In the past decade, we’ve seen a significant uptick in digital services and online platforms mining countless data points from their customers, then selling huge swaths of it to third parties and reaping the profits. It’s exploitative for services to share and sell user data, but it’s become par for the course. There is a bizarre acceptance in this industry that commodifying user’s personal information is the only way to cut a profit.
Many of these products and platforms make it either nearly impossible or incomprehensibly frustrating for users to opt out of sharing data. Clicking “I do not consent” on a permissions pop-up regularly results in a deliberately non-functioning site. And it’s a terrible incentive program.
This went over particularly badly. WhatsApp users expressed their frustration and displeasure vocally enough that WhatsApp eventually backtracked, claiming it would not limit functionality for users who rejected the new terms.
The push for data privacy has many startups and developers scrambling for new ways to monetize their products, having mistakenly believed that selling user data was their only available revenue stream. The good news is that there are plenty of alternative methods, and a business doesn’t even have to be overly creative to implement them.
The truth is, not all data collection is bad. Every app or platform must collect some usage data to improve the customer experience and ensure proper functionality. Consider state taxes as an analogy. A citizen is required to pay taxes to “subscribe” to the services provided by the government: stable bridges, safe roads, public schools, green spaces, libraries, and so on. When someone uses a cost-free app, they pay for it with their data.
The problem arises when an app advertises itself as totally free while concealing its revenue model of selling user data to a third party. There are many alternate options for businesses to use as revenue streams without requiring users to give up their privacy in return.
One simple yet effective idea is to offer a service or product that people will actually be willing to pay for, either within an existing app as an add-on or as a primary revenue generator. One example of this business model is Netflix, which millions are happy to pay for thanks to its massive library of quality content and spectacular recommendation engine. Another example is the premium email service Hey by Basecamp. There are plenty of free email providers run by massive companies like Google and Yahoo, but the default privacy settings allow these same companies to use email texts for ad targeting purposes. Basecamp’s Hey differentiates itself by charging for a service that is completely ad-free and offers email screening and enhanced organizational features.
Free starter levels are great for introducing a digital product to the market. However, not all features on a digital platform have to be free, especially if a company has to compensate by selling user data to third parties. Premium features could include add-ons like customization or unlimited storage or transactions. The website builder Wix does a spectacular job of this, allowing users to build a basic website for free, then providing more sophisticated features and functions through a multi-tiered subscription model.
An app or platform could be free for individual users, while the provider offers a more sophisticated version for businesses or executives that would include analytics as a feature, for example. Another option could be to offer a white-label service, where a business could put its own branding on an app or licensed technology to offer to its own customers for a fee.
Most apps or platforms already have a solid understanding of the demographics of their primary users. For example, if a digital company’s main demographic consists of new parents, it can offer ads that will appeal to new parents. It doesn’t need to offer data tracking that follows users across platforms to know that these users might be interested in ads about diapers or safe car seats.
A business model that only narrowly considers the broad range of monetization options is not a sustainable one in the long term. Manipulating users into sharing data destroys the trust a business needs to grow its customer base. The solution is for apps and platforms to consider the user first in all of its decisions. Ultimately, providing real value to customers and staying attuned to their needs and desires is the best way to make money in the long run.
Nadav Melnick is the Vice President of Product at Rakuten Viber. Specializing in UX and interaction design for web and mobile, he has defined, launched and managed a sizable roster of successful B2C and B2B products for over a decade. Nadav joined Rakuten Viber in 2012 as a product manager and went on to lead the company’s U.S.-facing team, based in the San Francisco Bay Area. He held senior roles in Viber’s product and growth departments prior to his appointment as VP of Product in 2021. His work at Rakuten Viber has included managing and overseeing the sticker market, user communities, and the integration of AR-powered Viber Lenses, made possible by the partnership with Snap.