Say “Hello” to Ello

Do you remember when Myspace was the king of social networks? Launched in 2003, Myspace dominated the online social sphere from 2005 until 2008 when Mark Zuckerberg’s Facebook made it obsolete. Facebook gained popularity so quickly that by August 2008 it had over one million active monthly users. Now, Facebook has more than 1.32 billion monthly active users. However, like all products, Facebook too has slowed in growth. The social network makes enormous amounts of money by selling users’ data to third parties and by selling advertising space. Although Facebook is constantly evolving, many users are now becoming concerned about their privacy. Facebook began as ad-free, but then quickly changed its privacy policies in order to gather and sell users’ data to advertisers. In contrast, Ello began as a private social network, but due to high demand is going public. Many attribute this high demand to its unconventional privacy policies that users realized were very important to them.

Ello, founded by Paul Budnitz and a team of six other artists and programmers in March of 2014, is described by many as being a sort of “anti-Facebook.” The small team consists of Budnitz, who came up with the idea for Ello, Todd Berger and Lucian Föhr, two well-known graphic designers from Colorado and three programmers, Gabe Varela, Matthew Kitt, Jay Zeschin and Justin Gitlin. The main features of Ello are complete privacy and no advertisements or data collection. Ello only gathers site usage statistics that it compiles so as to ensure that the data cannot be tracked back to any individual user. If one really wants too, Ello even allows individual users to opt of this tracking if they so wish. The layout of the website is stylistically very clean and simple, and the social network is still in beta mode which means that users can only join by invite.

Despite being so young, Ello has been drawing a lot of publicity. Awareness about Ello exploded in September 2014 due to LGBTQ+ issues that Facebook ran into. Facebook requires that users use their real names which some argued would exclude drag queens from the social network.  As a result, Ello began to see record invite requests, which reached a peak of 35,000 requests per hour in late September. Invites became so coveted that some people were able to sell their invites on Ebay for around $500. With no advertisements, complete privacy and such high initial demand, it is not difficult to see why some think Ello could trump Facebook. In order to topple the king of social networks however, Ello will need to overcome many challenges.

Some of the most stringent criticism Ello has received address the design of their website. Although it is very clean with lots of whitespace, many complain that the user interface is not very intuitive. There is only one omnibar which acts as a multi purpose tool, serving all at once as a place to post, search content, send messages and tag people in posts. While some find this useful, many others find it very confusing. Typing “@” will tag someone in a post while typing “@@” sends a private message. Additionally, since Ello is still in beta mode, there are many glitches and bugs. This is partially due to the tiny team that currently manages the social network and also partially due to interface specialization. The trick is to make a social network unique enough to offer a differentiated product that will draw users away from the big players such as Facebook and Twitter while being similar enough to make the transition smooth and effortless to these same users.

Finally, Ello lacks a business model that outlines a cohesive plan as to how they will ultimately generate cash flow and revenue. Facebook makes money by selling advertisements and data collected from its users. Since Ello’s selling point hinges on its promises to never have ads or track users, how exactly will it generate revenue?  The company was funded by an initial investment from a venture capital firm that will certainly be expecting  returns. Initial critics had thus hypothesized that the future would force Ello founders to face a stark dichotomy: bail on their values of privacy and no advertisements or go bankrupt. However, on October 23, 2014, Ello officially became a USA Public Benefit Corporation (PBC). A PBC is defined as “a special for-profit company” that operates to produce a benefit for society as a whole. As a PBC, Ello is legally obligated to take into consideration its impact on society in every decision it makes. The agreement codified a set of rules that effectively prohibits Ello from ever selling user data or displaying paid advertising. Instead, in order to generate revenue, founder Paul Budnitz claims that Ello is looking into a “freemium” model in which users would pay a small amount for extra features. This however remains very vague and would most likely not be able to deliver substantial returns. Since hosting and monitoring a social network requires vast amounts of financial and human capital resources, even just to stay afloat, Ello will have to figure out a way  to cover its costs and pay its employees.

Finally, Ello will be facing a steep upward battle against Facebook who has the first-move advantage. Facebook already dominates the social scene and has recently acquired several new companies such as Instagram, which gives it a huge amalgamation of power. It is very well refined, and offers many more features than just posting information (games, apps etc.) Facebook thus benefits from vast economies of scale as well as network effects. The point of a social network is to connect with a wide range of people and Facebook’s staggering 1.23 billion monthly users make it a powerful force to contend with. By comparison Ello has only a little over one million users, of which only 36 percent have yet posted. Of those, only 27 percent have posted more than three times. Thus, Ello, with its strong emphasis on customer privacy, has introduced an interesting new value proposition. However it is clear that it faces many challenges. Ultimately time will tell whether Ello has a chance at success or if it will fail like so many other social networks before it.