By now, everyone's heard the news that Ashley Madison, the "dating site for married people," was hacked and its entire user database was posted online.
Divorce lawyers are scrambling and finger-waivers are noting bold-faced names like reality TV star Josh Duggar, Florida State Attorney Jeff Ashton and YouTube evangelist Sam Radar.
Entrepreneurs?
Most are wondering what Ashley Madison's business model can teach them.
First, how did Ashley Madison make money?
According to media outlets, creating an account was free but user had to pay to play, so to speak, forking over anywhere from $49 to $249 to "initiate contact" with female profiles.
A second revenue stream came from charging users who worried they might be caught $19.95 to have their data removed.
The result was $115 million in revenue in 2014 on a total company value of $1 billion.
Morality aside, all of that seems pretty straight-forward for a web company. What's really interesting is that underneath the revenue was a "product" that didn't really exist.
From Business Insider:
Gizmodo editor-in-chief Annalee Newitz analyzed the data from the site's user database and found a lot of suspicious stuff suggesting that nearly all the female accounts were fake, maintained by the company's employees.
First, the official numbers.
The info that the hackers published contained about 31 million accounts apparently belonging to men, and about 5 million apparently belonging to women. But when Newitz dug deeper, she found a bunch of test accounts that ended with ashleymadison.com, suggesting that they were created internally (90% of them were for women), as well as 350 female accounts for people with the same and very unusual last name.
Then she found three really damning pieces of data: Only 1,492 of the women in the database had ever opened their inboxes to check their messages on the site. That's compared with more than 20 million men. Only 2,409 of the women had ever used the site's chat function, versus more than 11 million men. Only 9,700 of the women had ever responded to a message from another person on the site, versus almost 6 million men.
From Ms Newitz's post on Gizmodo:
“This isn’t a debauched wonderland of men cheating on their wives. It isn’t even a sadscape of 31 million men competing to attract those 5.5 million women in the database. Instead, it’s like a science fictional future where every woman on Earth is dead, and some Dilbert-like engineer has replaced them with badly-designed robots."
So... 5.5 million men paying to have affairs with 1492 women?
Can you imagine what kind of profit Amazon would generate if it only had to deliver 1 out of every 3600 products people ordered?
While there are any number of lessons here for anyone in business — chiefly being keep your data secure and if you're gonna charge somebody to delete something make sure you actually delete it unless you want to get sued — the really interesting one underscores this fundamental truth: your "product" isn't just the good or service you sell, it's the emotional interaction your customers experience when they buy it.
Whether that's pride, joy, hope, surprise, serenity, gratitude, or, in the case of Ashley Madison, lust and fear (and before the hackers struck, probably relief, too), the more powerful it is the more revenue you can generate from it.