The User, The Consumer, The Public and Monetization

I really have been thinking lately about monetization.  And the difference between people when they are “the user”,  “the consumer”, and “the public”

You can have a super useful site for the user, but they aren’t willing to pay for it.  They’ve come to expect it for free and won’t try unless you give them a free option.  You can certainly have a Fremium model, where you add premium features for money.  Or you can have a very valuable model for a particular vertical, building it really deep and have a great niche business being just an entrepreneur.

There is no doubt you can provide a service to the user for free that is of tremendous value to the user.  If you can get a community aspect going, so that one person will recommend it to another, you can go viral.  You can get a ton of awareness.  You definitely can put in advertisements.

Notice, I did not put the word consumer in there at all, because to be a consumer you have to be in the mindset to consume.  Pretty much every long term multi-$$$Billion success catered to people when they were consumers.  Amazon, Diapers, Zappos, Groupon (for now), Google (when you searched for something to buy, the rest is a loss leader).

Models that were successful catering to the public and monetizing via advertising generally worked on the awareness principle, charged a subscription fee (cable, magazines) and layered on advertising for profit.  Yes you were not a consumer at that moment in time, but you would remember when you turned into a consumer.  In general these were content businesses serving the public.  Content kept your awareness and you could mix in marketing messages.  They weren’t things you could digest quickly and ignore the advertisements (a great example is free email).

I’m not saying you can’t have a successful model by providing a valuable service to the public and getting companies to advertise for awareness.  Facebook is super powerful because people are both users producing their own content and the public viewing others content.

I am saying its very hard to have $$Billion Dollar companies not based on either charging “the user” for their value: Microsoft, or having the power to directly deliver “the consumer” to the seller: Google, or producing at great expense professional material for “the public”: Hollywood.  The reason is that everything you do to monetize goes against the very grain of making your site useful to the public.

I don’t want to watch an ad because I am doing something else at the moment.  So you can have a really nice business, but if you are looking for a “thunder lizard” you eventually put in so much annoying shit, that the next company “steals your heat” by leveraging off the awareness you built, uses the next generation of technology to deliver the service at a lower internal cost with a better interface,  and comes in with a lean structure.  All of which means they can disrupt your model, and since you’ve grown to the size of the fishbowl, because the biggest fear of your investors is that you don’t “scale ahead of the curve” its brutal and dis-heartening for you to make the cuts you need to compete.

Technology makes it easier and easier for the users or the public to strip out advertising or falsify their information or use or some other service to obscure their identity.  It also meant that the users or the public could see what you did with their data.  I think most people would be appalled at how their data is whored out in the list industry but its hard to see versus privacy settings.

None of this is saying that these businesses are not valuable, just that when somebody says, they haven’t even started to monetize the users they are serving, I wonder if people are mixing up words user and consumer..

You can move me from my consumer state to my public/user state easily. They let me make comments….cool! They have a forum where I can look for answers? Great! They are trying to add value not trying to extract value. They’ve already extracted value.

Moving me from my user/public state to my consumer state is much harder and causes much annoyance. Stop sending me fucking emails in the middle of the day clogging up my email box telling me there is some new book about herb gardening, because I stupidly told my wife my pay phrase. I hate mowing around that thing. I’ll show you. Bam….Report Spam Button, you’re ass is gone forever.

  • Aaron Klein

    Great post.

    I had an interesting discussion recently about a product that would help users find something in particular (it’s in stealth so I can’t say) and then connect those users with an offer to get that something at an awesome rate. The company will be wildly profitable if a tiny percentage takes them up on that offer.

    The question was raised – why don’t we have advertising on the site?

    And to me, that question raised the same issue as your herb garden example. No matter how relevant the ad, why would I distract someone from the thing they have already professed to need, which makes me $200…and show them something that has to be less relevant and makes me 10 cents?

    I’ll take ready-made consumers focused on fulfilling a need for $200, Alex… :)

  • Anonymous

    Good point.

    I’m not saying advertising isn’t worth something it is, but I think its gotten to be “pixie dust” in quite a few valuations.

    People say “my kids spend all day in front of Facebook”. Ok, that is true, but the question is how much can Facebook make from that attention? I’m saying I don’t know but right now its not very much compared to their valuation. Could that change? Yes, but it won’t be by increasing advertising by ten fold. It will have to be monetizing transactions.

  • Aaron Klein

    Clearly 98% of the usage is a loss leader to drive the network effects that find the 2% of profitable traffic. Maybe I’m overstating the percentages, but I think you’re right on.

    Other than social gaming (which I, in a very un-hip way, find extraordinarily useless and annoying) driving Facebook Credit sales, advertising is really the way Facebook is monetizing, and as best I can tell, whatever success they have is driven by the combination of locality + the interests you list in your profile.

    I say that because I’ve probably only clicked on five or six Facebook ads in my life. Most were for social or political causes I agree with. The only one that has ever driven commerce from me was a Michael Buble concert ad (combining my “like” of his fan page and my geographical location).

    So I love interacting with friends on Facebook, but I’m definitely in the 98% most of the time. They need to put themselves into the transactional flow more often to really monetize.