What Does Ello Mean for Paid Social Advertising?


Mathew Sweezey

Will Ello’s closed, data-protected model mean changes for the social advertising landscape?

Here’s the great question among marketers these days: What happens when paid social media is the only way to reliably reach your prospects? What does this mean for consumers, and what does this mean for advertisers?

The breakdown is simple. Advertisers need data, and the data is coming from personal engagements on social networks. It’s not really a violation of privacy, but it’s definitely a grey area, especially now that new social networks like Ello have cropped up. Ello¬†was founded on the principle that they will not sell your data; instead, they plan to earn their revenue by asking the consumer to pay them for the service. If this trend takes off, it may mean a decrease in the number of datasets we have access to. Over time, it may remove social data completely from our data pools, extremely limiting the effectiveness of our paid advertising efforts. So the great questions we need to ask about Ello are: will consumers use it, will it gain scale, and will others social networks follow suit?

The world has an aversion to data collection for a lot of valid reasons, but also a lot of invalid reasons. Sure, nobody wants to live in a live rendition of 1984, but nobody wants to live in a world full of spam either. These two worlds are connected, yet many people don’t realize this. People feel that more data will only result in more advertising, and they believe this to be a bad thing. Honestly, it’s a good thing. Break down the numbers to see it. The cost of advertising hardly goes down, except for very short periods of time when new technologies have to be proven and adoption has yet to reach sustainable levels. Once this happens, it is more expensive than previous methods, but also more effective.

Let’s take Google pay-per-click (PPC) marketing as an example. When it first came online, it was not well understood, and it was CHEAP. You could buy clicks for pennies for any keyword you wanted. Now keyword clicks can cost up to $500 for highly trafficked or highly valued search terms. Conversely, people are willing to pay these high prices because of the targeted quality of the advertising and the returns they see from it. Do consumers dislike it? Not really. They don’t click on them as much as organic, but you don’t see people wanting to block them, either. They are relevant to a person’s search, and give the consumer more options.

This is what paid advertising is about. We can serve better, more targeted ads – and while the cost of the placement goes up, the returns go up as well. The consumer doesn’t see more ads, just more relevant ads. So rather than seeing things they don’t want, they will see more things that should be helpful to their daily lives, rather than spam. The reason is simple if you’ve been following along. The cost will reach such a point that companies can’t afford to spam you. If you don’t engage, it will be a massive loss to their bottom line. They’ll have to create better content and pay more attention to who they show those ads to. This is all good for us as consumers.

The other big issue with data collection is privacy. If the naked picture scandal due to a hacked iPhone doesn’t teach us anything, nothing will. Nothing is safe if it’s in a digital form. It can be found, hacked, and used regardless of what it is or where it is. If you choose to operate in a digital world, you have to be aware of this. It’s better to operate under the assumption that the digital domain is a public domain, and that nothing you do in it is private. It’s a scary thought, but safer than thinking that your data is secure.

This whole data issue really boils down to one thing: do consumers have such an aversion to being tracked and having their data sold that they will actually flock to a new social network where this doesn’t happen? The answer is that a few of them will. Ello is a brand-new social network currently in Beta. They have a manifesto that talks about not selling data and creating a place that is for their users, not for the profit of their builders. There is quite a bit of buzz around this platform in the uber tech community, but I’m not sure if it will dethrone Facebook or any other social network any time soon.

The next question on Ello is: Will it gain scale? Scale is a funny thing, and it’s a question that is hard to answer, especially in this case. Scale refers to a social network’s ability to truly be social. It’s hard to be a social network with only five users, yet that’s almost what Ello wants. The typical argument on scale is that you need enough users to make it viable for advertisers to target. On a cost-per-mille model, you would need millions of users in order to have billions of impressions. Ello is banking on the idea that users will pay to protect their data, rather than have a network full of advertisements. Scale to them really is quite different because they only want users who will pay for the service, which means only the people who are turned off enough by paid social advertising and data collection to give them money to escape it. They also present a very heavy graphical experience, while most other social networks do not. This helps them target more high-end, tech-savvy users. If you pay a few bucks per month, and figure they need at least $1 million per year to say afloat and make this worth their while, they will need a few hundred thousand paying customers. This is a very small scale compared to the billions of users on other social sites.

Will other social networks follow in Ello’s digital footsteps? This is another tricky question, because every site “protects” your data in some way and only sells it in chunks. You can’t just go to Facebook and buy my individual record; instead, you’d buy a grouping of data points, which I may be one of. The IAB, which governs all of this data and advertising, does not allow for personally identifiable information (PII) to be sold or used for targeting. For any existing social network, making this distinction more clear or allowing for a paid model is quite easy. However, when it comes to switching to the Ello model, the payoff is so small (comparatively) and the market so small that it’s unlikely other existing social networks will follow suit. For new social networks in the future, this may pave the way for smaller niche networks that are based on a paid model rather than the ad model. Do I honestly see this happening? Not really. Why would someone pay for something when they receive more value from something they don’t pay for? The only people to receive more value from a tool like Ello are those very nice customers who care so much about their data privacy, care about nice GUI, and believe in the same mission. This is a very small segment, but one that I hope pays off for them.

So what does Ello spell out for the future of paid advertising? It scratches the surface but doesn’t really affect it at all. The reality is that there are so many data points available from so many great sources that not having this small cluster isn’t a big deal in the grand scheme. It does mean, however, that if you are trying to target this demographic, you are probably going to have to pay more for the data you can find on them. Be respectful with how you engage and consider looking at other avenues than paid advertising to reach them. I’m personally excited to see people trying to break new ground with new revenue models for social, and excited to see how they execute. Their future may help bring about new advertising options for all of us down the road, but in the short term, it will not affect the current scope of the paid advertising world.