This post is a combination of 2 things:
- Ways to “monetize” (extract value for yourself) other than directly charging your users
- A meta-idea for a type of business to start
I’ll start with #2 and jump into #1 right away.
Need an idea for a business to build? Look around, find an existing profitable business, find out how the business is extracting value for itself, and figure out an alternate way to extract value.
E.g. Dating sites Match.com and eHarmony.com extracts value for themselves by charging their users a fee for using their site. Dating site Plenty of Fish (pof.com) has an alternate way to extract value for itself: instead of charging their users a fee, they make it free, which in turns fuels growth, and with the sheer number of users, they now have enough eyeballs to charge advertisers who want to reach those users. It’s no secret that Plenty Of Fish is raking in the dough to the tune of millions in profit per year.
Phrased another way, look around for a profitable business, the pricier the product/service the better (because the bigger the incentive for the user to switch to a free solution), and build up a product that you can give away for free, if you can extract value for yourself via a different way. Clearly this is a more appropriate meta-idea for software / internet products where the cost of replication and distribution is almost zero.
Aside from straight up charging people for money, what else can you monetize from all these free users?
- Labor. Your users could perform an action that’s worth something to you. Example: Spammers need lots of throw-away email accounts from free webmail providers like Yahoo, Hotmail, etc. but CAPTCHA prevents them from automating signups. Their solution is to operate a premium porn site that can be free to a user if they solve a CAPTCHA. What can your user do that would be of value to you?
- Attention. If you had a product where someone sits in front of for long cumulative periods of time, you can monetize their attention. Most obviously, with advertising. E.g. Facebook
- Intent. Unlike Facebook where you spend hours on per day, you don’t hang out leisurely on www.google.com per se. You go to google.com to find something – and click away from Google the moment you find a result. Sometimes, what you search for has purchasing intent (“computer repair mountain view california”), sometimes it does not (“Charles Darwin birthday”). Purchasing intent is obviously monetizable. Can you invoke an intent from your users and harvest it? Related: Preempting Search by Alex Rampell of TrialPay
- Product improvement. Free users can improve your product’s value. Examples:
- BillGuard users flagging scammy credit card charges improves BillGuard’s alert system for other users
- The more of your friends join and friend you on Facebook, the more valuable it is to you. Ditto with Skype, and network-effect based social-networks and communication tools, usually. Metcalfe’s law
- Even if you never ever click an ad on Google, all your searches are valuable data used to further fine-tune their search algorithm, making Google even better
- Some % of Yelp users leave reviews, which makes Yelp a little better for everybody else.
