6 The business of RecSys: how platforms make money
This chapter covers
- The ways online platforms make money
- The ad business and its surveillance implications
Currently, some of the most valuable companies on Earth are tech companies, with many of them having a business model that is directly or indirectly based on recommendations. Netflix was not wrong, after all, when it offered a million dollars for its 2006 competition for the best recommendation algorithm.—delivering good recommendations can bring huge profits. Many platforms, however, don’t require a subscription and can be used for free, such as with social media.
As the adage goes, “If you are not paying, you are the product.”
Online platforms have consolidated around a few business models, whose boundaries can be somewhat fluid, especially when a combination of revenue models is used. It’s still helpful to list them separately for clarity, though, to highlight what role recommender systems play.
One common approach is the subscription model, where platforms charge users a recurring fee to access their services. In this context, recommender systems play a crucial role in surfacing relevant and engaging content, helping to maintain user interest and increase the likelihood of subscription renewal over time.