Facebook and Spotify Face Complementary Nightmares

The two developing tech dramas of early 2022 — the struggle of Meta Platform Inc.’s Facebook to retain users as surveillance-based advertising becomes more difficult and Spotify Technology SA’s Joe Rogan controversy — are really about one thing: Finding the right balance between ad-based and subscription-based monetization models on the internet. Traditional (or legacy, if you will) media failed to achieve an equilibrium between the two revenue sources and suffered terribly for it during the technology revolution of the 2000s. Now it’s the new, tech-based media’s turn to give it a try.

My Bloomberg Opinion colleague Parmy Olson pointed out recently that Alphabet Inc. and Meta Platforms Inc. (Google and Facebook) are finding it hard to remain primarily ad-funded, and that diversification makes other tech giants, such as Microsoft Corp. and Amazon.com Inc., less vulnerable. Yet, unlike Amazon and Microsoft, both Google and Facebook, with 81% and 97% of revenue, respectively, coming from advertising, are at their core content companies, or, narrower still, media companies. They don’t produce the content, but provide platforms for it and ways of locating it. Content production is expensive; staying out keeps down fixed costs, while monetizing other people’s content through advertising has turned out to be extremely lucrative.