Money is at the heart of every business, whether it’s to a greater or lesser extent. At one extreme, some (most) companies exist solely for profit. Making money is their highest priority above everything else. At the other extreme, some companies such as non-profits exist for a different purpose. They’re driven by a vision—and money is a necessary part of keeping the operation going. But ultimately, whether a company is bent on profit or purpose, money is always a factor. And money has a major influence on almost every aspect of a company—whether the business is driven exclusively by the bottom line or not. To pretend otherwise would be ludicrous.
There are lots of different ways for a company to make money; different business models work in many ways. And, the business model that a company chooses affects just about everything else. It impacts all kinds of everyday decisions both big and small. I’ve written before about business models and how they affect tech companies’ products in particular. Today I want to take a closer look at some of the most common business models in the technology industry and break down what they ultimately mean for families and kids. I think this is a worthwhile exercise because, when we follow the money, we can often draw a few conclusions about the company and the product. So without further ado, here are some common tech business models and—how they might affect you and your children.
When a company makes money from your data
I think it’s safe to say we’re all familiar with this business model, and chances are, most of us use a few platforms that make money this way. At the risk of stating the obvious, when a company doesn’t generate revenue from you, it needs to get its money elsewhere. One common way is by selling your data—or using your data to show your targeted advertisements. Platforms using this business model include behemoths Facebook, Instagram (by Facebook), TikTok and YouTube.
Meta (Facebook) spearheaded and perfected this business model: they sell ad space to advertisers with the promise that they can specifically target you based on data they have meticulously collected. The effect of this business models isn’t just that you see more ads (and maybe buy some stuff you didn’t know you needed). It runs a bit deeper than that, because in order for this to be successful, the platform needs to collect lots of data about you. Reams of it. Their ability to serve advertisers is what keeps the lights on for them, and they can do a better job of that when they can target you very specifically. So, they are incentivized to keep their daily active user numbers high. They want you to spend as much time on their platforms as possible, because that helps them collect the necessary data to keep turning a profit.
That incentive trickles down to product design and informs the way companies build their platforms. This is how platforms end up with features that draw you in and cause you to lose track of time. Arguably, platforms designed for compulsive engagement aren’t great for adults, and they definitely aren’t appropriate for children. Kids don’t have the experience, knowledge and willpower to resist sticky platforms—and they need a mix of all sorts of different activities to stay healthy. That’s a big reason that tech products like this aren’t ideal for younger users.
It’s worth nothing that not all free platforms show you ads or sell your data. Some might be venture-funded and haven’t yet implemented a business model. Others might get their money in different ways altogether. Signal, a free messaging app is run by a not-for-profit that has sunk considerable capital into the platform, and Telegram was mainly supported by billions in private funding. And some platforms, like Facebook Messenger Kids or Apple’s iMessage are offered for free because the companies that built them are so large and flush with cash that they can afford to take a loss on the product.
It might be a tired cliche, but it’s true that there’s no such thing as a free lunch. If you’re not paying for a product, it’s a good idea to do a little digging to try and learn how they make money, because some free platforms aren’t designed with your family’s wellbeing in mind.
When a company makes money from in-app purchases
You’re probably familiar with this model as well because it’s popular in a lot of gaming platforms. With this business model, you often get access to some or most of the platform, but need to purchase some sort of in-app currency to customize or level up your experience. You might get access to extra lives, cool features or special props and costumes for your avatar. (If your kid is into Roblox, you’ve probably already been shaken down for Robux.)
This kind of business model pushes app developers to create products and experiences that you love enough to spend money on. They have to spend time thinking about their user base and what those users want and need from the app. These companies probably want you to spend lots of time with the platform or app, but their revenue isn’t tied to your data, so it’s not as crucial that they capture your attention. For the most part, this business model leads companies to build experiences for you, not for advertisers.
There are lots of different ways for businesses to offer you in-app purchases. Some are transparent and kid-safe, while others are not. But once you’ve vetted an app for safety and age-appropriateness, these kinds of platforms can serve as good learning opportunities for children. If you have young kids, you’ll definitely want to make sure that they can’t accidentally rack up huge tabs in any of the apps they’re using. If you can’t set limits on purchases within the app itself, make sure that you have parental controls in place through your device—and help kids understand that in-app purchases cost real-world money.
When a company makes money through subscription fees
When a company makes its money from subscriptions, you pay a recurring fee (monthly, annual, etc) and that gives you access to the app and its features. With this kind of business model, a company’s revenue comes from you rather than an advertiser who wants to sell you something. Netflix (for now) and Disney+ are just two examples here.
When an app or platform is subscription-based, that means that you need to see value in it. So much value that you’re willing to part with your hard-earned money to get access to it. Companies need to build a product worth paying for, and they need to continue to improve upon that product, or risk losing you as a subscriber.
Again, just because you’re charged a fee doesn’t mean that an app automatically passes the smell test. You’ll still want to do your homework on the app before letting kids loose on it. That said, if you know you’re at least partially responsible for the revenue, it’s an indication that the app is designed to serve the user to some extent. This is a good starting point for parents.
When a company has a mixed-bag of business models
Now that we’ve explore a few of the common business models, allow me to complicate things a little. A lot of companies pursue a mix of all of the above. They might have a free app that shows you ads—and you can choose to pay a subscription for an ad-free experience. Or they offer in-app purchases and subscriptions at the same time. Or sometimes, you pay a subscription and a less-then-transparent company still sells your data for a profit. Admittedly, it’s not as easy as it should be to understand how some companies make their money.
But at the end of the day, money isn’t just important to a company, it’s a requirement for its very existence. How they make it—and who they make it from—will have a big effect on everything else. For younger technology users, the stakes are high. As parents, we want to do everything we can to give our kids the best of technology and protect them from the worst of it. We need companies to hold themselves to a higher standard and refuse to sacrifice users’ wellbeing for the sake of profits. And we need to expect and insist that any company building products for children puts the unique needs of kids over the wants and desires of advertisers and data houses.
A deeper dive
Here are a few helpful resources in case you want to really dig into today's topic:
The kids’ app market is particularly challenging, but at Kinzoo, we’re lucky to work with an incredible team of advisors who help us navigate the landscape. Björn Jeffery is the former CEO of Toca Boca, one of the most beloved kids’ apps going, and he’s an invaluable member of our advisory team. He’s written one of the best summaries of the kids’ app market, and I consider it required reading if you want to gain a deeper understanding of the industry.
You can glean a lot of information from a company’s business model, but I want to stress that it won’t tell you everything you need to know. I wish it were that easy, but unfortunately, some platforms aren’t as transparent as they should be. Case in point: Life 360 is a subscription-based app that’s meant to keep kids and families safe, but in addition to earning money from subscribers, the company was also selling their data to nearly anyone who wanted to buy it. And that’s the kind of revelation that makes it difficult for parents to trust that technology is built with their best interests at heart.
TL;DR
Too long; didn't read. It shouldn't be a full-time job to keep up on industry news, so here is a mercifully quick summary of some other notable developments:
If you’ve been keeping an eye on the tech news lately, you might be aware that there are signs of trouble for some big companies. This article offers a “status update” for some of the major players and gives a broad look at current challenges and trajectory of social media.
One of the most amazing things about technology is that it can connect us to our loved ones. I know for my family, this means that our kids get to build a relationship with their grandparents even though they live far away. If you’re hoping to keep your parents in touch via tech, it’s important to make sure they have access to safe, user-friendly devices. I thought this article offered some good tips to making sure older family members are set up for success.
And lastly
Here are a few more pieces of original writing from me and my team—just in case you're keen for more:
In the spirit of talking openly about how a company makes their money, here is a piece my team wrote about Kinzoo. It offers some insight into why we’re so passionate about this topic.
And, if you want to read more of my thoughts on the business of technology, you can check out my recent piece on the dollars and cents of app design.