Much has been said already about the uproar caused by the announcement of changes to Instagram’s Terms of Service. Celebrities, big brands, and plenty of regular folks expressed emotions ranging from reservation to outrage to intent to leave Instagram altogether.

I planned to write a little something about all this as soon as I had a spare minute—the week before a holiday is notoriously busy—but it wasn’t until yesterday when I read David Burn’s piece on AdPulp that I was finally able to wrap my head around what I think is the deeper problem evidenced by this tempest in an Instagram teacup, the faulty business plan of most major social media networks.

The Problem with the Typical Social Media Network Business Plan

Once upon a time, I worked for a couple of real estate magazines. I realized quickly that the biggest problem with these magazines was that, because they were free to the user, these magazines bore little accountability for the experience they provided to the people who actually used their product. And believe me, the experience was awful! Good luck on quickly finding the handful of houses that actually meet your search criteria.

Despite being a pretty terrible product, this all worked for a while because there were no other alternatives. Then the Internet came along and improved the user experience, making it possible for people to search for housing in a way that was most useful/convenient to the potential buyer rather than the egocentric sellers and advertisers.

I recount this little tale because a similar thing is happening now with social media networks. These networks have grown immensely popular, cementing the techno-powered social networking behavior into our culture. Most of these networks have gained popularity by providing—at least initially—a superior user experience. They found a way to make it easy for people to connect, communicate, and collaborate, sometimes across great distances.

Now, as many of these networks move out of their childhood and into their adolescence, their investors are pressuring them to find a way to monetize—a reasonable expectation given that a return on investment is an investor’s ultimate motivation.

Unfortunately for users, most of these networks have pursued advertising as the primary method of monetization. Much of this advertising—often billed as “help” (e.g. Suggestions, Recommendations, etc.)—is unwanted because it disrupts the user experience, the very thing that attracted the users to the network in the first place.

Simply put, the business plan for most of these networks has amounted to this:

  1. Create a cool new social network.
  2. Attract users by making a behavior easier and/or more fun, i.e. championing the user experience.
  3. Monetize the social network by compromising its core benefit, superior user experience.

I’m not sure you could draft a more flawed business plan.

As it turns out, free social media networks don’t work all that different from free real estate magazines. You can only get away with a crappy user experience for as long as there are no other alternatives. And sooner or later, new alternatives always present themselves.

My guess is that the successful social networks (and other startups) of the future will be the ones that find a way to monetize themselves that does not require a compromise to the user experience. Somewhere right now, maybe in a coffee shop, a dorm room, or a basement apartment, somebody’s working on cracking that nut.

Facebook, Instagram, et al, consider yourself on notice.