Who’s Paying for All This Free Stuff?
Understand how seemingly free sites and applications make money, and how to avoid their common pitfalls.
Monetization on the internet has become such a confusing subject that it’s not trivial to understand how any of it works. Things seem especially bizarre when we try to apply real world logic to the internet. How is it that bottled water costs more than a magical search bar that can answer all my questions faster than I can sneeze? Most things online seem free, some are genuinely free, some are free for just long enough to suck you in, others yet you pay for with a lot more than just money. In this article, I will help you build a mental framework to understand and tell apart the various kinds of free products and services you find online. By the end of this article, my hope is that you’ll be able to decide, within seconds, whether or not a particular digital product or service is worthy of your engagement.
Category I: Actually Free Stuff
The simplistic ‘no free lunch’ theorem doesn’t quite work in cyberspace. There are in fact a lot of ‘free lunches’ on the internet — open source software and non profit platforms, funded by donations, and powered by human kindness. As a consumer, these are usually the most trustworthy options. Their motive is to provide you some genuine value, and they rely on your voice and donations to remain relevant. The problem is that they are very hard to tell apart from for-profit entities.
I remember around 6 years ago, a good friend of mine got angry at me for donating money to Wikipedia — “Why would you give money to one of the most successful internet companies?”. I don’t blame her, it doesn’t seem all that different from Google or Twitter at first sight. They all get ungodly amounts of traffic, and they free to use. But a little investigation will reveal that Google is a corporate entity, while Wikipedia is a crowdsourced product managed by a non-profit foundation.
The question is, how does one identify non-profit software? Here are some approaches I use:
- The most reliable way would be to look up ‘How does _____ make money?”. If you find that they are crowdsourced, donation-based, and/or part of some foundation, that usually indicates they fall under this category.
- Most non-profits will have a ‘Donate’ button or something of the sort. If you see a ‘Donate’ button, clicking on it and seeing where it goes could provide valuable insights. The donation page or popup will usually contain enough information for you to understand how the site is funded, and whether it is a non-profit.
- Another feature to look out for is ads on the site. Non-profit organizations are bound by certain legal limitations around making ad revenue, which makes it very unlikely for them to include any 3rd party ads on their site. Note that this does not apply to sponsorships or other calls to actions.
As a side note, an extension of this category would be for-profit business with a ‘pay what you like model’, which monetizes in the same way as non-profits — via donations and reciprocity. I am not dedicating an entire category to these because they make up a very small part of the digital space, and all the previously mentioned ways of identifying non-profits also apply to them.
Category II: Partially Free Stuff
Competing for consumers online is brutal business. Unless you are backed by a stellar reputation, or have little to no competition, it’s hard to build an audience when everything you offer is behind a paywall. This is where companies have to get creative and offer some combination of free and paid goods and services. In my opinion, this is a fairly healthy way of doing business if the vendor is upfront and explicit about what is free and what is not. As a client, there is usually no harm in testing the waters before paying for something.
There is however one trap to watch out for — vendor lock-in (a.k.a customer lock-in), which occurs when you become dependent on a vendor’s offering to a point where they have the leverage to introduce charges, increase prices, or coerce further purchases, knowing that the cost of switching vendors would be greater for you than simply complying with the increased expenses. This is a problem for both individuals and organizations. Imagine if you found an app that lets you build websites with no coding required, allegedly for free! Let’s say you spend several days or weeks working on their dashboard, crafting the perfect website, and right when you are ready to hit the launch button, you are ambushed with a paywall. They did say building the site was free, but they never said publishing it would be free. What now? You try to pull the content from the site and try again elsewhere, but of course, they don’t let you do that. At this point you are vendor locked-in, you can either walk away from your work, or you can bite the bullet and make the payment. Typically a site that ambushes you with vendor lock-in at an early stage will do it again once your needs scale. The question then is, what can you do about it? Here are some ways to watch out for vendor lock-ins:
- Look for 3rd party reviews: A quick search on a decentralized forum like Reddit will yield fairly reliable information about the organization you are dealing with. If you are ever planning to create a long term dependency with an online service, do this early and diligently!
- Look for a ‘Pricing’ tab: As a rule of thumb, if you have established that the product or service you are using is for-profit (i.e., not in Category I), if you don’t see any explicit and easily available information about their pricing strategy, avoid depending on them for any sustained or time consuming service. Moreover, if the pricing information is available, try your best to understand it thoroughly, and think about what it means for you as your relationship with the service scales. Perhaps you can afford their entry-level pricing, but the mid to high tiers are impractical for you.
- Try a full dry run: An effective way to discover an ambush is to send in some scouts ahead of your main force. This is also why we date before marriage. Want to use a website builder for a large project? Try to launch the simplest possible mock website to catch hidden costs and see if it actually works. The focus should be to do a full end-to-end dry run with the minimal possible amount of time and effort invested, just so you know what you’re getting into.
Category III: Free Stuff in Exchange for Data
This is where things start to get complicated. Sometime during the first few decades of the world wide web’s explosion, consumers online came to expect things to be free. This can partly be attributed to the difficult and insecurity of managing monetary transactions online in the early days, but in large part, it can also be attributed to the ‘theory of price’ — consumers will prefer paying the minimal price for any product or service they require. Given how the internet works, someone somewhere will always offer what you’re looking for free. This pattern eventually led to more creative ways of making money. Let’s discuss the few most common ones and consider what to watch out for:
- Ad Platforms: Running ads on high-traffic sites and applications has turned out to be a wildly successful multi-billion dollar industry. While it is possible to have a healthy relationship with a site that runs ads, the problem starts when consumers believe themselves to be the clients. If a site offers you a product or service for free in exchange for showing you ads, the client for that site is the buyer of the ad-space, who is paying for your experience, in exchange for your attention and interest. These buyers usually operate through behemoth ad platforms which have a vested interest in collecting as much data about you as possible, in order to optimize which ads they show you and when. Also, the site hosting the ads has a vested interest in keeping you engaged for as long as possible, and perhaps shaping your wants and needs to make you an ideal consumer of their ads. In short, when you are on a site powered by an ad platform, be aware of three things: You are not the client, you are simply receiving a free service in exchange for the ads you consume. While not always the case, you can assume that all of your activity on that site (and sometimes beyond) will be tracked meticulously. Whenever possible, turn off data tracking and disable ad-related cookies. The moment you first start using such a site, consider the long term risk of forming unhealthy addiction to it, because such sites often go to great lengths to guarantee that outcome. If the option exists, consider turning off any personalization features in the service to reduce the risk of addiction.
- Affiliate Marketing: Affiliate marketing involves sharing affiliate links to external paid products and services. If you visit an affiliate link, the publisher of the link gets a small commission on any purchase your visit leads to. Affiliate marketing is an easy way for smaller sites and applications to make some money, and can sometimes be a positive and helpful experience for consumers. It becomes a problem when affiliate marketing is concealed and refashioned as a resource with no monetary incentives — for example if a review blog gives a product a great review and drops an affiliate link at the end without explicitly marking it as such, you should be wary of the credibility of the review since it might be more of a sales pitch.
- Data Harvesting: Another often concealed strategy is to offer free products and services which harvest and commoditize user data either selling it directly, or using it to build products and services that can be sold. Something as mundane as a ‘What type of cat are you?’ quiz on your favourite social media site could be harvesting the personal data in your answers to power unrelated products and services. This strategy is used both commercially and by malicious actors with a wide variety of motives. I try to avoid data harvesting software like the plague, and I often find them the hardest to identify. In general, avoid volunteering out your information for mundane quizzes, surveys, and profiles, and if you are using a product or service which you cannot map to any of the previous categories, consider the possibility that it might just be a data harvesting operation.
Closing Thoughts
While this list is not exhaustive, I hope it gives you a mental framework to navigate cyberspace. For all its wonders, the internet can be tricky to navigate. The next time you stumble upon a free digital wonder, ask yourself, who’s paying for all this free stuff?
Editorial Review by Lulu Tan.
Originally posted on Project Alesia by me.
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