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How Facebook could make $12bn by offering an ad-free premium service - and why it might not

Are Facebook ads really that intrusive? So much so that users would be willing to pony up a monthly fee to never see them again (as opposed to, say, using a free browser extension like Adblock)?

If you think that's a crazy idea – and trust us, there are certainly people who would agree with you – you'll have to sum up your thoughts in a 140-character Twitter message and send it over to co-founder Biz Stone. According to the Twitter originator, who self-admits to having just started using Facebook recently, Facebook could allegedly make up to $1 billion (£654m) a month in revenue if a mere 10 per cent of its user base agreed to pony up, say, $10 (about £6.50) monthly for the service.

Stone's idea, published on Medium, cites US-based Internet radio platform Pandora as an example of how subscription services can pay off big for companies that provide them as part of an incentive to ditch advertising. Pandora, after all, has found the highest growth rate among its revenue-generating operations in subscriptions.

"So there you have it," Stone notes.

Would it really be that easy for Facebook to generate a quick influx of cash from subscriptions, however? Stone might have already drunk the Kool-Aid, but Forbes is a bit more sceptical about the plan.

"So what's the problem then? Well, it's three-fold. (1) Nowhere near that many people would pay for Facebook (2) A reasonable subscription fee is much lower than $120 year and (3) Everyone getting Facebook for free would, of course, lower the ad revenue so that free lunch comes with another price," Rogowsky writes, after noting that Facebook only pulled in $4.3 billion (£2.8bn) in total advertising in 2013 – a far cry from the $12 billion (£7.85bn) in annual revenue Facebook could seemingly earn via Stone's plan.

According to Forbes, Pandora's model is the exception to the general rule that today's apps are cheaper than they used to be and generally ad-supported. Pandora's annual costs — $36 (£23.55) — are also quite a bit less than the $120 (£78.50) annual fee Stone would want Facebook to fire up, and it's not as if Facebook's advertising is all that intrusive compared to Pandora's "you will listen to the ad and like it" interruption during one's rock-out sessions.

In other words, you're a bit more hamstrung on Pandora, and thus more likely to sign up for a subscription service to forever remove these interruptions, versus an entity like Facebook that doesn't use advertising as a barrier for entry for any part of its services.

Based on Pandora's conversion rate (paying users vs total users), Forbes estimates that Facebook could realistically pull anywhere from two to five per cent of its users onto a paid-for service — with more North American and European users likely to sign up than Facebook users in Asia or the rest of the world.

Pandora is currently only available to Internet users in the United States, Australia, and New Zealand.

And then there's the snake-eating-its-own-tail aspect of an ad-free Facebook service.

"With consumers leaving the platform, advertisers and brands might decide to spend less on Facebook generally because of the smaller potential audience. That might cause ad dollars to fall even more, which could wipe out the new revenues almost as fast as they come in," Forbes' Mark Rogowsky writes.

Rumours about Facebook charging for access, meanwhile, have cropped up over the years, but the social network has long denied that it's in the works. "It's free and always will be," Facebook said plainly in 2011.