facebook or Google do with this crude converting into Big information is going to shape the future business model in the telco space as everyone is looking to become an end-to-end internet player rather than a telco. I believe if this trend continues, in the next ten years, we could see e-commerce, content, cloud and social tech companies replacing traditional telcos to sell end-to-end services from communication to content to commerce to cloud to collaboration services.

Facebook: Whatsapp Acquisition & Why it Should Also Acquire Spotify

Facebook as a social network has grown by leaps and bounds over the last five years. However, only being a public social network is not going to cut it and attract advertisers as there is a constant fight for the % share of someone’s time in a day which these internet companies with freemium business model are after, eyeballs and engagement. The trends are shifting and shifting very fast and we know where, towards mobile. The three mobile Ms – Mobile messaging, media and m-commerce are the top use-cases in life of a mobile user alongside gaming. And, Facebook needs to transform from a social network to a full-blown platform and these use-cases (& services) will be very important for Facebook to become one.


Facebook’s US$19 Billion acquisition of Whatsapp depicts how badly Facebook needed to play in this space to actually “buy the engagement time” or slice of almost 450+ million users’ daily life. Whatsapp is on the verge of a much swifter growth in terms of number of active users on its platform i.e. how much a user (today) spends his/her time on mobile and engaging with this private social network rather than public social network such as Facebook.

Counterpoint Research - Whatsapp Monthly Active Users (MAUs)

The overall interaction done on Whatsapp will help Facebook fill in the nodes of a user’s Social Graph rather than directly generating advertising revenues for Facebook. But Whatsapp’s acquisition creates a strong foundation for Facebook to integrate its standalone Facebook Messenger, Chat heads and Facebook Login into Whatsapp and expand it to much more with integration of m-commerce, media


Whatsapp offers a whole new opportunity for Facebook to transform it into a m-commerce platform. WeChat is one  example of this. Chinese consumers can pay to buy almost anything on WeChat from Cookies to Coffee to taxi fare to even smartphones. For this Facebook will need to invest in a mobile payments solution.


While media is a broader term, we would include images, videos, gaming and music into this category.

  • Facebook  acquired Instagram last year for US$1 billion to take care of the imaging piece of this category plus it has its own social network which also see huge uploads and sharing. The another piece is video.
  • Video service is a tricky asset to have as either it could be partnering with movie industry (e.g. NetFlix model) or having a platform for user generated content (e.g. YouTube) which it doesn’t have to worry about much at this stage but acquiring likes of DailyMotion or others could beef up Facebook’s platform and it already leverages YouTube’s openness for sharing of video within the platform.
  •  Facebook stepped up its gaming initiatives as soon as it ended its deal with Zynga to be the sole developer of social games ended almost 15 months ago. Fast forward seven months after the revamped deal, Facebook kickstarted a gaming apps ecosystem on its platform attracting gaming publishers to publish games on its social platform. Another good way to maintain engagement once the user logs into the Facebook. However, Facebook needs to take social gaming to mobile in a bigger way.
  • We see music also as the key component which like video could be tricky (royalties to labels and artists) but is more personalized and can shape the user’s social graph, predict attitude and behavior quite well. While Pandora would be the best bet on paper for Facebook to go after next, considering its clever algorithms as it learns about a user everytime he/she login and listens to a song. But we think Spotfiy is the best bet in reality considering the strong synergies and partnerships with Facebook. Spotify is more social music platform than Pandora and already had greater integration with Facebook right from its inception. Spotify also acquired EchoNest this month which is the top music personalization and discovery API in the industry to compete well with likes of Pandora and increases its value further. As of end of 2013, Spotify had 26 million users and 6 million paying subscribers with presence in more than 60 countries globally.

Acquiring companies such as Spotify could fill an important gap for Facebook  to become an independent and much more powerful platform (e.g. Android) with a complete bouquet of services to take it to the next level or by building its social graph and maybe into a powerful social search engine and attract marketers, brands and advertisers.

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