Do you ever get a free service and then start to wonder, “How are they making money off me?” It’s a fair question, and it’s one that you really should seek to understand before you get seriously taken advantage of…
How Are They Making Money Off Me?
This non-money making post (;)) is written by Rocky at 30and0.com
Every business has a money maker. Many of these businesses are obvious with their strategy and charge you upfront. It’s the standard vending machine relationship. They have a thing I want and I trade money for access to it. Life is simple.
This business model is becoming scarcer as businesses are getting more and more clever at hiding their true money maker.
A perfect example of this is the Google suite of products. I don’t know how things are where you live but I have never paid for a search. I wouldn’t be opposed to paying for searches if it meant I’d never have to wait while someone smugly proved me wrong.
Unfortunately, for me and my penchant for being wrong…Google does not charge for this service. Their altruism knows no bounds. They continue to give away amazing services with nary a care for their own financial well-being.
Of course if you have been on the internet for more than the time it takes to read this sentence you know this is not the case. Google is one of the most valuable companies in the world.
So how are they making their money?
For the privacy minded among us we know that they are making their money by selling our data. They build a profile and use your demographic information to sell to advertisers.
That which seemed free actually costs you your personal data.
It’s the digital equivalent of sleight of hand. They force you to focus on the great service they provide while making their money behind your back. Well, technically it’s in those terms and conditions we sign. Don’t let that get in the way of your 1984 nightmares coming true.
You see, this is one of the primary ways companies are using to distract you from their true money maker:
The two primary ways companies turn you into their secret money maker are:
- Selling your data to other parties
- Getting you hooked at the free level hoping you make micro-purchases or pay for an upgraded experience
I briefly described the first scenario when explaining how Google fills their copious coffers. They use search to gather information about you but they don’t stop there.
YouTube is rife with advertisements that Google makes a killing off of. Unlike a DVR that let’s you skip commercials, YouTube users cannot avoid these ads.
Scarily enough even paid services will participate in this. Moviepass has recently run into some controversy over tracking your habits. Even the beloved Netflix is not immune! I mean you didn’t honestly think your $10-$15 a month were funding their insane expansion; right?
I call the second method the drug dealer method because your first taste is always free. They give you just enough to get you attached to their service or product and then they drop the pay hammer.
You may recognize this as the mutated cousin of a free trial but they have moved so far beyond that now. Now they attach their pay walls to junctions that are proven to be moments of maximum attachment.
Clash of Clans is one of the best examples of this. They were so good at this, there was a time where they were making more than $1M A DAY!
Not bad for a “free” game, right?
How Are They Making Money Off Me? And Why Does It Matter?
So what’s the take away from all this? This is a personal finance site not a listen to Brandon whine about how a video game tricked him into paying over a $1,000 to try and beat zombies.
Well, when I’m writing it’s actually both… 😉
This article is helping you recognize when you are someone’s money maker. This will help you:
- Not give away your privacy without realizing it
- Avoid signing up for something that may be against your principles
- Not fall victim to micro-purchases
- Not get hit with a surprise charge
Somewhere in our subconscious we know that every business is trying to make money. Yet, we can easily get distracted by what we are gaining from the service or product. We convince ourselves that $10 is a reasonable price for 31 trips to our local theater…Even though we all know that $10 does not equal $310.
Now we can focus on that discrepancy and research how they are making their money. In the case of Moviepass we would come to learn that they aren’t……yet.
Focusing on this discrepancy will keep us ready for the other shoe dropping. We can commit ourselves to services or products that we understand and accept the trade-offs.
Conversely, we can always go back to paying full price for our goods and services. But let’s be honest, that’d be like going back to dial up.
The next time you ask yourself, “How are they making money off me?”, you’ll know. And, is it worth the free service to you??
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.