Business models

Excerpt – “If you’re under 25, you learned a lot of stuff on wikiHow,” the site’s cofounder Jack Herrick tells me over the phone. “A lot of the questions you asked wikiHow were the things you were too embarrassed to ask anyone else.”

[..] about 125 million people come to wikiHow every month, according to Google Analytics. [..] wikiHow is devoted to the pursuit of information for its own sake, no matter how small or superficial the topic.

[..] In 2004, he [site co-founder Jack Herrick] discovered Wikipedia and learned that it was powered by open-source software. Using his earnings from eHow, he spent a year re-outfitting that software to function for a how-to site, a simpler and more workmanlike encyclopedia of common sense and DIY tips.

[..] First, Herrick points out, wikiHow has had ads from the beginning, unlike Facebook, which marketed itself as a completely free product for years. (Those years feel incredibly distant, now that you can be served Instagram-sponsored posts for a bathing suit you clicked on one time six months ago, or Facebook sidebar ads for an algorithmically generated T-shirt proclaiming that your family’s bloodline is superior to all others.)

“I wanted to be clear with people, this is how we’re going to pay for this thing. I didn’t want to trick anyone,” Herrick says. “Back in the day, with venture-funded companies, it was common to start off as these free services, pretend they’re these lovely huggy bears, and then they turn into big monsters and turn on the ads and start abusing users.”

In 2005, wikiHow started experimenting with opt-out advertising, presenting site visitors with a button that turned off individual ads. Herrick expanded the idea in 2008 with a button that turned off all ads for 24 hours at a time. A few months later, he told The Wall Street Journal that revenue had fallen less than 1 percent, and that opt-out advertising was simply a “good netizen thing to do.”

Now, anyone who registers for a wikiHow account automatically has all of the site’s ads turned off for them, forever. The site makes its profit from casual readers who don’t register, and still see ads, and it sources its content from the invested readers who’ve turned them off, but then add value to the site by writing and editing.

The company never releases financial information, Herrick says, even to employees. He alternately refers to venture capital as “the wizard behind the curtain” and “Doritos.” As in, the idea that venture capitalists know anything that he can’t figure out himself is a myth. As in, once you eat one Dorito, you want more Doritos, forever. He started two venture-funded companies before wikiHow and says he learned his lesson, which is why it was only ever funded by eHow profits before it became profitable itself.

[..] “Technology industry people tend to reduce websites down to their technology,” the programmer and activist Aaron Swartz wrote on his blog in 2006. “Wikipedia’s real innovation was much more than simply starting a community to build an encyclopedia or using wiki software to do it. Wikipedia’s real innovation was the idea of radical collaboration.”

[..] WikiHow iterates on the revolutionary idea of Wikipedia by making it funny and flexible and even easier to contribute. In some ways, it is obviously lower stakes—as Herrick puts it, Wikipedia has to decide who Jesus Christ is, while wikiHow typically does not get much more heated than bickering over the best way to make a soufflé.

But with thousands of people contributing and hundreds of people empowered to make decisions in a very loosely structured bureaucracy, “the intuition is that the quality is going to go to zero,” Herrick tells me. “But the quality actually improves. It’s one of those things that doesn’t work in theory; it only works in practice.”

[..] The vast majority of contributions are “bad,” Herrick says—but the majority doesn’t matter. “What matters is the gems that get floated to the top. We have so many people who care about wikiHow, reviewing the edits constantly, that the bad edits get removed from the site. The reader never finds them.”

[..] Researchers have conducted multiple studies of contributors to wiki projects, trying to discern what exactly makes someone spend time on something that doesn’t have immediate material rewards. What they typically find is that some people are interested in the social aspect of the work, or in showing off their knowledge, but most want to be part of something that makes a difference. It’s not that it’s totally egoless, but it is totally not about the individual.

How to Make a Website (2019.11.11)

“In the 1800s, it was common for American saloons to provide patrons with a free meal. Of course, the meal came with a catch: The meals were predictably salt laden and designed to encourage patrons to drink more beer. Hence was born the expression, “There ain’t no such thing as a free lunch,” which has been called the foundation of economic theory. [..]

GoodRx is essentially the Kayak or the Google Flights of the pharmaceutical world. Flight aggregators work by obtaining real-time information on the cost of specific routes, without requiring the consumer to query each airline individually. GoodRx provides essentially the same service for medications. It partners with pharmacy chains, pharmacy benefit managers and pharmaceutical companies to obtain the real-time cost of any given drug at any of 70,000 pharmacies across the U.S. [..]

Pharmaceutical companies often pay the pharmacy benefit manager to be included on a given formulary. This payment, called a rebate, is why the cost of any given drug to your insurer is likely lower than the list price.

This leads to the second mechanism for generating profit—the clawback. Because of rebates, the amount the patient pays for a given drug may be more than the absolute cost of the drug. This difference represents additional profit, which is shared between the insurer and the pharmacy benefit manager.

The difference between the cost of manufacturing a drug and the cost to the consumer can be enormous. For example, an analysis of Medicare data indicates that for each prescription for hydroxychloroquine we write, the manufacturer stands to earn $29.33 in profit. This may not sound like much until you take into account prescription volume. From 2014–18, this markup was worth over $60 million. From Medicare alone. For Plaquenil.

In the past several years, we have seen the birth of the pharmacy benefit administrator, in which the company retains control of formulary decisions and rebate negotiations. The pharmacy benefit administrator merely processes the paperwork for a fee. [..]

GoodRx is a pharmacy benefit administrator. As such, it is not beholden to any particular pharmacy benefit manager or pharmaceutical company and can work with all of them, free to direct patients to whichever group seems to be offering the best deal for any given drug. Of course, every time someone uses the GoodRx code to purchase a drug, GoodRx receives a flat fee for taking care of the associated paperwork.

The problem is less with what GoodRx does and more with what it represents. In a field with few heroes, GoodRx seems to be one of the good guys. And yet it still manages to generate a healthy profit just by helping patients purchase drugs, such as hydroxychloroquine. GoodRx claims it has saved Americans $10 billion on prescriptions, but why should these savings come only to web-savvy people who own a printer and an internet connection? Imagine also the amount of profit generated by its less altruistic brethren, hidden behind confidential agreements that will never be made public. Even if GoodRx is one of the good guys, will it remain so after being acquired? Is there really no better way for these funds to be distributed?

In 2018, spending on prescription drugs increased by 10%. Spending, not utilization. It’s not that patients are taking more drugs; the drugs that they are already taking just cost more. Another statistic: 7.8% of patients report not picking up a prescription after finding out how much it would cost. Forget about new technologies for just a moment; imagine, instead, how much we could improve the health of our patients if they all could afford to take the pills they were prescribed.”

The Cost of Free Pharmaceutical Services – The Rheumatologist (2019.10.18)