The problem with charging for Twitter’s blue tick is not the $8 amount, but mental accounting

I found myself in the rather unexpected position of agreeing with Elon Musk and even, possibly, defending one of his initiatives. Namely, I think that one good way of generating revenues for a social media platform could be by charging for value added features that people can sign up to, if they want to, but without which it is still perfectly possible to use the platform.

Twitter’s current lords & peasants system for who has or doesn’t have a blue checkmark is bullshit.

Power to the people! Blue for $8/month.

— Elon Musk (@elonmusk) November 1, 2022

https://platform.twitter.com/widgets.js

This strategy is quite popular in digital games, mobile apps and some software. For instance, I can use the free version of the Duolingo app to learn and practice Italian. Sure, I could upgrade to the paid version if I wanted to use the app for longer than I do (because I wouldn’t have a limit on the number of mistakes that I am allowed to do, per session); or if I wanted a personalised learning plan. Those are valuable features of the app for some users who, accordingly, pay for them. But I, and others like me, can still use the core elements of the app without paying.

This pricing strategy – whereby customers can get access to a basic version of the product for free but will need to pay for specific features – is called freemium.

Freemium is used by some social media platforms, already. For instance, we can use many of LinkedIn functions for free, but need to pay for features such as e-mailing people outside of our network, or seeing who, outside of our network, has been looking at our profiles. Likewise, we can read a number of articles for free on Medium, but will need to pay if we want unlimited access to articles on the platform. So, in principle, the same mechanism could be used in Twitter. The question is whether charging for the blue tick is a good way of doing so or not. In my view, the answer is both yes and no.

Answer 1: yes, it is a good idea to charge for the blue tick

Charging for the blue tick would be a good application of the Freemium strategy because users can still use the key features of Twitter (namely posting and reading tweets) without the tick and, thus, for free.

The main benefits of the tick for the user are that it is a status symbol and that it reduces the cost of proving to potential followers that they are who they say they are and, thus, makes it easier to get more followers (which, in turn, may be monetised, for instance, via sponsorship deals with brands). These are valuable attributes for users that are trying to stand out from the crowd, and make sure that their content is seen amid the sea of 486 million Twitter accounts. Indeed, for many blue tick users, the $8 / month* might even be a deductible tax expense, meaning that its actual cost for such users would be lower than that.

Answer 2: no, it is not a good idea to charge for the blue tick

Freemium does not work for the blue tick because users have had it for free for a long time. The “price tag” of zero has been in place for such a long time that it created what behavioural economists call an “anchor”. When we are looking at the cost of the blue tick ($8 / month), we are not comparing it with the benefits mentioned above, as we might do in a “rational” accounting system. Instead, our mental accounting system compares the $8 with the blue tick’s current price (i.e., the anchor), which is zero. It is anchoring, not the specific amount of $8, that makes the blue tick sound so expensive for those users that already have it. 

In summary, while the freemium model could help Twitter get out of a financial hole, Musk needs to use it on some other feature that users value, and which is (or is seen to be) new. Maybe the number of tweets that someone can post in a given period (like Medium)? Or, even better, the much-desired edit button? 

* adjusted for purchasing power parity