INTRO: Ever since the turn of the millennium, we’ve
seen a massive trend towards free-to-use software, games, and apps.
Everything from Facebook, Google, and YouTube to Robinhood, Clash of Clans, and Spotify.
These services have become masters at alternative modes of monetization whether that be collecting
data or serving ads.
From a macro perspective, these free services are awesome as they have made access to information
and content easier and cheaper than ever before.
And in some cases, it makes no sense to spend money on these services.
For example, if you watch a random YouTube video here or there, then it probably makes
no sense to buy YouTube premium.
Similarly, in some cases, there may be some pride in not spending any money.
For example, maybe you want to max out your Clash of Clans account without gems or maybe
you want to be a default god on Fortnite.
Putting such scenarios aside though, if you spend any amount of substantial time on these
free to use services, I’d argue that the sacrifices that you’re making on privacy,
time, and the opportunity to be a customer are far greater than any monetary cost you
could’ve paid instead, and here’s why.
SACRIFICING PRIVACY: Starting with the most obvious sacrifice you’re
making with free services, we have the sacrifice of privacy.
Nowadays, user data is one of the most valuable forms of currency in the world, and this data
can be exchanged for billions of dollars.
We all know that big tech and especially Google collects loads of data on all of us, but have
you ever looked into what exactly this data is?
Well, security.org did, and here’s what they found.
Starting with the reasonable data, we have name, phone number, payment information, and
email address.
These are all basic data that Google would need to distinguish between users and appropriately
charge each user for subscriptions that they may have.
This is likely most of the data they need to provide users with a great experience with
their services, but this is just the beginning of their data collection.
Moving on, Google collects data on emails you write and receive, your stored videos
and photos, your stored documents, your stored spreadsheets, and your YouTube comments.
So basically, everything you store with them and everything you communicate through them.
Google has advanced machine learning and AI algorithms that can comb through your photos
and emails which allows them to understand your lifestyle, who you spend time with, and
your hobbies.
For example, you might have a ton of pictures of your dog.
In this case, you would be a prime target for dog food and dog toy ads.
Similarly, maybe you have a bunch of pictures at the beach.
This would make you a prime target for flights to beaches and luxury beachside resorts.
Anyway, next up, Google also collects in detail data regarding how exactly you’re accessing
their services.
We’ve got an IP address, system activity, data about interactions between apps, browser
type, device type, application version number, carrier name, and operating system.
In terms of location, we’ve got GPS data, sensor data, and even information about things
near the device you’re using.
And I haven’t even covered this activity section which has another dozen data points
about your calls and interaction history.
Clearly, Google collects data on basically all facets of your life and this is the same
case with Facebook and Twitter.
But what does this even lead to?
Well, the answer is low ROI for you and Google.
BAD FOR YOU: Advertisers aren’t stupid.
They’re not gonna run marketing campaigns that aren’t profitable.
Sure, a startup might do this to generate a base of users, but do you really think that
Apple or Nvidia or AMD is gonna run unprofitable ads?
No, and given all the data Google has collected for them, their marketing campaigns are more
effective than ever before.
This means that the average person will end up spending way more money than they ever
need to.
And I’m not talking about valuable services.
There’s definitely going to be people who get ads for things like Audible and SkillShare,
and they’re gonna get a subscription, and they’re gonna get a bunch of value from
the service.
Rather, I’m talking about predatory consumerism.
Buying a new phone that you don’t need or going on a vacation that you can’t afford.
Now again, if you’re doing well for yourself and making $200 or $300,000 per year, this
doesn’t matter for you.
You can afford to splurge on a new phone every year and go on vacation regularly.
But, for the average American making $50 or $60,000 per year, these are expenses that
simply don’t need to be in their lives.
It would be much smarter for them to save and invest this money into a house or an index
fund.
And that might’ve been what they would’ve done if it wasn’t for such effective marketing.
Now, I’m not faulting companies for using such advertising mediums as that’s simply
a brilliant business decision.
But, from the consumer side, sure you didn’t have to spend money to use Google; however,
your net ROI is likely thousands of dollars in the red.
BAD FOR GOOGLE: At the same time, it’s not like Google is
making much money off of you individually either.
Last year, Google pulled in a total of $209,497,000,000 from advertising.
This includes Google search, YouTube, and all other sources of Google-related advertising.
Now, that is an absurd amount of revenue, but you have to consider that Google also
has an absurd amount of customers.
Literally over half the world uses Google with their worldwide user count coming in
at 4.3 billion.
If we divide their advertising revenue by their user count, we get just $48.72 and that’s
revenue.
Google’s net income margin sits at just under 30% meaning that less than $15 of that
is actually profit.
Now, the real numbers are likely much more skewed.
There are likely billions of users that only profit Google $1 or $2 per year, and there’s
likely billions who profit them $50 or $60 per year.
But I think you get the point.
Google isn’t making hundreds or thousands of dollars from each customer.
But, by collecting data, a lot of their users end up spending thousands of dollars that
they don’t need to be spending.
So, wouldn’t it be a lot better if we cut out advertisers and directly paid Google?
What if we paid Google $20 per month for all of their services.
That’s $240 per year, but in return, we get an ad-free data collection free private
experience across all Google services.
Not only would that provide a far superior user experience, but it would save the average
person thousands of dollars in unnecessary spending.
In the meantime, since Google doesn’t have to spend money on appealing to or coordinating
advertisers, they can enjoy substantially more revenue and higher profit margins.
It’s a win-win scenario.
And if you’re not convinced by potential financial savings or a better user experience
or more privacy, I think you should strongly consider the savings in time.
SACRIFICING TIME: While all the benefits we’ve discussed so
far are definitely valuable, the dealbreaker for me personally is definitely time.
Most people rarely consider time as a currency which is a shame given that it’s the most
valuable currency we have.
And when we use free services, the currency that we’re often paying with is time.
Again, this isn’t as important if you barely use free services.
For example, if you only spend 20 minutes on YouTube every day, it’s not a big deal.
But, I know a lot of us spend 6, 7, 9 hours on YouTube every single day myself included.
If we’re not working or socializing, we’re probably watching YouTube.
And nowadays, the standard on YouTube has become two 5 second non-skippable ads roughly
every 3 minutes.
This means that for every hour you spend on YouTube, you’re consuming 40 5 second ads
or 200 seconds worth of ads.
If you watch 3 hours worth of YouTube on a daily basis, you’re consuming 600 seconds
worth of ads every day and 18,000 seconds worth of ads every month.
That’s the same as 5 hours worth of ads every single month.
YouTube Premium’s individual plan costs $11.99 per month.
This means that by choosing to watch ads instead of paying for YouTube premium, you’re effectively
selling your time for $2.40 per hour.
And that’s if you’re being stupid with the subscription.
The smarter play is to obviously get the family plan and split it with your friends, family,
and/or roommates.
The family plan costs $18 per month and allows you to add up to 5 members onto the plan.
This means that each member is effectively paying just $3 per month.
Considering this, by choosing to watch ads, you’re effectively selling your time for
$0.60 per hour.
Even if you’re watching just 1 hour worth of YouTube per day, you’re selling your
time for $1.80 per hour.
If you’re watching 6 hours, you’re looking at $0.30 per hour and if you’re watching
9 hours, you’re looking at $0.20 per hour.
I don’t think I need to explain why these are unfavorable tradeoffs.
And similar arguments can be made if you spend your time scrolling through TikTok or Instagram
instead.
By using these free services, you’re not only selling your time for laughable amounts
but you’re spending hours every month watching ads instead of watching the content itself.
MISALIGNED INTERESTS: If you thought sacrificing your privacy, your
user experience, and your time were already not bad enough, you’re also sacrificing
your position as a customer.
For example, take a look at these actions.
A few years ago, YouTube moved away from edgy content.
Last year, Robinhood halted trading on GameStop.
And just a few months ago, YouTube removed the dislike button.
All of these actions were strongly disapproved by users and made users feel like these companies
weren’t listening to their customers.
But, in reality, all of these companies were listening to their customers and swiftly taking
action.
The problem is that you’re not the customer.
With YouTube, advertisers are the customer and they wanted less edgy content.
And with Robinhood, the market makers were the customers, and they weren’t fans of
GameStop.
In both of these cases, even though you’re a user, you’re actually the product being
sold.
Now, imagine if everyone watching YouTube had a YouTube premium subscription.
Do you think YouTube would’ve removed the disklike button or moved away from edgy content?
No.
Similarly, if Robinhood customers paid a commission on their trades like with a traditional brokerage,
do you think GameStop would’ve been halted?
Probably not.
But, by choosing to be the product, we give up all the power we could have as a customer.
Now, look at the flip side of the situation at companies with extremely favorable reputations.
Probably one of the most admired companies in the world is Apple.
Apple does have their fair share of flaws when it comes to overpricing and anti-repair.
But, Apple receives virtually no complaints regarding the quality of their products or
the quality of their services or their user experience or the security of their devices
or the privacy that Apple provides.
And this is because, with Apple, you’re truly the customer.
THE TRUTH: At the end of the day, many companies have
flocked over to free-to-use models because it gives them extraordinary reach.
This is truly awesome because it has made great services accessible to people all around
the world.
And I strongly believe that their net impact on the world is way more positive than negative.
With that being said though, there is no such thing as free services.
If you’re not paying with cash, you’re paying with data and time which is oftentimes
much more expensive.
I think companies should offer more paid options that allow users to become customers.
Not only would this be more profitable for companies, but it would allow them to earn
a much better reputation.
Do you really think Google wants to be infamous for collecting data?
When Sergey Brin and Larry Page founded Google, their slogan was literally “Don’t Be Evil”.
So, I think basically every company would prefer to directly deal with their users.
The problem is that there doesn’t seem to be enough interest from us for companies to
take this option more seriously.
So, in the end, the choice comes down to us.
Do we want to remain the product or would we rather become the customer?
Where do you guys stand on this spectrum?
Comment that down below.
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