I’ve noticed while looking into the business models of different companies, that there are several companies that, in a certain light, make their money by being hated. As in - they are around as an intermediary that takes reputational risk for other parties, and by taking the heat, are able to charge a fee.
I read an interesting post on Fortress of Doors about “Piracy and the four currencies,” and it clarified my thinking on the topic a bit. If Money, Time, Pain-in-the-butt, and Integrity currencies are 4 different ways that goods or services can be paid for, then surely there are a few companies that are around solely to charge integrity dollars in exchange for other forms of currency? Surely there’s some forex market to be made between these.
What follows is a few examples of companies that I believe may fit this definition - they assume the hatred or hits to integrity for other parties, and as a result are well compensated.
Tickemaster is an interesting business model - they combine 1000s of kiosks that sell tickets, with 1000s of venues that accept tickets for different concerts, sporting events, and other highly attended performances. They even send people to each sporting event to ensure that systems will be up and that events go off without a hitch. To understand why Ticketmaster makes the margins it makes, let’s first talk about scalping.
We all know about scalping - where someone buys a ticket for a product and then is able to resell that ticket for far more than face value to someone who wasn’t able (or only chose later) to buy the ticket).
The question becomes, why is there even a market for scalpers? Why don’t performers go and charge what tickets are worth, removing the margins for these secondary sales? It sounds like there’s money being left on the table by someone. Which, as any economist would tell you, just simply isn’t possible.
Two economists are walking down the street and pass by a hundred dollar bill without picking it up. A little while later one turns to the other and asks “was that a hundred dollar bill on the ground?” To which the other replies “nope, if it was someone would have picked it up already.”
In this case, the scalper is generally seen as having low integrity - they’re providing some service in the form of creating a market for secondary ticket sales, but they are charging more than the ticket is worth face-value! What an outrage!
How should we expect this market to play out?
Let’s say you’re Taylor Swift. There’s tickets that you’re charging $1000 for, that are being sold by scalpers for $3000. The obvious option you have is to charge what the scalpers charge, as the face-value of the ticket. In this way, you charge $3000 for that ticket, and you end up pocketing that tidy $2000 profit that scalpers got.
This begs the question - why isn’t Taylor Swift charging the full market value ($3000) and instead underselling it? The answer is likely that she can’t charge the full value, because there will be a hit to her integrity and it will make her fans mad.
There’s a few ways to model this. One view has the scalper, who values integrity currency less than money currency, to step in as the middle man for Taylor Swift, who values Integrity currency more than Money currency (presumably because if her fans didn’t think she was fair & honest they’d be less likely to be fans). So, Taylor charges a lower number that seems fair, a scalper can jump in and make their high margins, and everyone can be mad at the scalper instead of Taylor Swift.
This seems fine, but aren’t we missing something? What if Taylor Swift could make some of the money that the scalper was making, but without taking the Integrity Currency hit that would accompany charging her fans that markup? Enter Ticketmaster.
If you could be a scalper (taking the Integrity Currency hit on behalf of Taylor Swift), but somehow share some of the money with Taylor Swift, then many parties would be happier (except the fans). Taylor could charge less originally for the tickets, increasing her integrity in the eyes of fans. Scalpers who give Taylor a kickback would then get preferential access to ticket sales and get more business (and therefore higher margins) than unaffiliated scalpers would.
We’ve essentially mapped out one of Ticketmaster’s major revenue streams.
If you’re ticketmaster, you can offer the ability for tickets to be resold on your marketplace. When tickets are resold, you can charge a fee. Part of that fee is given to the venue. Now the venue can charge Taylor Swift less to perform. And Taylor Swift now has more money in her pocket! So, at scale, Ticketmaster serves as a scalper, working for Taylor Swift. Ticketmaster agrees to be hated (Look at the resale fees, the fans say!), Taylor Swift remains loved (Wow she doesn’t charge too much for good seats!), and we see that conversion from Integrity Currency to Money Currency at a fair exchange rate for all involved.
If you’re Apple you care about your brand image. You spend enormous amounts of time, hire large amounts of employees, and meticulously review each launched product to make sure that you delight your customers.
And then, you decide to get into the credit card business.
Great, you think! More revenue, the chance to help your users buy more things. The chance to increase the use of ApplePay, your in-house payment system! Only one problem….
If you extend credit, you have to say no to people.
Susan, a long time iPod lover, wants to apply for your Apple Credit Card to buy her new iPhone. But she has a poor credit score and is unlikely to pay back the loan. If you’re Apple, you should say no to extending her credit - but now Susan will feel betrayed! After all the iPods and AirPods I’ve bought, do you think I’m such a bad customer that you won’t even give me a credit card?
Jane, on the other hand, has a great credit score - no issue letting her get the credit card to buy her new macbook. She’s a good credit risk!
If only there were some way to get the additional business from all the Jane’s who now spend more with their shiny new titanium credit cards, without losing the admiration of all the long-time Apple fan Susan’s who just aren’t worth the credit risk.
Goldman Sachs has entered the chat
One way to make more money if you’re Apple, without taking the reputational risk (paying Integrity Currency), is to have someone else take the blame for all the rejections. Goldman Sachs plays this game. As a bank, they’re used to saying no to customers with a bad credit score. They can work with Apple to get access to a bunch of new customers for their credit cards, in exchange for taking the heat from Apple for rejecting all the customers who just aren’t a good risk. Apple makes more money, Goldman gets more customers, and Goldman takes the heat in exchange for more money & the change to get in on the consumer game.