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The colossal task of competing with Facebook today

Ethan Wolff-Mann
Senior Writer

The ongoing series of Facebook scandals are hitting a fever pitch.

After Russian bots, questionable political advertising, and the Cambridge Analytica debacle in which 50 million users’ data was leveraged to help clients like the Trump campaign, Facebook’s approval rating is falling and CEO Mark Zuckerberg has reportedly agreed to testify in front of Congress. (Here’s what that might be like.)

Internationally, the pressure is equally high, with Zuckerberg refusing a British parliamentary summons to appear.

For the first time, it seems, the public may be ready to listen to what Facebook’s detractors have argued for years: that the service, while technically free to use, in fact exacts a significant cost from the people who use it.

Over three years ago, Todd Berger and Paul Budnitz started a social media network that many in the media hailed as a “Facebook-killer.” The app, called Ello.co, took an anti-Facebook attitude and had a sharp manifesto. “Advertisers buy your data so they can show you more ads. You are the product that’s bought and sold,” it read — and still reads. “You are not a product.”

Ello still exists, but not as an alternative to Facebook. Instead, it’s something more in line with its original intent as a platform for creative professionals and individuals who demand ownership of their data and intellectual property.

In fact, no platform really exists that does what Facebook does, and the seemingly insurmountable barriers to entry for viable competitors has led many to wonder whether Facebook is a monopoly. (To users it seems like it, to advertisers — and probably regulators — it’s not.)

In a wide-ranging interview with Yahoo Finance, Berger, Ello’s current CEO, spoke of the company’s struggle competing with Facebook, what it’d take to really compete with the company, and the prospect of regulation.

Ello’s brief moment of hope as the next Facebook

When Ello emerged in 2014, the minimalist design, language and freshness attracted something like 34,000 signup requests per hour, and created a media hype storm that branded it as a real threat to Facebook’s dominance. For Berger, this was unwelcome, given that the company was not even in beta, only had a few million dollars in funding, and was “not for everyone,” as an Ello spokesperson told Yahoo Finance at the time.

The hype got so strong that even Facebook COO Sheryl Sandberg was asked about it (she said she hadn’t heard of it).

Ello’s manifesto from 2014 appears to have aged well four years later. (screenshot by Yahoo Finance)

But when people came from Facebook to see what all the fuss was about, they expected to find calendars, events, photo archives, and things that require the full might of unlimited VC money. Unfortunately for Ello, these things weren’t part of its platform — or their vision for what their specific creative-oriented social media network should have. It wasn’t the space to invite people to mass events or a repository for photos.

“We were never going to meet mainstream expectations, because the expectation was ‘everything Facebook does, but with better policies,’” says Berger. “That was impossible without hundreds of millions. People showed up and they were bummed out.”

What a competitor would need

This failure — which, in all fairness was foisted on the company, since it was not trying to be the next Facebook — illustrated what was needed to take on Facebook: an enormous amount of money.

“The only way to compete is to go to the VCs that made money on these Facebooks and Googles and say we need $200 million to get started. No one will achieve that scale with $5, $10, $20 million — it’s not much money in this space,” Berger says. “Probably no one will pump a billion into social. That’s the kind of money it’d take to meet user expectations when they try it.”

Of course, even with money and the best tech infrastructure on the planet, going up against Facebook may not even be possible. Google + (Plus) failed to catch on spectacularly when it rolled out its social network.

Without selling users’ data or resorting to advertising, the scale problem may not have a solution, says Berger. So far, no one, not least Facebook, has cracked the nut at scale. Perhaps it hasn’t been a priority as most people don’t seem to mind allowing their digital lives to be leveraged — even if some are now upset about it having been involved in dodgy electioneering.

Other than selling users’ information and running ads, the only way to deal with this problem at scale would be a subscription model. Some niche social media networks have versions of this (Strava, for example, is an exercise tracking app that is a social media network) but most people believe the public thus far doesn’t have an appetite to pay.

“We have this baked-in notion that certain services ought to be free,” says Berger. “But it’s not free because of ads and data sales — those are the costs.”

It would take more than money

The first part of the solution, Berger says, is having some sort of cultural shift on data protection or a sense of security. Some of this has happened in other countries — Europe’s GDPR laws aim to give people the control of their data once again — but until a critical mass begins to care, change is difficult.

Budnitz, Berger’s co-founder and former Ello CEO (he left the company), agrees.

In an email, he said that a new network that considers privacy in a consumer-friendly way simply won’t do well. In his view, what Facebook can do with the data gives it such a big advantage that it could be an insurmountable barrier to entry.

It’s what makes Facebook so hard to compete with,” he wrote in an email to Yahoo Finance. The only way around this, he said, is regulation. “It’s going to be up to governments to protect its citizens from these companies, which should also foster competition.”

If the government imposes strong regulations on Facebook, or if some public scandal undermines the platform’s dominance, the result could be a more atomized version of social media. Instead of one big place for everything, Berger envisions a world in which people might favor one niche social network over another.

“I buy things from places that specialize in those things,” says Berger. “No jack of all trades can be really good at everything. Facebook got really good at a lot of things, but at a high cost for personal safety and security, in my opinion.”

Users are already more skeptical about social media. The fact that companies like Facebook actually did save everything you posted, kept track of everywhere you logged in from, and created a profile of what you’re into from the information you gave voluntary shouldn’t be a surprise. But it to many it is and it may be uncomfortable.

Berger, however, cautions users who find themselves caring about this to look in the mirror.

“You don’t to get to blame Facebook,” Berger says. “That’s all in their privacy policy. They said they were doing that — they didn’t trick anyone.”

Ethan Wolff-Mann is a writer at Yahoo Finance. Follow him on Twitter @ewolffmann. Confidential tip line: FinanceTips[at]oath[.com].

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