Ello and Consumer-Friendly Business Models

Vox introduced Ello this way:

A brand-new social networking startup — Ello — has gone viral. At one point on Thursday, the site was acquiring 31,000 new users an hour — many of whom flocked to there because of a disagreement with Facebook over its policy requiring real names, which some say is unfair to LGBTQ and transgender users.

Ello might be the new Facebook or the new Twitter or the new social media flop. It’s too early to tell.

Actually, no, it’s not too early. Ello will fail, deservedly so. It has a consumer hostile business model.

Discussion of how a company makes money – its business model – is often completely divorced from discussion about the product at hand, but I think that’s a mistake; business models fundamentally impact product, if not now, then assuredly in the future. To their credit, Ello is quite up-front about the fact that many of their decisions are driven by business models, specifically, their opposition to ads. From their WTF document :

Many other social networks (like Twitter, Facebook, Tumblr, Google+, Instagram, etc. etc.) started out ad-free, then suddenly switched gears. They modified their privacy policies, started selling information about their users to data brokers, and bombarded us with ads. Many users of those networks feel betrayed.

Ello’s entire structure is based around a no-ad and no data-mining policy. Quite frankly, were we to break this commitment, we would lose most of the Ello community. Including ourselves, because we dislike ads more than almost anyone else out there. Which is why we built Ello in the first place.

OK, so how exactly will Ello make money?

Very soon we will begin offering special features to our users. If we create a special feature that you like, you can choose to pay a very small amount of money to add it to your Ello account forever. We believe that everyone is unique and that we all want and need different things from a social network. So, we are going to offer all sorts of ways for users to customize their Ello experience.

I have no idea what these features might be – a mobile app and an API would be good places to start – but the gist is clear: to get the optimal Ello experience you had better pay up, but only once, and you’ll have it forever.

This is a terrible idea.

Here’s how this policy will play out in practice:

The initial experience of using Ello will be a poor one because you won’t have access to all of the features
A poor initial experience will lead to high rates of abandonment among the few friends you manage to convince to try the service
You will complain to Ello and they will have exactly zero incentive to make things better

It’s this final point that is critical for me whenever I evaluate a new product or service: does the product’s business model incentivise the developer to be responsive to my needs as a user?

The way this drives my decision-making in hardware is the easiest to understand:

Businesses predicated on selling high margin products are highly incentivized to differentiate their products to attract my purchase, and also highly incentivized to ensure quality to guarantee that I stay loyal
Businesses predicated on achieving the lowest prices are highly incentivized to drive down costs, and are much more likely to sacrifice quality

Thus, I almost always buy high margin products, especially for products I use regularly. The incentives are better for me as a customer, according to the criteria that I consider important.

Things are a little more complex when it comes to software, but the same guiding principle is still in place: I like companies that are incentivized to make and keep me happy:

My favorite business model is a subscription: I pay every month for a piece of software or a service, which means the software or service provider is always under pressure to earn my money

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Ello and Consumer-Friendly Business Models

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