A GROWING TREND IN I.T : SELLING PRODUCTS YOU DON’T OWN.

business model

noun

a plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing.

During the Anti-Trust hearing with Mark Zuckerberg in April 2018, we got to watch Zuckerberg explain the Internet to lawmakers of the United States. One Senator, Orrin Hatch seemed especially confused by how exactly Facebook managed to buy Zuckerberg his expensive suit. Zuckerberg explained how advertisements form the backbone of Facebook’s return revenue. Orrin however didn’t seem to catch the drift as he proceeded to ask, “How do you maintain a business model whereby your users do not pay for the services?”. To which Mark promptly answered, “We run ads.”

This would probably be funnier if you saw it yourself.

ABSTRACTION

Now this particular interaction, entertaining as it was, got me asking myself, “What exactly is Facebook’s business model?”. A common growing trend in C.I.T is developing business models with a certain level of abstraction between the products and the customers. This essentially means one of three things:

1. The product is oblivious to the fact that it is so.
2. The customer is oblivious to the fact that it is so.
3. Neither of them is conscious of their particular states.

So now let us define who the oblivious customer and products are.

customer

/ˈkʌstəmə/

noun

1. a person who buys goods or services from a shop or business.

As stated up above, Facebook earns its green by running ads that are paid for by the advertisers. This may not be the most shocking news you receive upon reading this article but it’s worth noting that Facebook does not run ads for free.

To truly understand how much ads cost one need only understand two terms:

1. Cost per Click (CPC)
2. Cost per Thousand Impressions(CPM)

Cost per Click refers to the amount owed for each time that a user clicks on an ad that they view. Using the CPC measuring system, Facebook advertising costs on average about $0.27 per click.

Cost per Thousand Impressions (Also known as Cost per Mile) refers to the amount owed for every thousand views of an ad. If you’re measuring CPM, Facebook advertising costs on average about $7.19.

product

/ˈprɒdʌkt/

noun

1. an article or substance that is manufactured or refined for sale.

Now, this is where all this starts to look like a conspiracy theory. The product that Facebook has to offer is the users who endlessly scroll through Facebook, unintentionally viewing ads that they did ask to see and will probably not need to see but will enjoy seeing anyway. As stated earlier, Facebook will charge for each time a user of Facebook clicks on the ads. Just so you understand, Facebook records a click-through rate of 0.8429% which may seem minuscule until you actually think about how many people actually use Facebook has which is roughly 2.7 billion and on average, an ad may reach even 2.14 billion of these. Worth noting is that even if you click on one of each 1.5 thousand ads you still end up clicking on at least 11 each month.

Let’s talk about how Facebook refines its users(product) for sale. My favourite part of writing articles is detailing how Artificial Intelligence plays a part in all of it. Facebook uses Sentiment Analysis to determine a user’s reaction to a particular post whether it is positive, negative or indifferent. You are therefore mostly only shown the ads that correlate with posts that induce positive sentiments. This allows Facebook to deliver a seamless browsing experience. While it may be unclear to me whether or not they use NLTK for sentiment analysis or their own modules and algorithms, what is a fact is that sentiment analysis is definitely in play. So next time before you click on ‘Like’ or double-tap on a post, think about the implications and why social media sites have them on there. Ask yourself what they stand to gain.

So in summary, advertisers pay through the nose to have users delivered to them.

With all this in mind, you’ve probably already got in mind yet another website which you may not pay to use but is always trying to get you hooked on it, YouTube. Unless you’ve employed the services of an ad-block software then you’re are probably YouTube’s product. It delivers said product in form of ads that show up before, during and after the video you’re watching of how a dolphin can kick a shark’s ass.

THE UBER EXAMPLE

It’s ingenious to sell products that you don’t own. In the aforementioned cases of Facebook and YouTube, they sell users as products. But there are other examples of companies that employ such business models albeit with less abstraction.

Take Uber, the company that in a way, sells cars that it does not own. Drivers are charged 25% for each trip that they make. They essentially become the customers of Uber. The products in this case become the passengers who are delivered to them through the Uber app.

TAKE IT A STEP FURTHER

Upon reading this article, my hope is that it gets you thinking of how you can exploit this type of business model.

So let’s give an example of Amazon, the world’s largest supermarket. It is owned by Jeff Bezos, whose sole purpose in life is to be a magnet for customers but ironically looks more like Charles Xavier than Magneto.

Amazon is direct in telling who its customers are, the customers.

But what if we altered this a bit. We wish to attract people to our online shopping company, let’s call it Azanom. Now that’s not original at all so we should make our company a little different, let’s make our website a resell company. So there’ll be people selling second-hand goods and people buying them.

We could make this idea even more intriguing and mouth-watering for users, let’s make our website ABSOLUTELY FREE. That’s right, neither the sellers nor buyers need to pay a cent to the company to conduct their transactions.

Now that begs the question, how will the company make money to maintain its website?

We could collect and sell data from our website. A company that produces clothes could buy data on how often its clothes are resold or what state they are resold on. Even the price of reselling could be important to them when they are pricing their clothes or determining the amount of each clothes that should be produced.

The customer thus is the third party company and the data becomes our product. Oh, our labor force which is totally free is the sellers and buyers using the app. (How’s that for abstraction)

IMPLICATIONS

The end result of applying this form of abstraction is two business-changing factors:

1. Infinite production rate.
2. Infinitessimal production cost.

Facebook has well over 2.7 billion users. The production cost of which is very little because the cost of adding users is very little.

Uber only needs to host its app whereby passengers can create an account. An infinite number of passengers and almost no money put in to create the users of the app.

The trend of selling products that one does not own is nothing short of revolutionary. The added abstraction in between ensures that users who are unaware of their state are kept hooked thus increasing production. FOMO, Fear Of Missing Out, is especially a dangerous tool being exploited in this type of business model. Think about how your favorite rapper posts a picture with designer clothing and ropes you into buying the same just to look trendy. People with FOMO are easy marks for Instagram’s owner, Mark Zuckerberg.

A glorious piece of irony is that in this business model, the seller is often the customer.