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If the product is free, you’re the product

November 28, 2017

Google is free. Google maps are free, YouTube is free. Gmail is free. Facebook is free. Instagram is free.

The genius of this business model is that people create content, for free. Facebook posts, Instagram images, map locations.

The more the community tells Facebook and Google, the better the products work. This isn’t meant to be nefarious: when I told Facebook my high school, it  reconnected me with friends. These products work. That is their brand. Type something into Google and you’ll find an answer. Log onto Facebook, and you’ll see your friends. 

This is the internet, now. Where brands like Target and JC Penny, and even an older brand like Sears sell products directly on websites.

Before the internet, if someone needed to buy thing from either Sears, Target, or Walmart, it was the brand perception that usually won out. I remember working on a pitch for Tops Grocery Stores. They were competing with Wegmans in the area. We ran focus groups to young people asking about the peceptions of each brand. Almost to a person, people said that Wegmans was more expensive but the shopping experice was better so it wa worth the money. Interestingly, Tops was about 11% more expensive across the board, and used BOGO’s and shopper club cards to create the impression that it was cheaper. Branding works.

Now though, sites like Amazon win because of data. Amazon offers me movies and TV shows via Amazon Prime, so I signed up.

That means, unlike Sears and Target, Amazon offered me a reason to be logged in all the time, and thus knows me and my purchasing habits. It can place impulse buy items at the checkout. Target and Sears can’t do that – all they can do is transact with me on the last purchase. That’s why if a consumer visits Sears there are all sorts of somewhat desperate pleas to sign up for their rewards card. If they really valued the data, they would offer me $100 to sign up. If they really wanted to compete with Amazon, they would go all in on data.

Because online, the money is in the data. The proof is that the two companies with the most data on consumers are Facebook and Google. They also happen to get 85% of all online dollars spent on the Internet. The two are somewhat releated, but not fully. Getting traffic doesn’t mean getting money.

The website Reddit, branded “The front page of the Internet” is #8 on the top ten most-trafficked websites, can’t seem to monetize the traffic. Reddit users are famously not the product.

Twitter gets all kinds of traffic and is barely on track to make money for the first time ever. Traffic doesn’t result in $$. It can, however, result in data. And data is money. 

The more we give data to a company, the more the service works. And the more the company makes. That is the reason Facebook and Google are the winners online.

Next week, Facebook.

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