Due to the internet, many new and unique business models have emerged. Among these, the hidden revenue business model is prevalent among some tech-giant companies. While, seemingly, there is no income source for these companies, they have a hidden revenue source. The business model also gets its name from it.
What is the Hidden Revenue, business model?
The hidden revenue business model is a model used by companies that don’t charge users for their services directly. Instead, these companies keep their users out of the revenue model. Alternately, they have other sources of revenues, often hidden. These companies charge other businesses, usually third parties, to reach customers.
The hidden revenue business model is most common in the media, services and information technology industries. Usually, these companies provide customers with a service that they can use. However, these companies do not charge customers for the use of their service. Instead, the companies deal with third-parties to show their customers their ads or other ways to monetize them.
If a company has a platform that offers free services to users, it can earn revenues without a direct contribution from the customers. In this model, the customers don’t realize that the company deals with third-parties to generate money. The customer gets the free use of the company’s products or services while it benefits from revenues through third-parties.
How does the Hidden Revenue business model work?
The hidden revenue business model starts with a company that wants to generate revenues. The company builds a product or service that its customers can use. However, the company does not charge its customers for the usage. Instead, it provides services for free. Nonetheless, the company still makes money from the product or service it offers from other sources.
The source of revenue in this model comes from third-parties. For the media industry, these third-parties come in the form of publishers. The company charges these third-parties, allowing them access to its customers. For example, it charges publishers for showing their ads to customers on the products or services they use.
The publisher benefits from access to the customers of the company. The company also benefits from generating revenues. Similarly, the customers benefit from the use of the products or services offered by the company without having to pay for it. However, the customers still have to interact with the products or services to generate revenues for the company.
The hidden revenue business model facilitates the idea of keeping the customers and revenues of a company separate. This way, the company focuses on its products or services provided to its customers to reap the maximum benefits from the customers’ interaction. Some companies may also charge customers for their products or services, although these fees are usually minimal.
What are the advantages and disadvantages of the Hidden Revenue business model?
While the hidden revenue business model is beneficial for all parties involved, there are also some disadvantages of using it. Some of its advantages and disadvantages are as below.
For the company that uses this business model, the primary advantage is that it can generate revenue without charging its customers. Therefore, it can increase its earnings while also attracting more customers due to the free services. Once a company develops a unique product, it can establish a sustainable and steady source of income.
For the customer, it is beneficial. They don’t need to pay the company for the use of its products or services. On the other hand, the publishers also get the advantage of reaching more customers while paying a small fee.
While a company using the hidden revenue business model benefits from earning from third-parties, it heavily relies on them, as well. Similarly, the company needs to keep its products or services up-to-date or risk losing its customers.
For customers, while they get to use the product or service for free, they are still a part of the revenue generation. Sometimes, companies may provide third-parties with private information about customers. It can be harmful to the privacy of customers.
Google is the most prominent name that uses the hidden revenue business model. The company provides free services, such as its well-known search engine, drive, mail, etc., without charging its customer. Instead, it charges publishers to show their ads on these services. Therefore, the source of revenue for Google comes through these publishers.
Some other companies that use the same model include Facebook, Instagram, Twitter, etc. All of them have a similar business model to Google.
With the hidden revenue business model, companies offer products or services to customers without charging them. However, these companies still generate revenues from third-parties. Companies provide them to their customers in this model, while billing them in exchange.