Commercial decisions are inching us slowly towards a two-tier internet

Subscription services are getting into advertising, and advertisers are getting into subscriptions

Elon Musk's big idea is Twitter Blue

Steve Dempsey Twitter

March 05 2023 02:30 AM

Some strange convergence is happening to online business models.

Increasingly, successful subscription businesses are rolling out advertising tiers. At the same time, online platforms that have been built on advertising are beginning to offer subscriptions.

Both Netflix and Disney+ have launched ad-supported tiers in some markets. Subscribers to these tiers pay a smaller monthly fee, but will see some ads.

Now Apple seems to be getting in on the act. It has just hired Lauren Fry, an experienced TV and digital video ad executive, who will build a video advertising business for its Apple TV+ streaming service.

Twitter so far only has 300,000 subscribers to Twitter Blue

Other, less familiar streaming platforms – such as Peacock, Pluto TV, and Tubi – already have advertising tiers. And of course, so do the likes of YouTube and Spotify.

On the social side, Twitter’s attempts to launch a subscription service – Twitter Blue – are well documented. For €8 a month, users get a blue verification mark, the ability to edit tweets, priority ranking, and more.

Meta has just announced something similar. Its own plan – Meta Verified – will first roll out in Australia and New Zealand. What do subscribers get? A blue verification badge, extra security, access to customer support, and (like Twitter) increased visibility.

Snapchat already has a subscription service. And claims to have over two million subscribers. Subscribers get improved access to the company’s program for creators, custom app icons and wallpapers.

Snapchat has also just announced an AI chatbot for subscribers. This is a mobile-friendly version of ChatGPT has been trained it to adhere to the company’s trust and safety guidelines. That means no swearing, violence, sexually explicit content, or political opinions.

Reddit has a premium tier which offers ad-free browsing and custom avatars. Even Tumblr (yes, it’s still a thing) has an ad-free browsing plan for paying subscribers.

What’s going on here? Why are subscription services getting into advertising and advertising businesses getting into subscriptions? The answer is obvious: it’s all about the money.

The seemingly endless growth that supported investor interest for many online platforms is coming to an end. Apple’s app-tracking transparency changes have also made it harder to monetise app users.

These platforms need to find new ways to court and retain users, or new ways to increase revenue per user. That means diversifying revenue streams. Then creating the compelling corporate narratives to maintain market confidence.

That’s a high level overview. Things get a lot more complicated when you get down into the weeds, and the peculiarities of each platform.

The internet is at risk of splitting into two classes of user – the haves and have nots

Some businesses will struggle to pivot from a singular commercial focus to a diversified business model. Twitter only has 300,000 subscribers to Twitter Blue. This isn’t surprising given the apparent chaos inside the firm, and the limited value on offer to subscribers.

Netflix has also struggled with its advertising tier. In the first month only 9pc of new US subscribers went for the ad-supported streaming tier.

By contrast, 15pc of HBO Max’s new subscribers opted for an ad-supported subscription during its launch month in 2021. Sign up was so low that Netflix reportedly returned money to advertisers after failing to meet viewership guarantees by as much as 20pc.

Meta is probably in the best position to successfully roll out its subscription model. Facebook is good at successfully launching ideas that have originated elsewhere. It has ‘second-mover’ advantage. Plus there’s huge demand. Offering increased visibility and access to customer care makes sense when there’s a huge cohort of content creators and vendors already using Meta’s platforms.

But the rewards are clear. And large.

Financial analysts at Bank of America estimated that 12m accounts could use Meta Verified by the end of 2023 or early 2024. A monthly subscription cost of $11.99 for web or $14.99 for mobile could mean $1.7b n in incremental annual revenue, and at relatively low additional cost.

But while there’s an upside for online businesses, this convergence of business models has a potential downside for users – in particular users of previously ad-supported social services.

The internet – once supposed (naively, some might say) to be a repository for the world’s ideas – is at risk of becoming a two-tier network. A series of walled gardens, enclosed apps and services, with two classes of user – the haves and have nots.

Those who can afford it, will pay for trust, safety, security, greater visibility, and more. Second-class digital citizens will pay less, or in some cases nothing at all. These users will have a lower quality service, will be less visible, and have poorer experiences.

In particular, the shift from trust and security as a feature available to all could result in an explosion of impersonations, malfeasance – not to mention brand safety headaches for advertisers.