An interesting and revealing thing happened on Twitter in the past few weeks. The infamous blue check mark, once a status symbol among people in media and others who spend too much time online, took on a negative connotation. There are even hashtags shaming subscribers to the new fee-based “Twitter Blue.”
On its face it is not clear why; there should be no shame in paying for a better Twitter experience — especially if you spend many hours consuming it.
The drama revealed many behavioral biases and why they pose a challenge for an economy in transition. The tech economy bet on a business strategy that offered free services as a lure to build a network that it could one day monetize. That day has arrived, and it turns out networks might not be able to convert to a profitable model.
In fact, charging money now might kill their current money-losing model entirely.
The Twitter snafu is in some ways a special case. Twitter owner Elon Musk is a polarizing figure. The blue check mark started out free and was only given to confirm the identify of people who had some public notoriety, or as in my case, people who worked for a media company. It conferred status and made your Twitter posts more visible.
Now you get the blue check only if you pay for it — or you are extra-special notable, like basketball star LeBron James.
It is like buying your way into nobility, except worse because most of the old nobility lost their status at the same time. You do not have to read much British Regency era literature to know that nothing is more gauche that buying your way into status, especially if the original status holders’ position feels precarious.
Never mind that subscribing to Twitter Blue has some useful features and offers a better user experience. The check mark now brands you as an arriviste or worse. The reaction to the Twitter Blue rollout put the most tribal and hierarchal instincts on raw display. It was a sight to behold.
Hands down, I spend more time on Twitter than any other Web site, including those that cost me more than US$8 a month. Twitter is a very useful tool. It is where I get breaking news, promote my work, follow economists who make sense of the latest data and share their research. I probably get more value out of Twitter than any other Web site or social media company. Yet I have no plans to subscribe. Nothing against Musk. Nor is it because I would feel ashamed of paying for the check mark.
I tell myself I will not pay because, as useful as it is for work, I do not think Twitter is good for me. I blame it for my ever-present, low-grade outrage that so many people are racist, anti-Semitic or just do not understand economics. Subscribing to Twitter is like buying a carton of cigarettes after years of bumming them for free.
The other reason I do not plan to subscribe, which I think is a bigger issue, is that it is just hard to pay for something that used to be free. Check-marked Twitter was a free service before and paying for it now feels like a rip-off. If someone told me when I joined that I could get all those useful professional services for US$8 a month, I would have happily subscribed, but paying for something that I have always received as a free service is a bridge too far.
It is not just me, and it is not just Twitter. Many of the tech firms that have become interwoven with our lives got that way by offering their services for free — and now they are starting to charge. Hootsuite, a tool to consume social media, is eliminating its free option, Amazon is to start charging a fee for some returns.
I only pay to subscribe to one streaming network, but watch all of them because I share streaming passwords with my family. Once Netflix starts cracking down on sharing passwords, and I expect other streaming networks to follow, I do not see myself subscribing to them all. Not because I do not watch, but because I did not pay before and I will not start now.
Apparently there are a lot of people thinking the same way. Netflix lost more than 1 million users in Spain in the first three months of this year, which was when it also started charging a fee for password sharing. Who knows what might be next? A fee for Gmail or Google Maps?
This was all brought about by a business strategy that was essentially a big bet on the value of network effects. These services were valuable if everyone, and in the case of Twitter, notable people, used them and talked about their experience.
However, getting people to use the product meant not charging anything or allowing one subscription to cover friends and family. No surprise, many tech firms did not make much of a profit, if any at all. The thinking persisted: If you have such a large share of a market that many people use and use frequently, there must be some way to monetize it, either by selling their data, with advertising or by eventually charging for it.
Low interest rates enabled this way of thinking because money was cheap and always available, but now the advertising revenue is not always enough and can be unpredictable, and data collection is becoming too regulated to be as useful as before.
So with those two strategies not panning out at the same time higher interest rates are crushing the flow of easy money, it seems we are going to have to start paying for once free services.
What the tech firms fail to understand are human behavioral biases. It is one thing to charge for a service and raise the price, but we have a weird psychology around free things. It is a much bigger hurdle to go from paying nothing to paying US$4 than to go from paying US$1 to US$5. Perhaps tech firms were counting on the endowment effect — that once we have something (or a service) we would value it so much that we would pay for it rather than lose it.
However, this can backfire if people feel cheated, or just resent that something is being taken away from them.
Perhaps it will change over time. I do not see myself leaving Twitter, and if the subscriber experience is really much better, maybe I will eventually get over my reluctance and one day just decide to pay up. Or if Netflix has a show I must see, maybe I will subscribe to watch it, then procrastinate and forget to cancel my subscription.
Or maybe I will just get used to doing without the services they want me to pay for.
If tech firms do not want to bet their future revenue on that kind of serendipity, they are going to have to offer a better value proposition, or markedly improved services, that can make their customers feel like they are getting a fresh start with something new that is worth paying for.
Allison Schrager is a Bloomberg Opinion columnist covering economics and a senior fellow at the Manhattan Institute.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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