The hidden revenue generation model is among the most profitable patterns for business models built on advertising. In fact, businesses like Google and Facebook have managed to gain more than $290 billion in 2021 from advertising on their platform, even though many users might not be aware of the mechanisms that drive those platforms.
This is particularly true for the tech industry. In short, the mechanism is the following: the company creates a compelling service, it makes it free so that it can start gathering users’ data.
That data becomes a massive repository that the company uses to study and understand what users might be looking for. It then matches that information with an existing business so that it can get paid for visibility to those businesses or for a cut of the revenues.
Companies have become massive collectors of data.
While though in the past the data collected might not have been useful at all.
That dada has instead become the most critical asset.
As companies like Google and Facebook develop powerful algorithms powered by massive amounts of data and driven by AI and machine learning, those algorithms can tap into our intentions, desires, and pain points, to make us become a cash machine.
Each time that I search for something on Google, the search engine knows what’s my commercial intent.
In other words, it tries to read between the lines of what I am searching for to understand whether I need just information or whether I might be looking for a product or service to buy.
In many cases, if my intent can be satisfied via additional information, Google might be sending the user to a website that is part of its organic listing (sites that don’t pay to be featured on Google for certain key terms).
On the other hand, if Google understands I might have commercial intent. In that exact instant will serve a sponsored content that shows on top of all the others, which is a paid result.
That result is there because it might be the one that gets more clicks and offers more money for that key phrase.
In short, imagine the case I’m searching for “car insurance.” This has a clear commercial intent. Google shows an ad right away:
In other cases, If I search “what’s the weather tomorrow,” rather than showing me advertising, Google will give me a direct answer:
In other words, at the exact moment, we’re typing something on Google, its algorithm is already predicting what we’re looking for and what is my intent!
When a company can tap into users’ intents with such a powerful mechanism, it becomes easy for the company itself to give its users what they want, without ever having them ask, “what’s in it for you?”
If you’re only aim is to build a profitable business, the hidden revenue generation mechanism might be the most effective way to build up a high-margin business that can become a cash machine for years to come.
In this context, you need several pieces to make this happen:
- Make the service/product at least 10x better than anyone available
- Make it free and frictionless
- Use gamification to make users come back
- The critical ingredient is the variable reward you give to users
- Find a partner that can finance your business for a few years so that you can experiment with monetization without impacting the user experience
- Build a solid brand
- And keep improving your algorithms to make your service or product more and more relevant to your users
At the same time, other players, have taken the digital advertising industry by storm. For instance, the TikTok advertising machine is growing exponentially, posing a threat to the Google-Facebook duopoly.
In addition, for the first time, in the last decade, the competition in the digital advertising space is tightening.