With Silicon Valley facing a barrage of fire and fury over data practices, some might question whether it would be more beneficial to ban hyper-targeted advertising models and move back to a fee-based economy.
One of the most notable and disruption trends driven by the rapid growth and adoption of the internet is data-driven insights and the hyper-targeted advertising business model. The idea of how to make money was revolutionised, with companies like Facebook and Google offering ‘free’ services to the consumer in exchange for the right to analyse personal information and table contextually relevant ads, promotions, entertainment and content.
The idea of ‘free’ quickly caught on. Numerous companies started springing up all over society, offering services for no-charge, but monetizing personal information in some way or form. But the tides of public opinion might be shifting slightly. Thanks to numerous data scandals over the last 18-24 months, the Cambridge Analytica saga being the most significant, some are questioning whether this is a sensible and/or sustainable way to do business.
Over in the US, marketing agency McGuffin Creative Group has been asking some interesting questions to consumers; assuming the free option was removed from the app economy, how much would you pay for your favourite apps?
|App||How many would pay?||How much on average?|
The survey results above are interesting, though should be taken with a pinch of salt. Theoretical questions are all well and good, though we suspect the number of people who would pay when asked to actually put their hand in their wallet would be considerably less.
What the numbers do demonstrate is there is an opportunity for these services to make money through a subscription-based model, though it would only work if the entire app economy embraces such a vision. If an alternative app offers a free service, the proposition would be undermined and fall down on itself.
Of course, what is worth noting is that there are companies who are trying to swim against the tide and make the subscription model work. Gaming companies have stuck to the fee-based model, while Google is reportedly trialling a $5 a month service for its app service, Play.
What is also bearing in mind is that without the ‘free’ model employed by the app economy, it is unlikely growth would have materialised in such dramatic fashion.
Firstly, lets have a look at the astronomical growth which has been experienced in this segment. Facebook was founded in 2004, Google 1998, Pinterest in 2009, Twitter in 2006 and Reddit in 2005. This is just a small selection of embryonic businesses which have grown to form a collective which is perhaps the most powerful and influential alliance in today’s global society. These companies are discussed everyday in the news, used by billions around the world, cultivating opinion and prejudices, yet most are still effectively teenagers.
However, without the concept of ‘free’ being implanted in the mind of the consumer, it is unlikely such broad and universal scale could have been achieved. If the consumer was forced to pay for these apps and services, choices would have had to have been made. Consumers sign-up for everything and anything today because they can, and it does not cost them anything from a monetary perspective. Ask people to pay for something and they may become a lot more selective.
This is the issue with shifting back towards a fee-based economy; it will limit potential.
Just looking at the list above, your correspondent would have to pay $28.85 a month, or $346.2 a year. However, this does not include other apps and services which are also installed. For example, your correspondent also has the MeetUp, Google Podcasts, Play Store, Gmail, Spotify, Clash of Clans and ESPNcricinfo apps. Presumably, if the apps above were to start charging, these would also have to. All of sudden, the annual bill for app subscriptions could be north of $500.
This is where it becomes unrealistic. Your correspondent wouldn’t be prepared to pay that much and would begin to cull some services. We suspect numerous other users would be making some hard choices also. This is where the scale of the app economy could become under threat; the everyone and anyone attitude of the app economy would soon dwindle, and growth would diminish.
Another interesting impact might be in areas few associate with the ‘free’ movement. This is the ‘law of unintended consequences’ and it could be quite far ranging. Let’s take media as an example.
If you were to ban the internet giants from monetizing data for profits, surely the same ban would have to be passed onto the media industry. How pleased would the consumer be paying for news was reintroduced? What about price comparison websites, credit rating services, online gaming, dating, fitness trackers and financial planning services. All of these areas make use of data to generate profits, should they be allowed to do so?
Of course, what is worth bearing in mind is that Silicon Valley probably already knows this. There will have been people much smarter than you or I balancing equations, adjusting risk and estimating monetary potential of all different business models. The fact the internet economy persists with this approach to making money demonstrates it is the most viable and potentially lucrative of options.
Criticism against the internet giants and app economy has largely been directed towards an inability to manage user data (security and privacy) and well as a lack of engagement to educate the user on what the concept of ‘free’ actually means. These companies have been monetizing data for more than a decade, yet it is only in the last 12-18 months the consumer has become aware of how the ‘free’ concept actually works.
Silicon Valley is currently facing a major threat. It has not shown itself to be mature or willing enough to operate in a semi-self-regulatory environment, therefore changes are on the horizon. New regulations such as GDPR have tightened controls around data management and permissions, while there have been investigations launched to decide whether these giants should be broken-up for the greater good.
We agree there need to be changes to drive more accountability in the internet economy, and regulatory upheaval should be an objective, however it needs to be managed very carefully.
Some might suggest a transition back to a fee-based economy would be a sensible path to take, though we cannot imagine this ever being a realistic option. Firstly, opposition to such a move would be incredibly aggressive, though this is not necessarily a reason not to do it. Secondly, the disruption would be too great to manage. Finally, such a move would cripple growth prospects in a segment which is one of the biggest contributors to economic success in many nations around the world.
The companies which operate in the field of data analysis and monetization are the ones who are hiring. They are providing direct economic benefit to employees and societies, as well as indirect by stimulating economic growth in adjacent segments. A heavy-handed approach could be incredibly detrimental.
Some might want to take data analysis off the table when it comes to making money, but when you look at the bigger picture, you have to wonder whether it is a sensible idea. Change is needed, but we think this would be a short-sighted route.