Deep Thoughts in the Internet Business Age

Last week Felix Salmon linked to this piece, pulling the key quote:
“If you are not paying for it, you are not the customer; you’re the product being sold.”
This isn’t always obvious at first glance, but I think it’s pretty much correct, and brings up memories of the 1999 tech bubble where “eyeballs” where a main goal of every company who launched a website.  The quote is highly relevant today, too, as we talk about valuations for companies like Facebook, Groupon, and Twitter.  
I would never pay for Twitter – but that’s not entirely relevant.  Yes, one method of revenue for Twitter would be to charge users – to make us the customers.  They haven’t gone that route, and it doesn’t appear that they will.  Instead, Twitter will take our tweets and sell the data contained within them, or figure out some sort of advertiser based revenue model.  They’re not selling to @KidDynamiteBlog, they’re selling @KidDynamiteBlog’s eyeballs.
We could make the same argument with YouTube, and even Google as a whole, of course, which is probably the best and most interesting example.  Of course, the relationship is symbiotic – the real “customers” don’t pay unless the eyeballs are there – so the companies have to cater to the needs/wants/whims of the eyeballs also, even though they aren’t paying customers.  There is certainly a “chicken and the egg” element to this discussion lurking somewhere.
Groupon is another pretty simple example of this phenomenon: their customers are the restaurants and companies offering the deals – that’s where the revenue comes from.  Still, the deal buyers – their massive email list audience, is essential to the equation, but the revenue comes from the other side – the deal sellers – the revenue generators.
Anyway, keep the above quote in mind when you try to value a company whose service you use but wouldn’t pay for:  you may not be the customer after all.
-KD

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