Facebook (NASDAQ: FB ) is looking for new revenue streams. Users may soon be able to pay a subscription fee to make the social networking site's annoying ads go away. That trade-off would be worth good money to many current users, who feel Facebook's service value eroding more with every unwanted sales pitch.
But I'm not here to dive deep into the implications for Facebook's future revenues in this move. Let's just say that I expect monthly fees to go down like Brussels sprouts with a side of rotten fish. Internet radio maven Pandora Media (NYSE: P ) offers a reasonable proxy for Facebook's ad removal fees, having offered a very similar option for years. Subscription fees accounted for just 11% of Pandora's revenue in the last quarter and continue to grow slower than ad sales. Expect the subscription-hating trend to continue when Pandora reports earnings again tonight.
No, I'm here to show you how Facebook's brand-new business idea underscores the shortcomings of our current patent system.
You see, the idea came to light in a patent application, filed in 2011 but made publicly available a few weeks ago. It paints the ad-free upgrade in extremely broad strokes: "In particular embodiments, the user may select one or more social networking objects to replace advertisements or other elements that are normally displayed to visitors of the user's profile page that are otherwise controlled by the social networking system. ... In particular embodiments, the user is billed on a recurring basis for profile personalization."
But like I said, Pandora has been doing exactly this for ages, and it's not like Pandora invented the idea to begin with. In a wider sense, premium cable channels like HBO or Starz serve the same purpose: More content, fewer distractions, no advertising. Sirius XM Radio offers the same ad-free value proposition in the radio space, as long as you're willing to pay for the privilege.
And now Facebook wants to patent the idea of paying more for a more personalized, less distracting service. The application is silly on the face of it, but the Patent Office is likely to grant it anyhow. You know, like they handed Apple (NASDAQ: AAPL ) a design patent for rectangular tablets with rounded corners -- a crazy grant that Cupertino nevertheless has wielded with some success in courts around the globe.
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We're walking down a very dangerous road here. Somebody needs to put a stop to gratuitous patent grants before true innovation becomes impossible.
Patents are supposed to reward inventors of original ideas. Patents like this one only rewards the first person or company to file a claim for patently obvious ideas.
For another example of misguided patent grants, consider Vringo (NASDAQ: VRNG ) . The company owns patents on such brain-bending innovations as placing ads next to search results. Business value: billions of dollars. Innovation value: zero. Any fifth-grader could come up with the same idea independently, but Vringo's predecessors happened to file the first patent claim.
So a completely obvious idea becomes a bludgeon in worldwide patent lawsuits. Facebook is just looking for another mallet, if only to beat back baseless suits from whoever actually tried to patent this plain old business process first.
After the world's most hyped IPO turned out to be a dunce, most investors probably don't even want to think about shares of Facebook. But there are things every investor needs to know about this company. We've outlined them in our newest premium research report. There's a lot more to Facebook than meets the eye, so read up on whether there is anything to "like" about it today, and we'll tell you whether we think Facebook deserves a place in your portfolio. Access your report by clicking here.