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However, with Facebook and Instagram users in the EU being charged up to 12.99 euros ($14) a month for the ad-free experience (which also opts them out of all data-driven personalization) it’s hard to ignore the potential revenue opportunities of the move.
Ad-free models are becoming more popular across the app economy and beyond, in particular following the introduction of ads by streaming services to generate additional revenue and meet the needs of privacy-hungry, ad-fatigued users who prize uninterrupted content.
Netflix last November introduced its cheaper Basic with Ads package alongside a more expensive ad-free tier, despite having insisted that it would not host advertising, and recently announced that these ad-tolerant subscribers had grown 70% in the third quarter. Amazon Prime and Disney+ have made similar moves.
However, while Meta’s decision won’t change anything for most users, Instagram and Facebook users in the EU who desire to go ad-free might feel the hit to their wallets. There are certain to be those who posit an ad-free service will better protect their privacy, as well as some who just prefer a “premium service.” Regardless of motive for consumers, the new option will raise some important questions for advertisers on Meta’s top platforms.
Depending on the consumer appetite in the EU, it’s hard to imagine this won’t be coming to the U.S. soon.
A smart move for Meta?
Social media is no stranger to ad-free revenue models. Frontrunner YouTube launched its ad-free premium package in 2014 and has recently doubled down on ad-blockers for non-premium users. Last month X (formerly Twitter) revealed that it is trialing an ad-free upgrade to its existing reduced-ad premium service Twitter Blue. Snapchat+, Snap’s premium subscription, was also launched last summer in a bid to boost income but leaves ads intact and instead offers other perks.
Meta’s subscription tier creates a tactical compromise between people agreeing to data-driven ads or “quiet quitting” Meta by reducing their time spent on Facebook and Instagram. Not only will it help with compliance with the Digital Markets Act, it will also open up a potentially lucrative new side of the business. There’s no easier way to lessen the strain on the advertising business than to create a strong revenue stream from subscriptions—although any social media platform pursuing a new subscription business now has new challenges, such as customer acquisition, retention and lifetime value to take into account.
Privacy, ad fatigue and creating a valuable user experience
In a 2022 survey, 81% of U.S. Gen Z respondents said they liked personalized ads, as did 57% of millennials. More than two-fifths of U.K. consumers (43%), meanwhile, are happy for social media sites to have access to this data for a more relevant ad experience.
Privacy-minded or ad-weary users may decide to pay up, but costs will start to accumulate as they determine how important going ad-free is for them. Those using multiple social media platforms like X and TikTok could be looking at nearly $30 per month on spending to avoid ads across platforms. Interestingly, younger social media users don’t seem to mind advertisements as much as was once thought, and recent research shows users’ growing comfort with personalized ads.
The takeaway from this should be that creating content and value for consumers is the best trade for their data. Consumers don’t mind seeing ads, so long as they feel what they’ve been served is relevant and thoughtful.
Super-juicing or uber-pricing?
Monitoring movement to ad-free will be especially important to advertisers who have upped their social media spend, with 51% of media decision-makers on the brand and agency side saying they will increase investment in the category this year. Meta is also one of the five companies expected to attract over half of global ad spending, which itself is forecast to grow by more than 4% this year.
In the short term, if the new model is popular with consumers, Meta’s decision may mean a significant decrease in ad inventory, and reduced supply with the same demand means ad prices will rise while free-tier users will see a greater number of ads. Advertisers will need to decide how they value those ad dollars and carefully consider the impact of reaching an audience that has specifically opted to see ads on the effectiveness of these campaigns. When every dollar is scrutinized, performance is king.
In the longer-term, there are a few things to watch both for Meta and others. First, does your offering assuage privacy-focused regulators and legislators in the EU? Subscription costs tend to rise over time, which may cause some users to pay to avoid ads on some platforms but not others. How this affects who has access to the best data is the biggest trickle-down effect to pay attention to.
Advertisers and media agencies need to feel comfortable with the data they’re provided to make the right decisions for their campaigns. Time will tell whether this can be the best of both worlds for social media platforms, with a new revenue stream from opted-out users and steady datasets and ad rates for advertisers.
Meta’s ad-free initiative will most probably be iterative, as will advertisers’ response to it. There are short- and long-term ramifications for the industry depending on how this rollout goes. Consumers may want to be careful what they wish for, as their depersonalized Meta experience could cast their hunger for privacy in a new light.