The dangers of relying on a third party platform to drive revenue (episode 39)

It’s dangerous to depend on someone else’s platform to market and sell to your customers.

We’ll start with a few stories.

Facebook first.

In his awesome talk on content marketing, Joe Pulizzi told a fascinating story about Starbucks and their Facebook following. They spent 10 years spending big money each year, I’m guessing 10s of millions of dollars, getting followers on Facebook. The plan was simple. Get followers and then reach them organically and drive value over time.

Right now they have 36 million followers on Facebook. They are in the top 5 of all business pages on Facebook when it comes to likes.

Well it turns out Facebook likes making ad revenue. It turns out Facebook owns the platform and has all the control. Slowly over time Starbucks started noticing their Facebook posts were only reaching 1% of their following. How could this be? We spent all this money to get these followers and now we can’t reach them. Facebook’s response?

You can reach the last 99% if you boost your posts and continue to pay for ads. Facebook has every right to do this. Its their platform. Its their algorithm. They have the users and they call the shots.

Starbucks spent millions getting the followers on someone else’s platform with no control and now they are paying again to reach them.

Organic doesn’t work anymore. Facebook and other social channels care about one thing. Ad revenue. They’ll find a way to keep making you pay. Advertising may still be a good decision for your business but you can kiss organic followers goodbye.

You have no control over your own destiny.

Now YouTube.

Another great example. People are building big businesses putting content on YouTube and depending on YouTube to allow them to get a cut of the advertising and depending on YouTube to continue to let their videos show up in the search rankings.

They’re now trying to get all content makers on YouTube Red. No choice. Do this or die. What if tomorrow you wake up and YouTube changed their search algorithm and your organic traffic stops. What then? You are SOL and your business is dead. What if YouTube decides they want more of the advertising revenue? What if they cut your take by 50% and your revenue cuts in half?

They control the platform and they own the platform. They have every right to make changes and you are along for the ride. Sitting, hoping, waiting, wishing.

And Google.

Lets talk about Google and the August 1st 2018 algorithm update. Earlier this year on Reddit I saw several posts on the entrepreneur thread from bloggers desperately trying to figure out what happened to their traffic. Overnight it was gone. Overnight they had no way to pay their staff. Overnight their revenue was halved or worse.

Turns out somebody at Google thought it was a little bit dangerous to have all these health blogs touting aggressive diets, unique supplements and generally a ton of medical advice by people who are not doctors. All of this right on the first page of results for some big keywords. A lot of click bait titles with totally false information that was contradicted by actual medical doctors and journals were ranking really high.

So they changed it on August 1st 2018.

All of the sudden you needed to have your outlandish claims backed by real science. Links from real journals. Oh baby. There was a mad rush to recover and a big business developed sourcing subject matter experts who could validate all the claims. Simply put it was a huge mess for these people.

Their entire business was build depending on Google’s rankings to make money. Not their algorithm. No control. Risky.

Can’t leave this without talking about the fall of Yelp. For years it dominated reviews of restaurants and basically all home services. It was on the first page of Google when you typed in basically anything. Went public in 2012. Share price went from $20 to almost $100. Big money was made.

Then Google Maps and Google in general started to have a bigger stake in reviews and selling ads to businesses looking to reach consumers. Now remember Google is Yelp’s primary source of traffic. Yelp makes money by getting a click from somebody searching on Google and then selling ads to businesses looking to reach them. Can you guess what’s coming?

Google owns the search. Google owns the traffic. Google owns the algorithm and Google likes to sell ads and make money.

So they did what any smart business would do and started to cut out the middleman. They started to rank yelp lower so more people were using the Google Reviews to decide on businesses and they could sell more ads.

I give it 3 years or less until Yelp is in bankruptcy and 5 years until its a distant memory on the 5th page of Google results. They have a business that is largly dependent on another business for its traffic and thus revenue and it turned out that other business became a competitor.

Brutal brutal turn of events for Yelp and another example of the dangers of building on someone else’s platform.

Along those same lines I personally believe that lead generation is next. People are tired of seeing Home Advisor, Thumbtack, Angie’s List and other sites that offer very little in the way of value and are direct competitors to Google. Nearly every business has Google reviews now. If you have a bad experience and a company rips you off you can leave a Google review. You don’t need a service like Home Advisor or the others to tell you who is trustworthy – Google is starting to do that.

Add to that the fact that Home Advisor isn’t actual value. Whoever pays to get on Home Advisor and whoever pays for ads shows up. Same with Thumbtack. Same with Angies List. Its all about advertising first and value second.

Three things are going to kill these companies. Google is a direct competitor, Google likes selling ads and Google is starting to rank valuable content higher than the sites that game the system. It’s only a matter of time until those sites die just like Yelp did.

Amazon – the biggest and baddest of them all.

Lastly let’s talk about Amazon and the big businesses that are built around being a part of that platform. Let’s run a hypothetical.

Your business is going well and you are selling a lot of stuff on Amazon. You have millions in revenue, a full time staff and maybe even a warehouse or garage full of stuff. You have a very profitable item that is on the first page of Amazon results – things are going well. Maybe you have even invested a lot in getting reviews and building that ranking.

You wake up one day and your item is now on the third page of results. On the first page is the same item branded “AmazonBasics”. Amazon noticed. They tracked the data and the volume. They calculated the profitability. They entered the market as your competitor.

They control everything. You control nothing. They crush you. Your warehouse stays full. You lay off your employees. Hopefully you salvage the business in time to pay all of your bills and keep your home.

So how can we fight back?

You have to find a way to build a business that isn’t overly dependent on one customer acquisition method. Is 95% of your sales derived from pay per click advertising? What will you do when that click goes from costing $2.50 to $5 and your margin is gone? Will you be able to salvage something out of the company or will you go bankrupt? That would keep me up at night.

I’m not suggesting you don’t double down and take advantage of certain marketing channels when they’re working. Just be mindful of the risks of dependency.

Businesses with sales that are driven by actual interaction that goes beyond a click or a search are most insulated from the above risks. If you can speak to your customers on the phone or by email it’s a lot easier to control that and nurture that on your own terms.

Taking that one step further if your business reaches customers on a local level and those customers can interact with each other in the form of word of mouth marketing you are further protected. Your customers are not only face to face with you but they rely on each other for recommendations and there are synergies with all the different marketing drivers.

As part of the strategy you should still reach your customers physically with good old fashioned targeted marketing. Where are your customers and what other businesses do your customers interact with? Go see them in person, meet them and sell them on your service or referring your service (u/mmaher13).

You can’t get away from being dependent on Google so its important to understand it. Google is leaning more and more towards ranking value over other factors. Make sure your content is valuable and you put that value ahead of your sales pitches and your agenda. Build your website and YouTube library around what the customers want and you’ll continue to thrive and you’ll remain protected to some degree.

Drive email signups and get subscribers on a platform you can control. You can email customers and email isn’t going to change. Don’t focus all of your energy on building followers on platforms you don’t control.

If you must operate a business that depends on things outside of your control be mindful. Run a lean business. Keep your expenses variable and avoid overhead. Buy equipment used so you can resell it without eating depreciation. Keep your employees aware of the risks. Avoid lifestyle creep.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship.