Every time Facebook (NASDAQ:FB) releases a new policy update, it seems the social network ignites with comments about how evil Facebook is becoming. Users might abandon Facebook for a little while in protest of policies that let Facebook collect data on its users and help advertisers target users based on that data, but for the most part they always seem to come back.
Now, after Facebook's recent policy change mandating users use real names instead of, for instance, stage names, Facebook users are reportedly flocking to a 6-month-old social network called Ello that promises never to advertise and allows its users to disable tracking. Over the past week, Ello saw up to 4,000 new signups per hour, and it's still invite-only.
Should Ello have Facebook worried?
Rapid growth isn't all it's cracked up to be
There's a funny thing about early adopters. They'll sign up for anything new, especially if it's free. And in the age of the "first" comment, it's something of a brag to say "I'm on Ello."
To be sure, many people have a legitimate reason to use Ello for social networking -- particularly those upset over the new name policy -- but for the most part, it's not very useful. The site, notably still in beta, lacks a lot of the basic functionality users have come to expect of a social network, like the ability to search for your friends or like/favorite someone's post. A lot of people may just be signing up to claim their username and to see if this thing actually catches on.
It's a lot harder to build a community around being the anti-something than it is to build something great and get people to notice. The latter has been Facebook's strategy, and it's worked to the tune of 1.3 billion monthly active users.
Here is Ello's manifesto:
So, while Ello might be seeing 4,000 new users per hour, it's unclear how many of those users will stick around in the long run. It's worth noting that Facebook was able to add about 40 million new active users last quarter -- over 18,000 net new users per hour. And it's not like those new users don't know Facebook collects data and shows ads.
How do you build a social network without ads?
What's interesting about Ello is that it's a for-profit company that has received venture capitalist backing, and most VCs expect a return on their investment. This will put pressure on Ello to monetize the platform eventually.
Ello plans to create a "freemium" model, where users will be able to pay for access to "special features." (This seemingly contradicts its pledge to remain "totally free forever.") What remains to be seen is whether these "special features" will be more valuable to users than the standard features of other social networks.
Facebook generated nearly $8 billion in revenue last year to support its platform and develop new features for its users. Most of that money came from ads. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) generated nearly $60 billion last year, primarily from ads. Ads are an effective and efficient form of monetization. The result is a better product for everyone, not just those willing to pay.
Surely some will pay to support a site that doesn't track their data and show them ads, but the vast majority of users will want most features for free.
If the driving force behind Ello recently has been unrestricted user names, why is Ello seeing such popularity? Twitter and Google+ are much bigger networks with more features, and neither requires your real name.
Perhaps it's Ello's anti-Facebook manifesto. It resonates with people dissatisfied with Facebook's policies. Perhaps it's simply Ello's newness. The novelty factor shouldn't be underestimated here, but novelty fades.
Many Facebook competitors have popped up over the years, and none has hindered Facebook's success. Even Google+, attached to the biggest Web giant of them all, has been unable to come close to Facebook's social-network dominance. Even with mandatory Google+ registration for Gmail and YouTube users (which the company recently ended), the rival social network still has around one-fourth the number of active users as Facebook.
A simple change to Facebook's name policy would definitely hurt the appeal of Ello. Facebook doesn't need to display a real name to know a user's real name, after all. Even without a change, the vast majority of Facebook's 1.3 billion users don't seem to be going anywhere. Ello might attract a small niche audience, but Facebook's ad-supported business is not in danger.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook, Google (A and C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.