There are no free lunches on the internet

Physics has Newton’s first law (“Every body persists in its state of being at rest or of moving uniformly straight forward, except insofar as it is compelled to change its state by force impressed”). The equivalent for internet services is simpler, though just as general in its applicability: it says that there is no such thing as a free lunch.

The strange thing is that most users of Google, Facebook, Twitter and other “free” services seem to be only dimly aware of this law. Facebook, for example, handles the pages of 750-million users, enables more than half of that number to visit and update their pages every day and hosts more than 70-billion photographs. The cost of the computing and communications resources—in terms of server farms, energy, bandwidth and technical expertise—required to make this happen doesn’t bear thinking about. And my guess is that most Facebookers don’t think about it.

But it costs money—millions of dollars a month, every month. The monthly amount is called the “burn rate”. It comes from investors who make their cash available for burning in the hope that it will eventually pay off in terms of a stock market flotation or the evolution of a profitable business whose shares will be worth holding. In the internet era, the favoured strategy has been to “get big fast” (the title of a famous book about Amazon—that is, add users/subscribers at an exponential rate, and then find a way of monetising the resulting hordes.

Awkward question
It doesn’t take a rocket scientist to figure out that the best way to get big fast is to offer your services for free. Which is exactly what Google, Facebook and Twitter did. But then came the awkward question: how to turn all those free-riders into revenue? The only answer anyone has come up with so far is—surprise, surprise—advertising. How well has it worked? To date the answers are: for Google, spectacularly; for Facebook, moderately; and for Twitter, not at all—yet.

Google’s success stems from the fact that it can use web searches to target ads at its users: if an ad pops up that is relevant to something you’ve been searching for then you are more likely to pay attention to it. Facebook’s unique selling proposition to advertisers is that it knows the real-life identity of its users (and of their friends), so in principle it can target ads that are customised for every individual user.

And Twitter ...? We’ll come to that in a moment. For now the thing to note is that the business model of all these free services involves exploiting what they know about you. Or, to put it more crudely, if you use “free” services then what you have to accept is that you (or, more precisely, your identity) are their product.

The penny drops for most suckers, er, users when it occurs to them that the service is, somehow, becoming more intrusive—whether through abrupt changes in default privacy settings, or sudden changes in the way their update and news feeds are reconfigured. What started as a lovely, simple, clean interface suddenly starts to look very cluttered and, well, manipulative.

If you’re a Facebook or a Google+ user you’ll have noticed this trend. But Twitter still seems immune to it. In fact, it hasn’t really changed much since its inception: it retains its clean and intuitive interface. That isn’t because the guys who own Twitter are nicer human beings than Zuckerberg & co: it’s just that they haven’t yet been able to figure out a way of monetising their vast hordes of users. And they face the same dilemma: the moment they adopt the techniques needed to exploit their users, many of those users will realise that intrusiveness is the price one pays for a “free” service.

Modest fees
It doesn’t have to be like this, of course. It just needs a different business model in which users pay modest fees for online services. Take, for example, something such as, which I’ve used to manage my email for many years. It’s not free, but at $35 a year, it’s not unduly expensive either. It enables me to redirect incoming mail to any number of devices and services—and provides really impressive spam-blocking on the side. It’s always had a neat, simple user-interface that has changed only incrementally over the years, and most of the changes have been marginal improvements over what went before.

The most significant thing about, however, is that it’s non-intrusive, for one simple reason: its business model does not depend on exploiting my identity for advertising purposes. It obeys the first law of internet services. There is no such thing as a free lunch. -



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