Social Media: Still no such thing as a free lunch

    I recently had a friend, who also uses one of the same Social Media sources that I do, complain about the way their contacts list was being used to send out advertisements to her friends under their name. For them, this was an item that made them consider dropping use of that Social Media source (I am deliberately not naming it because the problem is not really specific to that particular source -- call it YYY.) I responded to their message with a brief note about how all of the Social Media sources had to find ways to fund themselves and that if they chose to drop usage that was certainly their right but to recognize that the source had to be able to fund themselves.
    During the past 50 years, we have had a true technical revolution -- meaning that the ways that things interact have dramatically shifted. All change causes discomfort and the need to adapt new methods to work with them. However, as I have talked about in some earlier blogs, money -- which is the representation of labor and other resources -- still needs to be able to be moved around so that people can pay for their needs to live.
     It may be difficult for many people to remember so far back but, once upon a time, everything was paid for in cash of the local economy -- or, possibly, private representations of cash such as personal checks or money orders/traveller's checks. My younger children have never written a check -- and it is quite possible they never will (they also may not learn cursive handwriting to be able to sign a check or contracts -- but that is a different story). The first credit card (or what we would call a credit card) was invented around 1950. For the first couple of decades, a credit card was used more as a guarantee against payment with the card's numbers (sometimes imprinted from a raised surface) associated with an account which was then printed with the purchase/fee amount and sent to the local bank or credit repository. The money was then authorized to be given to the merchant and a bill was later created for the person using the credit card. It was not until the 1980s that the landline phone system began to be used to connect directly to the credit card issuer's accounting system -- an "electronic" credit card. Of late, it is becoming popular to embed "smart chips" to increase security.
     With use of electronic credit cards, the user, the merchants, and the credit system became part of the "big data" pool of information. Privacy was greatly diminished -- laws were created to help protect privacy but certain information could now be accessed unless directly forbidden. If you buy a specific product at a specific store, you may get (in the mail -- or via email) a coupon for a competing product at a competing store (or the same product but at a different store). They know WHAT you get and WHERE get it -- and the purchase is specifically connected to YOU. The advent of even more abstract methods to transfer money such as Paypal means that all info within the capital stream can be matched against each other.
     So, with that general background, here comes the Internet. Others are better qualified to talk about how it evolved than I am -- but it basically started as a network interconnected by the Defense Department to help its contractors better communicate with each other. That expanded into a general connection of universities, colleges, and scientists which then expanded into connections between businesses as well as all the former connections and then the leap occurred for virtually everyone to connect with everyone else. This global interconnection used to be via voice phone, or physical letters and telegrams, or long personal trips.
    The old, physical, methods had a set of costs to provide services and a set of fees and charges to make sure all the people involved could continue to provide the services. The old pre-Internet was paid for by the Defense Department, and then divided between the Defense Department and the various businesses and then private companies started to be formed which helped with interconnection for a fee -- with transmission fees to the private companies paid directly by the end user. That is the way that the fee structure is largely set up now. People pay for connection (cable, DSL, analog phone, broadband ethernet, whatever) and usually have an Internet Service Provider (ISP) -- many times these are now provided by the same company. In some manner, the full amount of fees/charges must pay for the needs of all the people/resources needed to provide the service.
    We (finally, you say) now get to the Social Media. Social Media is a destination -- just like going online to shop is a destination -- or online to get information is a destination. Each destination has an interest in having you go there. But every destination has its own costs needed to provide the services that are attracting you to go there. Online shopping sites are a straight-forward equivalent of a "brick and mortar" store. Their costs are paid for via the profits on items that they sell. Online information access is usually paid for by the people who want you to have the information -- tourist destinations or government entities (taxpayer funded) or whatever. Private information destinations may be paid for by advertisements which exist to redirect you to businesses which have use an online shop finance model.
     But what about the Social Media? Every destination has to get you to decide to visit. Many of the major Social Media (and major "search" groups) decided that the services would be "free" to the user. In other words, people could work with the destination's services without paying any additional money directly. A "free" site can then entice people to come there by providing the services that they want to use without having to precisely decide on a fee structure for the services (which, if they give many types of services, could end up being very complicated). BUT, the Social Media still has people and other resources that are needed to provide the service -- and these people have their own needs to be able to live. So, every destination -- including Social Media -- must eventually bring in money to pay for those services.
     Once a service is provided as "free" it is very difficult to start charging up-front fees without having a mass departure of people from using the service. So, the fees must be charged in a manner that is "optional" -- you are not required to pay/use them in order to get the general services -- but enough people are expected to want to use them such that the money brought in is enough to pay for costs. The first, easiest, avenue is advertisements -- this has a long-time association with use of services and people expect it (even if the service initially starts with no advertisement). It is even a way to get initially "free" services changed to a fee-service without getting rid of users -- ("free" with advertisements but, if you don't want ads, you can pay a fee to get rid of them). The next step is to provide access to other services which, once again, may be "free" but have added inclusions that do cost money (for example games that allow you to purchase "extras"). A following step is to "sell the client list" to other fee-based advertisers (such as my friend complained about).
     There are various methods used to bring in the revenue needed to provide the services and resources -- some are very ingenious. The goal is to make you WANT to pay -- something that you have been persuaded that you NEED -- without ever making you doubt the reasons for which you initially went to the destination. It is a "tightrope" for some companies and they often sway back and forth between not making enough money to starting to lose people because they are unhappy.
     What other methods of bringing in money do you encounter? How do you feel about them?