The business model decision - advertisers as customers

As a follow-up to my post about VC becoming like the movie business, there is one big business model decision that most companies need to make.  It’s a decision that even non-profits need to make.

The decision is:  do we want to get paid by our customers or by someone else?

Product companies and service companies get paid by their customers, typically.  Apple Computer and McKinsey and Co. provide a thing for people and those people buy it from them.  Seems simple, doesn’t it?  Well, not for others.

Facebook makes money from folks that want to advertise to their users.  TV stations, too.  And non-profit organizations — their users typically don’t pay for their services, instead the services get paid for by third parties.  It makes it hard to really know whether your users want your product.  In fact, I’ve had to say “users” instead of “customers” here, because the revenue comes from different folks than the users, so it’s hard to label any one group as “customers”.

This is a fundamental decision.  There is tension in the “free to customers with advertising”.  Your customers don’t really like those ads, and the advertisers don’t really care about your free product offering.  Tension, tension, tension.  That’s why Facebook gets in trouble for privacy issues, and Google gets in trouble for manipulating their search results to please advertisers.

So if you have a business supported by advertising, the more options you provide for customers, the more they will feel like customers rather than merely eyeballs.  Let them pay fees to remove advertising.  Let them select which ads to receive.  Be creative.

I’m tired of neon Nike shoes and Oakley sunglasses on every American Olympic athlete.  I’d pay to see athletes that aren’t being used for advertising, but I’m not given that option.

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