Social networking newcomer Ello, which saw a massive increase in popularity last month after unintentionally serving as an alternative to those protesting Facebook’s controversial name policy, recently raised $5.5 million in Series A funding from Colorado-based venture capital firm Foundry Group.
The funding might come as a surprise to some given Ello’s stance on advertising and user privacy, namely in that it rejects the former and has vowed to protect the latter. Investors need to eventually see a return on the money they give to their startups. In order to provide that return, the past decade’s social networking startups have flooded their sites with advertisements and sold their users’ data to marketers.
When Ello first made waves, many in the tech world (myself included) derided its plan as unrealistic. How would a social network be able to support growth while ignoring the two biggest potential revenue streams? It didn’t help that one of Ello’s founders, Paul Budnitz, seemed largely unconcerned with making money off the site, telling BetaBeat, “you’d be surprised how little data costs nowadays.” How would Ello be able to stay afloat while keeping the lofty promises it made to its users?
The solution was to register as a Public Benefit Corporation (PBC). Budnitz explained to BetaBeat this week that the classification, which applies only to about 1,140 other organizations in the U.S., means Ello will be “obligated” to follow its mission. The classification involved a “legally binding charter” declaring that Ello will never sell user data or embrace on-site advertising, nor will it ever be acquired by a company that would do so. By creating a specific mission and filing as a PBC, Budnitz told BetaBeat the company “really cannot be forced by our investors to break the basic principles.”
This development turns Ello into a make-or-break venture, and Ello’s investors are aware of that. Seth Levine of the Foundry Group told BetaBeat, “we’ll either build a business with Ello that doesn’t rely on selling data and advertisers, or we’ll fail.”
The funding also brings some truth to a common nickname used to describe Ello – “the anti-Facebook.” Those of us who used Facebook in its early years remember what it was like before it became bombarded with advertisements – some of which are almost hilariously inaccurate – based on data Facebook had scraped from our browsing behavior. Ever since my girlfriend used my laptop to buy a dress this summer, I’ve consistently gotten ads for women’s clothing in my news feed, for example. I’m sure Facebook never wanted its product to get so diluted, but after receiving millions upon millions of funding, it had to start carrying its own weight. Ironically, the pressure to turn Facebook into a money maker has made the finished product almost completely undesirable to younger demographics that are so important to its continued success.
Last month I expressed my concern that Ello would have to break its promises and embrace advertising in order to survive, just like every other social network did. This round of funding proves me wrong in regard to its advertising and privacy plans, but I’m still not convinced it will be able to live up to all of its promises.
When it first got attention, Ello’s founders capitalized on its role as a haven for those protesting Facebook by declaring that its service would be designed to both encourage free speech and protect users from hateful or offensive content. This, of course, is something that every social network promises to do. A recent article at Wired (warning: some graphic material is described) profiling the underpaid and psychologically tortured contractors who keep the most offensive content off of social networks illustrates just how difficult that is. Considering how much hate speech and violent threats still make their way onto these sites, Ello would need to do something seriously impressive with that $5.5 million in funding to accomplish what other services could not.
And while Ello and its founders seem admirably undeterred by those who doubt the site’s potential, I’m still not convinced. First, its business plan doesn’t seem too promising. Ello is free, but the company plans to charge for additional features and services within the site. It's similar to Tumblr, which offers free blog platforms but charges for the more appealing layouts. Tumblr is now a property of Yahoo, and since it was acquired it has been flooded with advertisements. Neither the acquisition nor the advertisements are an option for Ello.
Then there’s the fact that people might not even be interested in joining Ello. Some privacy-minded users are likely to get excited about it, but if enough people really cared about privacy then DuckDuckGo would be a household name.
If nothing else, Ello is now Officially Interesting, a sort of experiment to see what social networking can accomplish if it rejects everything that has made it objectionable. That just happens to be, at least from a financial sense, what’s made it successful.