Some businesses make money off one thing but look like they are about something else. In simpler terms, I am referring to businesses with hidden (or not so obvious) business models. Usually when it is like this people do not actually understand how those businesses make money. Often when it is like that i.e. you do not really get what the product is, it will be people (the users) that will be the product. This is particularly so when users will be accessing a product or service for free. This will become clearer as I explain further. I will start by explaining some key things.
What Is A Business Model?
The Oxford dictionary definition of a business model is a plan for the successful operation of a business, identifying sources of revenue, the intended customer base, products, and details of financing. In the simplest of words, a business model is how a business makes money. Now that you know what a business model means, let me explain before we proceed.
Hidden Business Model
There is such a thing called a hidden business model. What is it? This is a business model whereby the user is not the crux of where revenue comes from. Rather the revenue will be coming from third parties (so to speak). Thus the money to run the enterprise and making products or services freely available will be coming from other people other than the users, for the most part. Do you now get the reason why people would be wondering how the business makes money? You see, people will be wondering where the catch is – after all, business is about making money. I am tempted to give an example but that will pre-empt the whole purpose of this article. Let me now get into examples of businesses that have hidden business models.
You have all used Google at some point; most of you use it daily. Have you ever stopped to think, how does Google make its money? This question brought to the fore when you think of the fact that you access the platform for free. They do make lots of money which, according to my earlier discussion, must mean they use a hidden business model. The lion’s share of Google’s revenue comes from advertising – their key business model is the advertising model. It is said that Google gets over 90 per cent of its revenue from advertising. Their business model is quite interesting; it is encapsulated in two elements namely, Adwords and AdSense. Let me explain how those two elements work.
With Adwords, advertisers get to bid on keywords that are used when searching for things on Google. Google will then scrutinize the keywords in light of the landing page the ad links to. In essence, Google looks at the page to see if it is good enough concerning its standards. In so doing it actually scores the page and puts it together with the bid placed. The page with the highest bid and score gets the privilege has its ad ranked at the top. I will not into the details of how this whole process works, I probably will in other articles. Here I just wanted you to get an idea of how Google makes its money. This simple automated process brings in billions of US dollars for Google. Many people do not even know this at all – goes to show you the hidden business model element.
In principle, Google charges advertisers for ad placement. This means every time an ad is clicked, Google charges the advertiser for that. You then find that ads get to be placed or shown on pages with corresponding content. Publishers of those pages get something every time an ad placed on their platform is clicked. There is a percentage that the publisher gets. Do you get the picture? Google charges for ad placement, that is the first thing. Then ad is placed say, on your website. When someone visits your website and sees that ad and clicks it, you get a percentage of what the advertiser was charged initially. An average range what the publisher gets can range from as little as US$0.20 to US$15. It is a win-win but Google makes way more from that arrangement.
Social Media Platforms
I am not going to do a platform by platform look here, I will just summarize. Actually, let me just reference Facebook since most of you use it. On Facebook, you can do paid ads or you can boost your posts. These two avenues allow your content to reach people following a targeted approach. You get to choose locations, age groups, and so on. You will literally be paying Facebook to get your content to your intended target people or areas. If you have never done paid ads or boosted posts you will never get to know that Facebook makes money from that. Do you get that aspect of people being the product? It is because people will be paying Facebook to link them up to you (the target).
These are some relatable examples I chose to cite so that you get the gist what we mean by “hidden business model”. Some products are characterised by such a business model. For instance, printers make money off the ink cartridges or toners but at face value, it is as if it is the printers that are the key revenue component. The same goes for coffee machines (for instance, homes ones), money is made off selling you the coffee pods. Yet the impression will seem like is the key machines. So there you have it, businesses with hidden business models. I believe putting together such a business helps you tweak things in remarkable ways without people really catching on. The great thing about such businesses is that they most offer something free (or cheap) which makes people flock the platform.