Can Ello be the New Facebook (NASDAQ: FB)? Investors Surely Think So

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By Hanson So on October 23, 2014 Social Media

The social media networking giant Facebook (NASDAQ: FB) might finally face some tough competition, this time from a completely free social network called Ello.

Facebook (NASDAQ: FB) has come under fire in recent months after several cases of privacy breach have been reported, including a report by the Wall Street Journal which revealed that over 10 applications on Facebook (NASDAQ: FB) have been covertly selling or freely transmitting user identification information to tracking companies on the Internet.

This breach of privacy, according to analysts, stems from the loopholes in Facebook’s (NASDAQ: FB) security model, which has become too open to protect personal user information. It has become much easier for companies and applications to market on Facebook (NASDAQ: FB), making its users vulnerable to scams and badgered marketing.

Facebook (NASDAQ: FB) has been constantly losing users this past year for this same reason. Facebook’s model is advertising-friendly rather than user-friendly; even the news feed is set by Facebook (NASDAQ: FB) to display sponsored stories most relative to the user’s tastes and preferences. Users can set the news feed according to their own preference, for most recent posts, etc. But every now and then, Facebook (NASDAQ: FB) resets this setting to fit its own model.

This model is motivated by advertising revenue, one which is starting to become counter-productive for Facebook (NASDAQ: FB). Users on the social networking giant are getting bored of the excess amount of ads on their news feeds.

Ello, however, promises to bring a social networking platform which would not run on advertising revenue, hence would not house any advertisements on its platform. Ello also promises to keep user data confidential, without ever releasing it to any third party apps.

But where will Ello generate its revenue? The newly started social networking website hopes to generate revenue through micro-payments and other investments. Ello has already garnered $5.5 million in investments in just a few months; the company started operations in August. As far as micropayments are concerned, Paul Budnitz, Founder of Ello, says that “For a few dollars, you can customise Ello to do what you want.”

According to Ello, the company is bound by law to never release user information, so users can rest assured their personal information will never be compromised. For users aggrieved by Facebook (NASDAQ: FB), Ello offers a great opportunity to reconnect with people on a social networking platform once more. For anti-Facebook investors, it offers an even greater opportunity to bring down the social networking giant.

Investors are in no hurry to see Ello become successful. According to Lee Bouyea, an investor of Ello, “We are long-term investors. We have a company on our portfolio we invested in for nine years before they were successful.”

Founder of Ello Paul Budnitz is very optimistic about the company’s future. According to him, “Our business model is tried and true – it’s used all over the place, it just hasn’t been applied to social networks.”

However, some analysts are not so optimistic about the company’s future. According to James McQuivey, a Forrester (NASDAQ: FORR) analyst, “You don’t invite your friend to connect with you if it costs your friend money.” For James, and many other analysts, users are simply not ready to pay for social networking.