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Comment by _fat_santa | Hacker News Reader

> It's rare to see that a service you use actually does something that benefits the user rather that itself

The reason it's become so rare is most companies in this space (heck tons of tech companies period) have used a business model of offering a thing to one group of users and then turning around and selling the results of that thing to another group of users, where the latter group is the one actually driving your revenue. This by default almost assumes a hostility towards the former group because their interests will of course be at odds with the interests of the latter group.

What's refreshing about Kagi and other new tech companies is they have dumped this model in favor of having just one group that they serve and drive revenue from (ie. the 'old' model).

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The other part to this is that the internet accelerates network-effects, which you can further supercharge by making your product as cheap as possible or free to the former group in your example.

It’s hard to make money by charging a lot to a small group of people since now you’re dealing with anti-network effects. Doubling the price of a product will likely more than halve your user base.

This is one of the best explanations I've seen for this phenomenon.

If you try to build a network of paid users, you lose because you'll be run over by 'free' competitors monetizing indirectly.

Playing devil's advocate...

Yeah, the ad supported model has its problems, but it also makes the internet way more accessible. If we think about it, companies and people with more money are basically subsidizing these services for everyone else. They're the ones seeing the ads that keeps the lights on for users who can't afford to pay.

If everything was subscription only, a ton of people like students, low income families, people in developing countries would be shut out. "Free" services, even with their flaws, create a kind of digital subsidy. It's not perfect, but it means way more people can use these tools.

Playing the... angel's advocate...

There's no reason why a subscription model could not also be used to subsidize people who can not pay, other than that companies are structured to extract as much as possible (by law, if they are public).

There are good network effect arguments about why this strategy can be effective, not simply 'altruistic.'

Ads simply make the extraction happen across the board, except that the ad model somewhat privileges technical users who know how to circumvent ads.

What's the mechanism by which a private company does e.g. income verification to figure out who gets subsidy or not?

Or would the idea be to only subsidize students and not poor adults?

It would be one thing if we had like a national "verify I'm on SNAP or equivalent API"

Think of Discord. Anyone can create and participate in a discord server. There are no ads. People with money pay for the premium features and perks and that is how the company makes money [1].

Not every product category is amenable to such business models but many are.

[1] To be fair, Discord likely sells user data to advertisers to make additional money.

Discord has ads, though they are relatively rare and not embedded in chat. They are called "Quests" and you can disable them in the settings.

> structured to extract as much as possible (by law, if they are public).

This is not true and it’s not what fiduciary duty means. Stop repeating it, it’s really dumb.

Companies very frequently do not monetize things that they could under the guise of “building brand recognition” or “establishing a user base”. It’s even as easy as “raising the price will alienate customers we think are important to long term revenue”.

It’s trivial to justify not extracting maximum price and public companies do it all of the time.

Look at Costco’s business model if you want an example

I mean, we could also just direct-pay websites (for example with Brave's Basic Attention Token model).

Imagine a utopian world where you just pay per site visit, and in return all companies selling stuff don't have an inflated advertising budget and free market effects force them to pass the savings on to you, meaning the net cost increase for you is zero. And as a side-effect, quality products float to the top, since you hear of them mostly by word-of-mouth, meaning products compete on value-per-dollar.

Sadly human psychology and economics does not work that way haha. We pay what the market will bear, and increasing sales via a torrent of ads is cheaper than increasing the value-per-dollar ratio of the product.

Companies are not bound by law to extract as much as possible as soon as possible.

Correct. Wall Street will punish them for violating this principle, not the government.

Our only recourse is that we punish them with our wallets, advice and habits and reward good actors.

I'm a firm believer of this but we need more people to join in.

And it already works to some degree.

I've now had a working search engine for almost 3 years.

My last 3 jobs (9 years) haven't forced me to use Windows.

I can chat and organize events without Facebook knowing.

And it is not like the quality has gone down either. My choices have mostly given me better experiences in a number of ways.

Edit:

If more people start

- advocating for better hardware and software,

- canceling subscriptions and memberships when it becomes clear they are reducing value or increasing price,

- building skills both to get independent from their current cloud (so you can move around or at least having a credibile possibility to do so)

- and for individuals to get better jobs

then I think things will change.

For inspiration: at least here in Norway, with several gym memberships, if you cancel they will quickly approach you with good offers, and they can get really good: I got several months free, a friend got offered free months and a sizable gift card.

Bonus: if more people join in this will get picked up by Wall Street and they will begin punishing this nonsense too ;-)

I envy your bubble.

I admit it is a nice one.

My base salary has doubled and I enjoy my work a lot more now that I don't have to accept all kinds of MS shenanigans to play a part in how I work.

Having a working search engine shouldn't be underestimated either: living from 2012 to 2022 knowing that search used to be a solved problem but wasn't anymore was really annoying.

Sorry, what do you mean when you say “punish”? How?

Indirectly by pushing down the stock price. CEO compensation is usually tied to the stock price through options, bonuses, etc.

Directly through activist investors and shareholder groups (which nowadays usually are institutional investors) who vote to change company policies, fire the CEO, or in some cases fire the whole board.

Private companies' interest in what Wall Street thinks is generally not very large.

Which is why GP stated "if they are public." That was the context of my comment.

Ah - fair point!

> Yeah, the ad supported model has its problems, but it also makes the internet way more accessible. If we think about it, companies and people with more money are basically subsidizing these services for everyone else. They're the ones seeing the ads that keeps the lights on for users who can't afford to pay.

The problem (other than the obvious privacy and noise issues) is that it's not a neutral subsidy. It introduces a lot of biases.

Since advertisers are subsidizing the platform, they tilt the content toward things they want and away from messages they don't. Messages that criticize advertisers products (which include things like governments and political ideologies since they are advertisers) are de-emphasized and marginalized.

Since impressions / clicks / eyeballs are the goal, an inherent bias is introduced toward emotionally triggering and/or addictive or hypnotic content. The reason social media for example is so divisive and negative is that this keeps people engaged by triggering simple powerful emotions.

We can still provide subsidized services and media to people with low income via other means which don't have the negative consequences of ad-tech. This is why we have libraries rather than free textbooks with engagement optimizing short comics and full-page advertisements.

The free competitors have raced to the bottom and don't provide a useful service any more.

Disagree. You don’t lose, you’re just smaller, better, and still very profitable.

HBO used this model way back when. It’s been a lasting business.

But then you can’t blitzscale and exit after a few years as a centimillionaire!

I think you meant hectomillionaire, actually.

They mean the same thing in this usage.

How? A centimillionaire has $10k, a hectomillionaire has $100m.

LMGTFY: https://www.merriam-webster.com/dictionary/centimillionaire

That's not SI, therefore inadmissible.

Look, I don't make the rules. The English language is what it is.

However, most of current fremium games are precisely based on this model (Fortnite, LoL, TF2, most of mobile games, etc...)

The service is subsidized by "whale players" that regularly spend a lot of cash, but they are a lot of freeloaders (to entertain the whales and to build brand popularity).

I think this supports my point and the OP’s example. Video game makers have figured out how to segment their customers into two groups (former and latter in the OP’s example), and this only works because they’ve made their games extremely cheap or free.

A cheap/free game supercharges network effects to amass players, each of which incrementally adds value to every other player. Most players will never directly pay enough to offset their own cost to the game maker. However, they will create a real community that draws in a small number of whale players who will directly pay for themselves and indirectly pay for all of the free players.

Not so different from the two-sided markets on Facebook and Instagram.

> This by default almost assumes a hostility towards the former group because their interests will of course be at odds with the interests of the latter group.

I would generally agree that that's the "default".

However, there are cases where two sides of a market need an intermediary with which they can both independently transact, and a net benefit of that interaction is felt on both sides. The key is to construct the solution such that the intermediary depends on the goodwill of both sides of the market.

I think Kagi is somewhat flipping the script. By "taking" data from publishers for free, they are then selling it to readers at a cost. However, there is a trade off. Kagi needs to make sure publishers continue to make their content available so that it can be searchable, or used in their Assistant product. In order to do that, they need to do the opposite of what Google is doing by trying to sequester traffic on Google.com: Kagi's best interest is to make sure that they provide good value to both sides.

Indeed, using the Assistant product, the way it is structured, I very often find myself clicking through to the referenced original sources and not just consuming the summarized content.

How this evolves over time, from a product design standpoint, will be interesting to watch.

Kagi user here. I agree!

The main driver of hostility to users is due to ad-based business models. I think we would see a much more healthy internet if we had regulation which prohibited companies from choosing ads based on any information associated with the user that the ad is shown to. That is, any data collected in the past and any data associated with the session and request must not be taken into account when choosing the ad; two requests by different users in different locations should have the exact same ad probability distributions.

I know we are never getting this because it would kill or severely harm the business models of some of the most profitable businesses in the world.

They would be a good steward of pinboard.in if it were for sale / recovery.

Direct monetization FTW. Charge people for value. Cultivate audiences willing to pay for value.

Incentives aligned. Happy customers. Good businesses. Maybe you only get 60% gross margins, or, gasp, 40% gross margins. But so much less toxic.

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