In the summer of 2015, a small group of Yelp “Elite” members filed a lawsuit claiming the company should be paying them for their reviews. Yelp had become successful and profitable thanks to its millions of user-submitted reviews, the plaintiffs argued, so they should be financially rewarded for their services.
The federal judge who handled the case did not agree. According to the ruling, “[The fact] that Yelp may realize financial profit from publishing the reviews written by plaintiffs and other putative class members (through third-party advertising on the website) does not necessarily mean that the writers are performing a service for Yelp.” In other words, just because Yelp is making money of these reviews doesn’t mean the people who volunteered to write them should be getting paid.
This seems like a sensible decision — after all, user-generated content is ubiquitous on the internet and submitted by free choice. But it does raise an interesting question: If a company structures its business model around its users’ insights and recommendations, why not reward them financially?
The idea of sharing isn’t new, of course — over the past decade, numerous “Airbnb for X” and “Uber for X” companies have given rise to a full-blown economy.
The difference here, however, is the type of product that is offered. An Airbnb host still needs to own or rent a house in order to put up a profile, while a nanny on Urbansitter.com still needs to put in working hours taking care of children. With the shared recommendation model, users don’t need to own anything or put in work for every new client. They just need to offer great advice, once, and then sit back and relax.
Jochem Wijnands, founder of Dutch startup TRVL, found a way to let travelers do just that. Officially launched in July, TRVL is a peer-to-peer platform that lets their users become travel agents, meaning they can earn money with their travel recommendations. People can create a personal web page on the website and share their favorite destinations and hotels. Every time someone books a hotel room through their web page, the “TRVL agent” receives a commission fee — about 10 to 15 percent.
“The commission system was designed by hotels to reward travel agents for their services,” says Wijnands. “But when travel websites arose, many people started booking their own trips. In other words: they were still paying for a service that was no longer offered to them. We are now stepping in to revive that service yet again.”
Right now, TRVL only focuses on places to stay: the company made deals with big travel websites such as Booking.com and Expedia.com. But Wijnands plans on adding more options, such as recommendations for museums or car rentals. “That way, TRVL agents can plan trips from A to Z, offering them more ways to earn commissions.”
The idea behind TRVL is a simple one: no matter how great traditional travel agents are at their jobs, they can never compete with those who’ve personally been to the destination they’re recommending. “We want advice from someone who can speak from personal experience,” says Wijnands. “Someone who’s a regular in that restaurant or often stays in that hotel.”
Some people know all about travel, others are experts in the money department. Social trading platform eToro follows a similar business model as TRVL, but instead of recommending hotels, money can be made from sharing trading secrets. By joining the company’s Popular Investor Program, users – typically experienced traders, but the program is open to anyone – can set up a profile with a short description of their trading strategy. This enables other traders to follow their trading activity in real time and copy their entire portfolio.
With every new copier, Popular Investors earn more rewards and benefits from eToro. The most prominent of them is a 2% annual payment on his Assets Under Management (AUM). So if, for example, a Popular Investor is being copied by other users who invest a total of $3M, he will be paid by eToro $60,000 a year, just for being a good trader. And that’s on top of any profits he may earn from his own trading. For some of the best investors on the platform, copy trading has resulted in earning a second income.
“I started trading shortly after the financial crisis, I guess that inspired me to start looking after my own money,” says Jay Edward Smith, one of eToro’s Popular Investors. His trading strategy is currently being copied by nearly 10,000 other traders on the platform. “The benefits of copying on eToro is that you can set it to ‘copy’ and then kind of ignore it. It basically takes the stress out of trading,” Smith explains.
The pay-for-recommendations model can even be applied to people. For Boon, a recruitment startup that pays people for job referrals, it’s not about what you know, but who you know. Using an integration with several social media, Boon users are encouraged to search their own networks and refer candidates for posted jobs. If someone gets hired through Boon, the employer is billed $5,000. Boon then takes a 10% cut— the remaining $4,500 is transferred to the user who made the referral.
It’s a smart concept: Leveraging the power of the masses to get to the best result. Just like travelers prefer recommendations by someone who’s actually been there, employers can benefit from recruiters who personally know the person they’re referring. And again, the model offers a win-win situation, in which all parties benefit.
“In order for this business model to work,” says Wijnands, “using the platform should always be free of charge, for both the people who offer recommendations as well as those who receive them.” For TRVL and Boon, this is possible because the money doesn’t really come out of their own pocket; the hotels are picking up the bill for TRVL, while employers pay Boon’s recruitment fee. Trading website eToro doesn’t charge for their services either, but takes a commission on the trades that are made – its spreads on average are 0.03 percent of the value of the deal.
The emergence of these types of platforms might signal the coming of a new dynamic in online economics: A move away from a centralized approach in which a middleman takes all, to a distributed model, where the users who actually create the value of the platform get to benefit as well.
This post is brought to you by eToro. All trading involves risk. Only risk capital you are prepared to lose. This content is intended for educational purposes only, and shouldn’t be considered investment advice.