How Ello made it illegal for it to sell ads

Ello has announced it received $5 million in funding and has become a public benefit corporation, writing into its charter that it will never sell ads or track user data. But many critics doubt that the trendy new social media site can turn a profit.

Ello, the "anti-Facebook," has been around for only two months, but it has already taken the Internet by storm. Since its founding, Ello has said it will never sell ads or track user data, a claim that the social network is backing up with its corporate charter.

On Thursday, Ello announced it has become a public benefit corporation in Delaware. Public benefit corporations are a new class of corporations, allowed in more than two dozen states, that are intended to create a positive impact on society. There are 1,100 public benefit corporations nationwide, including Patagonia, soap-maker Method, and Plum, Cambell's Soup's organic baby food subsidiary, according to Benefitcorp.net. 

Ello's new charter says, "Ello exists for your benefit, and will never show ads or sell user data." Under Ello's charter, it is impossible under US law for any investor to require the site to violate its charter. If Ello is ever sold, the buyer would be bound by these conditions. 

“We’re really creating a way to enshrine Ello, legally, as what we intend it to be,” Paul Budnitz, Ello’s founder and a serial entrepreneur, told Wired. “The bottom line is we’re not going to sell out and no one can make us sell out.”

Ello also announced Thursday that it raised $5.5 million in its first round of funding. The funding was led by Foundry Group, Techstars' Bullet Time Ventures, and FreshTracks Capital. 

"Ello is using the power of their business to solve an issue that has been on the forefront of social networking for the better part of the last decade," Seth Levine, managing director at Foundry Group, said in a statement. "We're committed to their manifesto and are in this for the long haul."

Ello is a new social media site that's been dubbed a Facebook killer. The major attraction of Ello is that the site maintains that it will never sell ads and won't track users' data.  The site began on Aug. 7 with only 90 users. But the anti-Facebook motto made the site a quick success, and Ello has more than a million users and is signing up 45,000 users an hour. Because of the demand, the site is invitation only, and Ello says it has another three million people who have requested an invitation.

“I’m doing everything I can to make it easy and simple with a good community of users," Budntiz told The Christian Science Monitor in September. “We are proving that there is a hunger for another model of the Internet.”

But critics wondered how, if not through advertising or selling users' data, will Ello survive? Investors don't give a company $5 million in funding if there isn't a way for it to make a profit.  Budnitz says he has an answer. Ello is mimicking the Apple and Android app store model. Ello users are able to perform basic functions, like send messages to friends, write posts, and interact with other users, but Ello will sell special features, enhancements, products, and apps for a couple of dollars. 

“Its sort of like buying an iPhone that’s empty. Everyone buys apps to customize it. Ello is simple on purpose. You can customize it anyway you want with features,” Budnitz says. “We are applying [the app store model] to a social network. The people who are cynical [about] our success are relegating the Internet to one big billboard. And I think it’s sad that the Internet is one big billboard."

Ello has everything startup companies are striving for: funding, buzz on the Internet, and a large amount of users who want to use the service. But social networks are only as good as the number of people that use them, and while Ello's motto is currently attracting a lot of attention, it remains to be seen if the site will be able to keep it going.