A hidden revenue business model is a pattern for revenues generation that keeps users out of the equation so they don't pay for the service or product offered. For instance, Google's users don't pay for the search engine. Instead, the revenue streams come from advertising money spent by businesses bidding on keywords.
Let's see more in detail how Google managed to create a business model worth almost a hundred billion dollars in revenues. In fact, to unlock so much financial value, a proper business model has to have an appealing value proposition for several key stakeholders.
- Google's Win-Win-Win Value Proposition
- Google's business model? Not without a flaw
- Is Google's business model the only possible for search?
- Summary and Conclusions
Google's Win-Win-Win Value Proposition
As of 2017, over ninety billion dollars, which consisted of 86% of Google's revenues came from advertising networks. How did Google manage to be so financially successful and sustainable over time? The answer lies on a compelling value proposition for three key players.
Users: I can find an answer to anything
Google is the most powerful search engine in the world. However, it was not the first. In fact, when it appeared on the scene, in the late 90s, it was one of the latest search engines. However, thanks to a powerful algorithm, called PageRank it soon took off. Initially, it was not clear how the search engine was supposed to make money. One thing was clear for its founders though: it was supposed to be free for its users.
In fact, the billion of people that each day use Google are what makes the search engine better and better. In fact, Google uses that data to tweak its search algorithm, to make it able to read, interpret, understand and process users' queries.
But if users aren't paying, who's paying for it?
Businesses: I get more sales through targeted Ads
Google uses an advertising business model, where companies take part of an ad network called AdWords. In short, they can bid on keywords (such as "car insurance") to sell their products and services. This model works quite well as it allows those businesses to track their ads results, to offer their ads to interested users (in fact, through tracking Google can understand what users might want) and pay based on what users click through.
This compelling value proposition made Google profits grow quite fast. However, there is another critical piece of the puzzle: publishers.
Publishers: Easily monetize my content
Each day millions of new articles are written on the web. But why so many publishers hit the publish button? Of course, it has never been so easy to provide information. In fact, today thanks to the internet anyone can become a publisher. However, as Google powerful algorithm can index the whole visible web, it also becomes harder for publishers to be featured through it.
Thus, it makes sense for small and large publishers to compete and create "content factories." In fact, the more content they create, the more chances they get to be featured on Google. But what for?
A significant payoff for publishers to be featured by Google is of course visibility. In fact, many publishers monetize mainly through traffic. Second, and most importantly: money!
Indeed, those same publishers can "rent" part of their web pages space to Google to place banners from businesses part of the AdWords network. When users browse the pages with banners or click through them, those publishers can finally monetize their content. (this is called AdSense)
To have a better understanding of the whole Google's networks check this:
The overall network ability to generate value is summarised below:
That is how Google through its hidden revenue business model was able to become a tech giant. The business model worked so well that made Google so big and powerful, which over time some concerns have grown.
Google's business model? Not without a flaw
An advertising model based on hidden revenue generation might carry some flaws. In Google's specific case below some of the flaws.
Asymmetry toward users: You give me data, I make money
That is true that users don't pay, but in the process, they do offer to Google valuable data. Some argue whether that data should be given back to the same users in some ways.
Biased content: Is content that targets keywords really relevant?
Publishers are incentivized to produce content, which might not always be the best form of information. In fact, although Google's original mission was to organize the world's information, its business model became so effective to influence it eventually. In fact, today many publishers follow SEO guidelines to make sure to comply with the way Google's algorithm works.
We can then argue, whether Google's algorithm gives back the best content or the content that best fits its guidelines. That is not an easy answer to that and of course, in most cases, I believe Google does an incredible work.
The web as a giant billboard: Is this indeed the web we want?
When Google finally opted to adopt an advertising business model the web suddenly became a giant billboard. Many argue whether or not that is the way the internet was supposed to be. It's interesting to see the point some internet visionaries expressed on Wired when they said: "the internet is broken."
Privacy concerns: Do you really have to track me?
As users become more and more aware of the data that Google collects from them it raises questions about whether or not it makes sense for them to keep using it. In fact, other search engines more focused on privacy are growing their users base. That raises an important question.
Is Google's business model the only possible for search?
Any company sooner or later will be disrupted. At times the paradox is that innovation comes from going back to the past. In fact, alternatives like DuckDuckGo (a search engine that doesn't track its users) argue whether a search engine has to track its users. In fact, search engines like DuckDuckGo get a growing piece of the search pie by focusing on those concerns. Indeed, its founder, Gabriel Weinberg argues that a search engine can make money without tracking its users.
That means as users become more sophisticated privacy becomes a new value proposition as powerful as monetization. That, of course, would undermine the basis of a hidden revenue model built on users' data.
Summary and Conclusions
A hidden revenue generation business model keeps users out of the equation, while it lets other parties finance - in part or entirely - the product or service offered. This kind of model works if the value proposition is appealing to several stakeholders. For instance, Google has created a sustainable business model based on hidden revenue generation, by creating a compelling value proposition for businesses and publishers. The former can bid on keywords and generate sales through targeted ads. The latter can effectively monetize their content.
Google's hidden revenue business model has become so powerful that of course has shown some flaws. The paradox is that from what a few years back was an innovative model that is now creating opportunities for competitors to come up with alternative value propositions. Thus, if monetization was a strong motivator over privacy, just a few years ago. Now, privacy is becoming more and more important. That leaves space for new players!
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