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Why is every podcast sponsored by a VPN company?

I got to look under the hood at one. Crazy stuff.

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Michael Girdley
Sep 2
10
 
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A "typical" good Main Street business will run 15-20% EBITDA margins.

But they don't pay for ads in every Youtube video and podcast.

Like the VPN companies do.

What the heck is going on?

Then I found a P&L statement for a small VPN business.

And it all made more sense...

The VPN Business

VPN stands for "Virtual Private Networks."

Consumers use them to hide their tracks online.

Or, to convince Netflix that you're in Argentina so you can watch
Stranger Things.

They operate servers online that add an extra stop when you
communicate online.

So Netflix (or whoever on the other side) doesn't know your location.

A Case Study

Here is a small-scale VPN business' P&L statement from 2020.

This business was sent to me a few years ago when it was on the
market:

 
[https]

They are cash-flowing nearly 50% of the revenue!

By the Numbers

The VPN business is crazy.

*      Commodity Product: The underlying software to run one is all
free and identical. Customers switch quickly and easily.

*      Cheap to Deliver: Some services are profitable at $2-3/mth for
unlimited traffic.

*      LTV (Lifetime Value of Customers) is low. A new customer is
worth $98 to you in the 2-3 years they'll be around.

*      CAC (Customer acquisition cost) is high. Providers will spend
$56 or more to acquire a customer worth $98 LTV.

*      Many players. It's an incredibly fragmented $20bn market with
thousands of little providers.

*      Low Barriers to Entry. It's common for providers (including
this one) to allow "white labeling" of their service. You put your
brand on it, and they deliver for you.

Where it's Going

*      Growing: The industry is expected to double by 2025 to $40bn.

*      Rollups: Big players realize acquiring customers is expensive.
So many are growing through acquisition.

*      Gov't is often fighting against you. India, for example,
recently made data laws that make VPNs useless in the country.

*      Cat and mouse getting worse versus Netflix and streaming
services coming after VPNs. So, use cases are getting rarer.

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---------------------------------------------------------------------

Thanks for reading!

Just a crazy business.

What do you think? What did I miss?

Michael

PS - did you enjoy this? Share it with a friend!

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