Looking beyond the advertising business model

It feels like we’re hitting an inflection point with Internet business models. Currently, the most dominant business model for a consumer Internet business is advertising.[1] But there seems to be a growing sentiment that this needs to change. Medium recently announced it’s rethinking how it’s going to approach generating revenue. And they aren’t the only ones who think the Internet’s ad model is broken.

What’s great about the advertising model is everything is free! At least, in theory. The promise of the Internet is that it can be scaled infinitely. So anyone or anything can access any information that is uploaded to the Internet by someone or something else. This all happens at little or no cost.

This has been great and served us very well in the early days of the Internet. Just thinking about all of the information we have access to now is astounding. You can open up any web browser and do an infinite amount of queries and, almost always, find what you’re looking for. You can read the thoughts and opinions of anyone in the world, in real-time. You can watch someone else’s first-hand experience, anywhere in the world, live. Again, you can do all of this for basically nothing.

The problem is that’s not true. Yes, you can get all of the above for little or no monetary cost to you.[2] But it’s not true that you can get all of the above for no cost. Somewhere, somehow the piper is being paid. Most commonly, for businesses that rely on the advertising business model, your attention is what is being sold. Every time you do a search on Google, your attention is being sold. Every time you log into your Facebook account, your attention is being competed for by all the different services that want to tell or sell you something.

It might not cost you any $$ but it definitely costs your attention.

And the above assumes you’re browsing the web anonymously, which if you are the typical web user, you’re not. After all, most companies are not going to throw their money at Google and Facebook just to buy random people’s attention. They throw their money at Google and Facebook because Google and Facebook know a lot about you and that’s really valuable to businesses.

You know the famous line: “By signing up, you are agreeing to our Terms and Privacy Policy”. How many of us actually know what we are agreeing to? I mean actually know? I don’t see many hands.

This isn’t to say I think companies like Google and Facebook are evil. Instead, it’s not a question of good vs evil or right vs wrong. It’s about incentives. Google and Facebook don’t want to be evil but they also don’t want to go out of business or have to fire a whole bunch of people.

They are, however, huge public companies that face a lot of public scrutiny. What about all those random websites you sign up for to share images of cats or funny gifs? They get your data too. And even if they don’t directly ask for your data, they might get it from some other company who has your data and decided to sell it because they had to survive.

Wait, what?? It’s ok, it’s in all the privacy policies that you agreed to when you signed up in a drunken stupor late on a Tuesday night in 2013 because your friend told you to check out a cute cat picture.

This quote sums up what I am trying to get across[3]:

If you’re not paying for the product, you are the product.

In addition to advertising being a sketchy way of making money, it’s also a shitty user experience. Any time you go to a free article on the web, you are almost guaranteed to see a couple banner ads, a popup asking for your email, and an auto-play video advertisement. Nobody wants any of that crap. In fact, I’d bet the website you’re visiting probably doesn’t even enjoy showing it to you. But the only way they can please their true customer (the advertiser) is by showing you more of it.

The main news page for USA Today. A good proportion of the visible page (~60%) is dedicated to ads.

There have been some improvements to the advertising user experience with things like native ads. Which are ads that look just like normal content but are paid to be shown. An example of this is sponsored Tweets or Facebook posts that show up in your feed regardless of whether you follow the company or liked their page. They may be a better user experience than the huge banner ads and popups that meet you when visiting a typical site, but they still aren’t desired.

In response to privacy concerns and crappy user experiences, consumers have been fighting back with things such as ad-blockers. Ad-blockers are not just a niche thing either. Millions of users have them installed on their browsers on both desktop and mobile.

2 out of the top 3 most popular browser extensions for Firefox are ad-blockers. Each with millions of users.

This is obviously not great news for websites that rely on advertising dollars as their main revenue source. It has even created a heated debate about the ethics of ad-blockers. Is it ok to consume content for free if you are avoiding paying the content creators in some way? Is it ok to pass on the costs to other users? In fact, there’s even a bit of a cat and mouse game going on now between the developers of ad-blockers and the developers of websites that rely on advertising.

Regardless of your stance on the ethics of using ad-blockers, there’s no denying the advertising business model on the Internet is reaching a crossroad. On the one hand, having access to basically free content is awesome and has pretty much defined the web since the beginning. But on the other, advertising has gotten really fing annoying and taken to the extreme by companies desperate for revenue.

The problem is, there really haven’t been any great alternatives for consumer Internet business models. It’s easy to get sucked into this game too as a business. Create something. Put it on the web. Give it away for free. And attract as many users as possible. Figure out how to make money later (hint: ads).

That sounds really attractive. And it is really attractive. Especially to startup founders and investors. Some have made a lot of money with this model. And some will continue to do so.

How sustainable is this? And is this what we really want to do?

As a tech founder myself, it’d be awesome to create something that millions of people would want to use. But I also want to give my users the best experience possible and I just don’t think the advertising model can provide it. I also don’t think we want to build more apps and websites that rely on advertising. Most of the people I know in tech hate ads. We hate ads as consumers, yet we spend our day jobs creating products that rely on them.

It’s also, to a certain degree, encouraged by us consumers. We balk at paying $0.99 for an app that can measure our heart rate, send it to our doctor, and predict when we’re going to die.[4] Yet we have no hesitation to pay $4.50 for a grande cup of crappy coffee.

So what are the alternatives? How can you build an Internet business that costs users very little to access yet doesn’t bombard a user with advertisements?

Unfortunately, I don’t have a perfect solution to this problem. Come on, you weren’t expecting me to just give you a one-size fits all solution, were you? Instead, I think an area that particularly interests me as having not one but many potential solutions to this problem is cryptocurrencies.

For those who aren’t familiar with cryptocurrencies or the Blockchain, I am not going to go into great detail on what they are or how they work but I really don’t think you need to know those details to understand how they could be used as an alternative business model to advertising.[5]

There are two main ways I think cryptocurrencies can replace the advertising business model on the Internet. The first is the simplest to envision, micro-payments.

You may or may not have heard of the term micro-payments before but basically all I mean by it is making very small payments. For example, fractions of a penny at a time.

With the current monetary system, there isn’t a great way to give someone (or something) a fraction of a penny. I can’t just take a penny out of my pocket, cut it into fourths and give a fourth of a penny to someone. They may question my sanity if I did (they still may).

But you can’t really do this digitally either. In theory you can pay someone $0.0025 since it’s just a calculation but the problem with this is the amount of hands that $0.0025 has to pass between. When you factor in the various banks, credit card companies, and merchant accounts that are involved in the typical transaction, the fees to process an exchange of a small amount of money between parties would far surpass the actual amount exchanged. Making it pointless to transfer this small amount of money between parties.

If there are no banks involved by using a cryptocurrency to exchange funds between parties, the fees can be extremely small and actually make exchanging something like $0.0025 worth it.[6]

This would make it possible to have business models where the consumer pays very little (fractions of a penny) for each piece of content they consume (like an article, song, etc.), yet a business could make a lot of money when that fraction of a cent is multiplied by the large audiences of the Internet (i.e. the world’s population).

This is essentially what the advertising business model already does. But instead of the consumer paying the business directly for the content, the advertiser is essentially paying fractions of a penny to the business to get their ad in front of your eyeballs. Add that up over millions of pageviews and you can see how a business can make a lot of money selling ads. Yes, micro-payments requires a large audience to make good money, but so does the ad model.

There already is a micro-payments model being used today, in-app payments. Most don’t think of in-app payments (think buying levels or upgrades in a game) as a form of micro-payments but it essentially is the same idea. You pay a small amount of money ($0.99 typically) to consume a digital product. The reason in-app payments can exist, despite all the things mentioned above for a transaction so small, is because there is one company (Apple or Google) that processes the transaction. This can be done economically by lumping all users’ transactions together and only paying the fee on that one large transaction.

For digital goods like articles, videos, songs, level upgrades, etc. the micro-payments model makes a lot of sense. The only issue with it is consumer behavior and expectations. We’ve all been trained to believe everything on the Internet is free. So how do you convince someone who has never read any of your posts before to cough up $0.0025 to read your rant on Internet business models? Despite it being a really low amount, I can see why you might hesitate to part with your hard earned 1/4 cent.

The other alternative model that uses cryptocurrencies is investment. Not investment in the speculative investment sense that surrounds a cryptocurrency like Bitcoin (though that is part of it), but investment in the protocol by participation and consumption.

Cryptocurrencies, like other assets, have value. This value all depends on how the market perceives that value. If I created a digital currency today but didn’t tell anyone about it and you couldn’t do anything with it, then it would have no value.

But for digital currencies like Bitcoin, where you can use it to buy goods and transfer funds, it has value. That value is calculated like any other asset on the market, by supply and demand.

Applying this idea to Internet business models can get pretty interesting and complex. But to keep it simple, let’s use Twitter as an example. Imagine if instead of using the ad model like it does now, Twitter instead created its own digital currency, let’s call it Twit. By participating in the Twitter network, you can earn Twits. The more likes or retweets you get on one of your posts, the more Twits you can earn.

Then you can use those Twits to get access to extra features like embedding Tweets, creating moments, or accessing the API. Since it’s a digital currency, in theory you could also use it to buy goods (as long as the seller accepted Twits). Or trade it with someone else to buy more of your preferred currency.

The creators of Twitter (and Twit) could have decided in the beginning to allocate themselves 1,000,000 Twits each. Over time, as Twits rise in value, the value of the founders of Twitter rises, just like any other business.

There are already a few businesses that are starting to test this model out. The most popular amongst these and the closest to the model I walked through above is Steem. Steem is kind of like Reddit 2.0 but is backed by its own digital currency. By participating in the Steem network, you can earn real money. It’s a really interesting idea and one I hope is experimented with more.

There is much more you can do with a digital currency and I am over simplifying a lot but the point is you can create an alternative business model to the advertising model that still keeps the core spirit of the Internet alive but doesn’t have to spam Internet users to survive. I think as the Internet continues to mature and innovate, we’ll see more and more new business models like the ones I’ve outlined above.

In the spirit of this post, I want to try something. If you found this interesting (hey, you made it this far at least) or you just want me to tell everyone I know how awesome you are, send me a small amount of Bitcoin. It can be as little or as much as you want. Thanks!

[1] I am just going to focus on consumer Internet businesses in this post. B2B Internet companies do have a number of different models that seem to work fairly well (i.e. SAAS, Freemium, etc.) and they have the advantage of users who have budgets specifically for spending money on these things.

[2] I am no expert, but I am assuming the monetary costs would be some portion of the combination of the cost for the device you use to access the Internet and the cost you pay to a service provider to hook you up to the Internet.

[3] I don’t remember who said this originally :/

[4] I’m kidding, an app like this doesn’t exist. But if it did, you’d probably debate whether or not it was worth $0.99.

[5] If you want to learn more about cryptocurrencies and the Blockchain, I recommend Googling it. It is constantly changing so it is hard to give any one resource but searching for it will definitely turn up some good results.

[6] A lot of people seem to get tripped up by the feasibility of cryptocurrencies because they say: “no one will ever understand what the value of this coin is” or “the coin is to volatile to be used practically”. But I think they overlook the fact that a cryptocurrency could be used strictly for the transferring of funds between parties. You don’t have to show this to the end user and can instead show their home currency. And you don’t have to hold the cryptocurrency for longer than the time it takes to process the transaction.

Now, I know I am glossing over some things here, but the point is cryptocurrencies for micropayments can be used strictly as a means to transfer funds and nothing more.

What happens to the drivers when automatic driving cars arrive?

I’ve been spending a lot of time thinking about the gig economy lately because of The Gig Saloon, which is trying to help give gig workers more bargaining power in the gig economy. I am really fascinated by the idea of not just services on-demand but also work and income on-demand.

But one thing that keeps bugging me when I think about what the future of the gig economy looks like is what happens when driverless cars arrive?

It seems pretty evident to me that driverless vehicles will one day be the rule, rather than the exception. And that one day is getting pretty close. You can debate about the timing of driverless cars but I don’t think you can debate about the inevitability of them.

The problem with this is that almost all of the current gig economy jobs are driver based. Whether that driver comes to pick you up and drive you to your destination or drives to a restaurant to pick up your order and bring it to you, driving is at the core of gig economy work right now.

That will completely change when driverless cars arrive. Those jobs will no longer be there. I don’t think that means something should be done to prevent or slow the progress of driverless cars. In fact, I think the opposite because of all the benefits society will gain from driverless cars.

But I am curious what will happen to all the people (and there are millions of them currently, not to mention truck drivers as well) that use their vehicle as their main source of income.

Perhaps these jobs will just take another shape. Instead of driving around to deliver services, people will instead deliver services digitally. We can already see this happening with things like Amazon Mechanical Turk or Upwork. It’s not hard to imagine more services like these popping up, especially with the growing need for training AI algorithms.

Another alternative would be to invest in training current workers for the skills of tomorrow. I am 100% for this but I am also realistic and recognize this won’t work for everyone and most likely will take a much longer time frame than a 45 year-old person without those skills has.

Maybe new technologies will unlock new forms of jobs that won’t require humans to be behind a wheel and don’t take a lot of training either. I am not sure exactly what these jobs would be, but nobody thought you’d be able to hire a car from your pocket 10 years ago either.

Unfortunately, I don’t know what the future holds but I do think we should be thinking about what affects it might have and start planning for them today. Maybe the company you’re thinking about starting could utilize a large and eager workforce?

How to use the Gig Economy to your advantage

One of the great promises of the gig economy is freedom. In the gig economy, it goes, you are your own boss. You can work according to your own schedule. You have access to a number of different sources of income on-demand. But as with any great promise, sometimes it really is too good to be true.

The gig economy has faced its challenges. From the lack of benefits like healthcare to the growing concern many gigs will disappear because of automation, there is a lot to be desired. If you’re on the internet long enough, you’ll probably come across various articles pointing out the flaws of the gig economy.

But it’s not all despair and broken promises. The gig economy, viewed in the right way, can be a huge advantage. When you have lots of different options to choose from and the freedom to pick and choose from those options at a moments notice, you have an advantage.

While most current solutions to the issues of the gig economy focus on reclassification of workers, few focus on the potential that’s already there: choice.

The growing popularity of on-demand services for consumers is driving more and more new companies to join the gig economy. And each new company needs a fleet of workers who can fulfill their customers’ demand. So not only are there more opportunities now but they are also easier to get because each new company is desperate for workers. Which means one thing to the gig economy worker: more choice.

For a person looking for extra work, you couldn’t ask for a better situation. You can use each gig against the others to maximize your income. Drive for Lyft but haven’t received that high of a wage in recent weeks? Drive for Uber. Uber not paying that high either? Drive for Fasten. Fasten’s wages low? Deliver for Postmates. And on and on.

The beauty of the gig economy is you can do this every day. Heck, you can do it every hour. Most on-demand services now have some sort of surge pricing or higher pay rates during peak customer demand times. That means you could just work for whatever gig currently is paying peak wages. And when they switch off, you move on to the next one.

It’s easy to think having a full-time job is better than having to jump from one gig to another. Full-time jobs can offer stability and benefits. But having lots of choices and the freedom to quickly and easily move between those choices can often bring the best results.

The only way to keep increasing your income in a competitive working world is to be in high demand. This can be achieved when you have a particular set of skills that are highly sought after. Unfortunately, not everyone can be so lucky. But another way to be in high demand is to work in a field where workers have lots of choices. When workers have lots of choices of where they can work, the employers fight for the workers, not the other way around.

A lot of people think the gig economy isn’t for them or they think Uber is their only option. But there are lots of on-demand service companies now and more and more are being started every day. Most don’t require much more than a smartphone. So if you’ve got a smartphone, you’ve got a connection to a lot of potential sources of income. Use it to your advantage.

Interested in the gig economy? Want to find out what potential gigs might be out there for you? Check out my new app called The Gig Saloon. It allows anyone, if you work gigs or not, to find new opportunities.

You can filter by your location, requirements met, and types of gigs you’d like to work. You might be surprised what’s out there. It also has helpful features like news filtered specifically for the gig economy, the ability to review gigs you’ve worked, and a forum to discuss your experience with other gig workers.

And as I’ve said, the more opportunities presented to you the more of an advantage you have. So check it out and let me know what you think.

Why Airbnb can be the one to finally disrupt the broker business model

For anyone who has searched for an apartment to live in, you know one of the biggest frustrations with the process is dealing with a broker.[1] No matter where you live in the US it seems that if you are looking for a new place to live, you have to go through a broker.

This process is stuck in the past. Don’t get me wrong, real estate brokers used to serve an important role. When the internet wasn’t around and everyone didn’t have a super computer stuck in their pockets, brokers were there to keep you informed about what was available in the market. They helped sellers reach more buyers and buyers know about more listings. It was a win-win for both sides and served an important role in the market.

But we’ve moved on. In the time it takes you to read this article, you could have found out about all the potential places you could rent. Anywhere in the US[2]. From a number of different (and dare I say free) sources. We are living in the information age, yet when it comes to finding a place to live, we still have gatekeepers.

This is an obvious frustration that many of us have, particularly the younger generations. Just doing a quick search on AngelList, there are 405 startups that come up when you do a search in the Rental Housing market.

I have personally tried building something to address this issue. Long story short,[3] the project didn’t work out, a similar result to everyone else who has tried in this space. But it gave me some key insights about how the broker model works. Before going through this experience, I had generally always thought that it wouldn’t be too hard to go around brokers. It seemed simple enough, the internet gave us a way to connect anyone in the world. You just needed to build a site that could connect landlords looking to rent out properties with tenants looking to rent properties. How naïve of me to think this.

What I didn’t realize was that there were many different incentive structures set up along the way that helped entrench the vested interests in the market. For instance, I learned that landlords have incentive to use brokers instead of going directly to the consumer. The fee that brokers charge tenants is sometimes split with landlords to make sure that the brokers keep their positions solidified as the middlemen of this market.

So that brings us to Airbnb. Where do they fit in all of this? And why do I think they will succeed where so many others have failed? Airbnb is in a unique position because of the platform they have built. Just like it wasn’t just a website for sleeping on someone else’s couch, it’s not just a website for booking vacation rentals. The key component is that they have been building a platform of trust between people. We all use Airbnb today to sleep in a stranger’s home! Think about how amazing that is for a second. Before Airbnb, the only homes most of us ever stepped foot in were either our own home, a close friend’s home, or a relative’s home.

The possibilities that a platform of trust unlocks are enormous. It opens the door for a variety of transactions. On a platform you don’t have to predict how users are going to use it. A platform is flexible, it allows users to use it in new and creative ways. And one of those ways is long-term stays.

I think this is even catching Airbnb off guard. Take a look at a recent tweet from Brian Chesky their CEO:

I think even Brian was surprised by this and was one of the reasons he chose to share the data. This should make brokers start to worry. You can see the similarities between how major hotel chains used to look at Airbnb in the beginning and how brokers look at them today. 20% of their business is a huge number. I don’t know what the actual size of their business is but just about 17 million people alone booked a place in the summer of this year.[4] So it is not a small number. And I would put money on it that the rate of long-term stays is only growing. And like the rest of the Airbnb business, it’s growing fast.

Take a look at the chart showing their growth below. That’s only up to 2012. And the rapid rise of nights booked? The longer people stay, the more nights are booked. The point of all this is to show the huge potential for Airbnb to take over a large chunk of the rental market.


We live in a world now that is much more transient. We are increasingly living in more places for shorter periods of time. Not everyone plans their life according to 12 month increments. We should have the flexibility to choose how long we want to live somewhere, not be forced by some arbitrary schedule. Airbnb is perfectly set up for this changing world. Their mission statement is Belong Anywhere and there is no better place to belong then home.

Since I believe Airbnb will become the place to go for both short and long-term rentals over time, I wanted to test it out. I needed to rent out my apartment for 6 months so instead of going the usual route and using something like Craigslist, Lovely, or one of the other options, I used Airbnb.

What the long-term price and stay requirement sections look like for a host on Airbnb

The basic setup for hosting long-term rentals is basically the same as the setup for short-term rentals. This hasn’t always been the case and a nice new set of tools for a host have been added. The new tools include long-term pricing, minimum and maximum stay lengths, and stay requirements. When setting up a long-term rental, you need to make sure you set the minimum stay to whatever it is you’re looking for as well as the particular time frame you are looking to rent your place.

Another nice part about the Airbnb platform for long-term rentals is payments. It was easy to add a security deposit (a must for long-term rentals) as well as receive payments. Receiving payments is often an under recognized burden for a landlord. Collecting payments from renters can be difficult. There is also the issue of credibility (will this person be able to pay this rent in 6 months time?). Landlords spend both time and money ensuring that payments will be collected but Airbnb makes it easy by taking the brunt of this work. Each month on the 28th, I received payment that was electronically deposited into a bank account. They even handle the taxes with W9 forms which can get tricky for landlords come April.

While a lot of features do now exist with long-term renting in mind, there are still some remaining challenges. Hopefully, as Airbnb realizes the potential for long-term rentals, they will start to address these issues. One feature that would help both renters and hosts alike would be a dedicated section for long-term rentals. It would be helpful to search for a place to rent without having to specify exact dates and instead use ranges for the length of stay. If I am going on vacation, I know when I will be somewhere and for how long. But if I am looking for a place to live, I might not know exactly when I want to move. I also might be somewhat flexible with the length of stay. Maybe I am a student and only need a place for one semester or maybe if I find a great place, I’ll want it for the whole year.

Another part of the experience that could prove to be a challenge is reviews. At the time of looking for our renter, our place had other roommates already living there. I wasn’t sure how this dynamic would impact the review I would get. And on a platform where trust is an important feature, reviews hold a lot of weight. Granted, ultimately I would be responsible for knowing the situation and for choosing who lived in the house. But as we all know when you live with other people for more than a week or two, you might find you don’t get along. Should roommate relationships effect the review of a host? Is it the host’s responsibility to make sure the interaction between roommates goes well, even if they are not the other roommate? If I use Airbnb to rent out multiple rooms at varying lengths of time, the interaction between renters might cause issues, but should that reflect poorly on the review of the host? Maybe there needs to be a way to review other roommates or renters (if they were also booked through Airbnb) as well as hosts? These are particularly challenging questions but ones that need to be addressed by Airbnb if it is going to be a force in the long-term rental market.

All that said, I really enjoyed the experience of using Airbnb for long-term rentals. It ended up working out really well. After the initial trepidation that comes any time you are letting another person stay in your home for an extended period of time, it really was a breeze. I’m glad I tried it and can report back that others should try it too!

So where do we go from here? I hope that I have left you with the impression that the rental broker business model is broken, but it may finally be up against its best challenger yet. And I hope I also left you with the idea that technology platforms can be amazingly powerful. The successful ones usually end up accomplishing a lot more then even the original team first thought they could.

Next time you’re looking for a place to live or need new tenants, give Airbnb a shot! I know of at least one great long-term rental that’s on there! 🙂

Update: So this made it to the front page of Hacker News (which is awesome :). There’s a pretty good conversation going on there if you wanted to weigh in. Thanks for reading!

 [1] The focus for this post is on the apartment rental market in major US cities. Although many of the points from this article can probably be extracted to other parts of the real estate market as well. Also, I have now learned this isn’t true everywhere but it has been my experience in Boston and NYC.

[2] And if you can’t, it’s most likely because brokers prevent you from accessing them.

[3] If you want to find out more about this story, email me!