In August 2004, Google was readying its first public stock offering. Pundits were skeptical that the upstart search company could ever live up to its $23 billion valuation. A New York Times article reported that Silicon Valley luminaries were “overwhelmingly bearish” on the firm, seeing little potential for sustained growth in its online advertising business. “I’m not buying,” Apple co-founder Steve Wozniak declared. Serial entrepreneur Jerry Kaplan told the Times he had warned his mother to steer clear of the stock.
In our universe, that Times article is good for a laugh today. But what if, in some parallel universe, it turned out to be sadly prophetic? What if it soon became clear that Google’s astronomical valuation had been based on a faulty assumption: that massive Web traffic could lead to massive profits, even if you didn’t charge users for the service you were offering them. What if the Google IPO was the beginning of the end of the free Web, a point at which users reluctantly accepted that you get what you pay for online, and that any site claiming to offer a service free of charge would eventually clutter it with annoying ads and mine its users’ personal information.
In this parallel universe, Dalton Caldwell would not have launched a paid social networking platform called App.net this week, because it would’ve already been invented in 2004. Back then, an ambitious young Harvard undergrad might have been watching Google’s stock tank and thinking about what it meant for his own project, an online social network for his fellow Ivy Leaguers. When he rolled out Facebook to the general public, perhaps he might have charged users a small admission fee, assuring them that a $20-per-year subscription would keep out the spammers and porn bots that were already beginning to clog the market leader, MySpace.
Back to our universe. Google’s incredible success proved that a free service with a massive user base can indeed translate to untold billions in advertising revenues. Since then, it has become an article of faith that the way to build a successful Web company is to start out free, rely on network effects to achieve market dominance while venture capitalists pay your bills, and then turn your users into your product by selling their eyeballs and information to advertisers. Facebook followed this model to 800 million users and a $100 billion valuation, and its IPO this May was the largest since Google’s. For it to charge users at this point would be implausible and a repudiation of its own professed values.
But Facebook’s IPO turned out to be the flop that many had predicted that Google’s would be, and its stock price has been sheared in half since then. Meanwhile, it has begun to shed U.S. users amid belated concerns over privacy and its ability to make money by serving people ads on their smartphones. Pundits have begun to wonder whether its business model is viable after all.
Meanwhile, another group of stakeholders has also grown restless: the programmers and entrepreneurs whose own products are based on the platforms of Facebook and Twitter, yet another free service with a massive user base and an as-yet-unproven business model. Among them is App.net founder Caldwell, a Silicon Valley entrepreneur of Zuckerberg’s generation best known until recently as the founder of successful-for-a-while social music startup imeem and the mobile photo-sharing service PicPlz, a failed Instagram competitor.
On July 1, two days before PicPlz officially shut down, Caldwell penned a blog post titled, “What Twitter could have been.” As it grew in popularity, he wrote, Twitter had to decide whether to focus on becoming the perfect social-media platform for users and developers, or to become, essentially, another advertising company, a la Google. It chose the latter—in Caldwell’s assessment this was “a tragic mistake,” reinforced “every time I get a K-Mart ad in my feed.”
The response to Caldwell’s post was enormous, and he followed it up with two more. One blasted Facebook for trying to intimidate him into selling his business, which was based in part on Facebook’s platform. In that post, he accused Facebook of being beholden to “financial motivations that are not in line with users and developers.”
His other post announced the launch of a new project: a social-media platform called App.net that would aim to become what Twitter or Facebook might have been if they hadn’t gone the advertising route. App.net, he said, would cost $50 to join, but it would be ad-free and entirely focused on users and third-party developers rather than advertisers. In short, it would be Facebook and Twitter in a parallel universe in which good things on the Internet don’t come for free.
The consensus in Silicon Valley is that App.net is doomed. The thinking is that a social network has to connect users and developers with as many people as possible. Most of us today use Facebook not because we necessarily love its design, but because all of our friends are on it. Why would we pay to join some ghost town?
Caldwell told me he’s well aware that App.net might fail. But in its first test, at least, it has succeeded. Caldwell set himself a goal of bringing in $500,000 in user sign-up fees by Monday, Aug. 13. He beat that target, raising $803,000 from 12,000 users.
Critics have ridiculed the notion that App.net could ever rival Twitter, with its 200 million active users, let alone Facebook, which boasts 800 million. Caldwell says that isn’t his goal—not anytime soon, at least. Instead, he’s looking to model the service on something like GitHub, a popular and well-respected online hosting service for software developers. Like GitHub, he says, App.net will cater more to power users than to the masses. And it will focus at least as much on providing a platform for developers to build their own social-media apps as it will on attracting users.
Even in its pursuit of this modest goal, App.net may indeed be doomed—not because the concept is fundamentally flawed, but because it’s arriving too early. A few far-sighted developers like Caldwell may be growing disenchanted with Facebook and Twitter, but for most people, the ads and privacy intrusions have been at most a minor nuisance—not enough to send them fleeing en masse to a $50 alternative.
That’s because, in a world where Google is among the most valuable companies in the world, investors still have enough faith in the ad-supported business model that they haven’t pressured Facebook and Twitter for immediate returns. As such, those firms have some time to find a way to turn their users into a magic money tree without scaring them away. And perhaps they’ll pull it off. If so, we should rejoice: The free Internet is a wonderful thing, provided the price isn’t our privacy and sanity. If they fail, though, the Web may end up looking a lot like App.net.