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Tech giants and tiny dogs

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SYLVIE DOUGLIS, BYLINE: This is PLANET MONEY from NPR.

(SOUNDBITE OF COIN SPINNING)

KENNY MALONE, HOST:

We are in the middle of an industrial revolution - the third industrial revolution.

JACOB GOLDSTEIN, HOST:

Industrial revolution No. 1 - steam. No. 2 - electricity. No. 3 - the one we are living through this very moment - computers and the internet. This is not a secret. In fact, we think about it, talk about it all the time - iPhones, Facebook, blah, blah, blah, blah, blah. But there are aspects of this third industrial revolution that we don't talk about that much and that are really interesting and important and big. One of those - the third industrial revolution has made it easier than ever to start a business.

MALONE: Yeah, sure. It used to be that to start a business you needed connections, capital, like, brick-and-mortar space. You sometimes needed millions of dollars. But today, if you want to start a company, you got a laptop, you got an internet connection, you're like 90% of the way there.

GOLDSTEIN: And a lot of that 90%, a lot of that reason that it's so easy to start a small company today is because of a few giant companies - giant companies that have made it very easy to do a lot of the core things you have to do to start a company - you know, things like finding customers and getting paid.

MALONE: However, if you are one of those small companies building on the backs of giant companies, like a tiny feeder fish swimming next to sharks, once in a while, one of those sharks might just flip its shark-y fin and totally destroy your company.

(SOUNDBITE OF JUSTIN DOUGLAS PERROW'S "COULD BE")

MALONE: Hello, and welcome to PLANET MONEY. I'm Kenny Malone.

GOLDSTEIN: And I'm Jacob Goldstein, used to host PLANET MONEY. And now I'm starting a new podcast. The show is called "What's Your Problem?" And on the show, I talk to entrepreneurs and engineers about the problems they're working on right now. And recently for this show, for "What's Your Problem?" I interviewed a guy who really did help me understand this idea we're talking about, Kenny, this idea that, you know, the giant tech companies both enable and also sometimes really mess up new, little companies.

MALONE: And sure, that is one way to sell this episode. The way Jacob sold it to us - wiener dogs. Wiener dogs. Today on the show, how a guy selling ramps that let, like, little wiener dogs get up and down the couch with their little wiener dog legs - how that explains a surprisingly large amount about this 21st century economy.

GOLDSTEIN: It really does. Wiener dogs.

(SOUNDBITE OF JUSTIN DOUGLAS PERROW'S "COULD BE")

MALONE: The guy who sells ramps for wiener dogs is named Ramon Van Meer. But we should say right off the bat here, Ramon's main thing is not wiener dogs. He's not a wiener dog enthusiast or anything. His main thing is starting weird, little, niche businesses.

GOLDSTEIN: Maybe just to start, can you just, like, off the top of your head list a bunch of the businesses that you've started in your life?

RAMON VAN MEER: Oh. OK, yes. That's a lot. A construction company, online piano (ph) website, soap opera blog, a YouTube channel, festivals in Vegas. What else? What else? Oh, I did an online travel company.

MALONE: Now, Ramon kind of buried it in that long list of his entrepreneurial endeavors there, but his first big success was a soap opera blog, which, by the way, he started despite having never watched a soap opera. Entrepreneurs going to entrepreneur.

GOLDSTEIN: And that soap opera blog is the perfect way to look at this third industrial revolution idea we're talking about here - right? - how starting a business has become ridiculously cheap. And this was actually a big deal for Ramon back in 2015 when he started the blog.

VAN MEER: I'm a single father with me and my son. You know, when I started this, I was literally, at that time, paycheck to paycheck, barely. I - actually paycheck to less paycheck. Like, I barely could make the rent. And actually, I think that helped me motivate. Like, as soon as I saw, like, OK, we have $10 a day with soap opera, the blog, I said, OK, I need to make this work. I can get this to $100 a day if I just work my ass off.

MALONE: Just a few examples of how Ramon built this blog, this business on the backs of existing tech companies - No. 1, WordPress. Many of us have used WordPress. It is software that lets you cheaply make a website and write stuff for people on the internet. No big deal.

GOLDSTEIN: Seems like no big deal, but think about what WordPress is replacing. Ramon here is basically starting the modern equivalent of a soap opera magazine. And to do that 40, 50 years ago, he would've needed access to a giant, heavy printing press worth millions of dollars. Instead, today, Ramon can sit down and build a soap opera website for almost free.

VAN MEER: OK, so now I have the website. Now I need the content. And I don't watch the show, so I couldn't really write. So let's find a writer. So there is these website platforms out there. I use upwork.com. You can basically hire any type of freelancer that you can think of. So found a writer that started writing one article a day.

MALONE: OK, so Ramon's got this niche website full of soap opera articles. He now needs people to read it. He needs customers. And this is where the really big tech companies come into play.

GOLDSTEIN: Ramon didn't know anything about soap operas when he started the blog, but he knew a lot about those big tech companies. He knew a lot about Facebook, for one. And he had figured out that you could build really targeted Facebook fan pages, like in this case, fan pages not for soap operas in general, but for individual shows. You know, he built a fan page for "The Young And The Restless," attracted thousands of fans to that page. And then once he had them there, he sent them to his soap opera blog.

MALONE: And once they were at his soap opera blog, he leaned on yet another tech giant - Google. He used this Google service that lets anybody put ads on their website and get paid. And so the more traffic that Ramon got, the more money he would make.

VAN MEER: And it started with $1 a day and then $5 a day and then $10. And then slowly, you know, it went up.

GOLDSTEIN: Keep going up. What did it get to?

VAN MEER: So right before I sold the business, the website was doing around $400,000 a month in revenue.

MALONE: Four hundred thousand dollars a month in revenue built on the backs of tech companies - WordPress and Upwork and tech giants like Google and Facebook.

And quick note here - Facebook's parent company, Meta, pays NPR to license content. And Upwork is among NPR's financial supporters.

But back to Ramon here. Ramon was able to sell his soap opera website just a few years after starting it for $9 million.

GOLDSTEIN: Which is an extraordinary amount of money for a soap opera website.

MALONE: So much money for soap operas.

GOLDSTEIN: A ton of money for a dad living paycheck to paycheck - life-changing money. But another way to think of $9 million is 0.0005% of the value of Google - we think, if we did the math right.

MALONE: Yeah. And so you really can see how these tech giants are like huge sharks. And then there are all of these little, teeny feeder fish, like Ramon, latching on, building their businesses.

GOLDSTEIN: Like microscopic feeder fish on a, like, super megalodon.

MALONE: Yeah.

GOLDSTEIN: Which is fine, right? You - Ramon's doing great - until the giant shark flips its tail and, without even knowing it, thrashes the tiny, little fish.

(SOUNDBITE OF CHARLES HENTRY TRUONG VINH LAFFER, ET AL.'S "BENIN BOP")

MALONE: After the break, Ramon gets into the wiener dog ramp business and nearly gets destroyed by a little, teeny iPhone update.

(SOUNDBITE OF CHARLES HENTRY TRUONG VINH LAFFER, ET AL.'S "BENIN BOP")

GOLDSTEIN: So in the last section, we talked about the way this third industrial revolution we're living through - computers, the internet, blah, blah, blah - allows people like Ramon to create small businesses really easily on the backs of giant tech companies. What we're going to do now in the rest of the show is talk about how those giant tech companies can also really, really screw things up for businesses like Ramon's, sometimes without even meaning to.

MALONE: So after Ramon sold his soap opera blog, he went looking for other businesses to buy. He's an entrepreneur. This is what he does. And he came across a company that sold ramps for little dogs to get up and down from the couch or the bed, wherever they need to be.

VAN MEER: The company was actually called Sausage Dog Central at the beginning.

GOLDSTEIN: So they were really leaning into the wiener dog market.

VAN MEER: Exactly, the wiener dog market. And this ramp was, you know, designed for the wiener dog in mind because it's long, very short legs. Their website was very old, not pretty. The copy was not great. It was very difficult to navigate. It was very slow.

MALONE: And for Ramon, all of this stuff that's wrong - it's an opportunity. The ramps are good, as far as he can tell, and so he could sell a lot more of them if he could just make this website better. So he went ahead and he bought Sausage Dog Central for around $300,000, fixed up the website, eventually changed the name to Alpha Paw.

GOLDSTEIN: Just like he didn't with soap operas, Ramon did not know from wiener dogs. But he did know how to build an internet business serving a tiny, niche audience.

VAN MEER: I love the idea because it really - it solves an actual problem for a targeted audience.

GOLDSTEIN: The wiener dog ramp does feel like the sort of e-commerce version of a blog for one soap opera, right? It's like this very narrow thing that some universe of people care a lot about.

VAN MEER: Yes. And nobody was looking at it - same like with soap operas.

MALONE: You know, the key to both of Ramon's businesses and, for that matter, lots of weird, niche, modern businesses is finding customers cheaply. There's even this jargon that's gotten really popular around this idea - customer acquisition costs, low customer acquisition costs.

GOLDSTEIN: And for somebody like Ramon, the genius, if you want to call it that, of Facebook is that Facebook makes finding really specific customers incredibly efficient because Facebook knows everything about everybody.

MALONE: Yeah, right - which on one hand, horrifying if you're the kind of person that cares about privacy. But on the other hand, pretty useful if you are Ramon because he was able to buy Facebook ads and then say, you know, show these ads just to the people who have wiener dogs and who are likely to be in need of a wiener dog ramp. And then - boom.

GOLDSTEIN: Boom.

MALONE: Ramon's wiener dog ramp sales went from the floor to the sofa through the roof.

GOLDSTEIN: To the moon.

MALONE: Within a few years, Ramon had sold tens of millions of dollars in wiener dog ramps.

GOLDSTEIN: All powered by that magical/terrifying advertising machine, Facebook.

MALONE: And then overnight, the magical, terrifying machine broke.

GOLDSTEIN: It happened about a year ago, on a day when I and millions of other people like me got notices on our iPhones. I, for one, barely noticed this notice, but it said something like, do you want a little more privacy when you're online on your phone? And I was like, yeah, sure, whatever, and I clicked yes.

MALONE: What Jacob was saying when he clicked yes on this little notification - and most iPhone users who got this notice also clicked yes. They were saying, please stop companies like Facebook from tracking me across the internet. And this move from Apple, which we should say is also among NPR's financial supporters, was one of the biggest moments in internet privacy in recent memory. It is also one of the biggest moments in internet commerce in years.

GOLDSTEIN: Because what happened was when Apple made this change, Facebook's ability to know everything about everybody on the internet suddenly went away. And as a result, Facebook and Instagram suddenly got much worse at putting the exact right ads in front of the exact right people at the exact right moment.

MALONE: This, by the way, was very bad for Facebook. The company has said it could cost them, like, $10 billion in ad revenue just this year. It was also really bad for the little fish that had built their businesses, you know, in between and on the trillion-dollar tech megalodons, Apple and Facebook - little fish like Ramon. You know, one day Ramon can see where all of the wiener dogs who need wiener dog ramps are. And the next day he can see no wiener dogs.

VAN MEER: Before I was able to say, like, only show my ad to people that own a wiener dog and, you know, are most likely to buy this type of product, to now it's more - we have to shoot more in the dark. Like, now it's more difficult to really target ads. So now I have to basically show the ad to as many people as possible, hoping that there is going to be wiener dog owners within there.

GOLDSTEIN: How much can - I mean can you now target it to dog owners instead of wiener dog owners, or can you not target it at all? Like, what can you do in this new world?

VAN MEER: Well, you can still quote-unquote "target" that. But Facebook has less and less data. And also, you - well, it's harder to see which ads are actually performing better than others, where before you could more easily see, oh, this type of ad really works well. Let's put more money behind that. Now it's more difficult to make the right decisions. And everybody - a lot of e-commerce are trying to figure that out.

MALONE: A tiny change from one tech giant, Apple, messes up another tech giant, Facebook, and suddenly Ramon's business model isn't really working anymore. And this was true for lots of little niche businesses.

GOLDSTEIN: And like lots of little niche business owners, Ramon thought, OK, what's the next best thing? If I can't use targeted Facebook ads to find my customers - in Ramon's case, to find wiener dog owners on Facebook and Instagram - he figured, I can at least make a pretty good guess at what they're looking at on their phones.

MALONE: Wiener dogs - they're looking at...

GOLDSTEIN: Wiener dogs.

MALONE: ...Wiener dogs all the time. Come on.

GOLDSTEIN: Obviously.

VAN MEER: We are allocating some of our ad budget to influencers. That's been working well for us.

GOLDSTEIN: OK - so, like, wiener dog influencers. Is there, like, the wiener dog queen of Instagram or something who you're sponsoring now?

VAN MEER: Yeah. Well, we have a lot. Like, I think we are working with 400 influencers. And a majority of them are actually not a person, but it's actually a dog. And some of them have over a million followers. And it's just an account of a specific dog - you know, Rudy the...

GOLDSTEIN: Dogfluencer (ph)?

VAN MEER: ...Wiener.

MALONE: That Apple privacy change that made Facebook ads stop working so well has been a huge boon to influencers and, apparently, dogfluencers alike because their job is to kind of become living, breathing, targeted ads. And so if you do spend a little time on wiener dog Instagram, which I highly recommend - it's very good for the soul - you will probably see Ramon's ramps show up in some sponsored content. And Ramon, for what it's worth, says the influencers are - like, they're helping, but they are not helping that much.

VAN MEER: It does well in the beginning. But after a couple of times - right? - like, their audience have seen our ads, and then, you know, the effectiveness goes down. So that makes it hard. You always have to find new influencers and new, you know. But the big - actually, the big takeaway is pivoting actually away from ramps. The big problem with the ramps - it's a one-time product. There is a ceiling. There is technically going to be a day where I sold all the ramps - all - you know, there's - every wiener dog will have a ramp in the house.

GOLDSTEIN: And then your business is finished, right? There's no more wiener dogs to sell ramps to. You got to close up shop.

VAN MEER: Yeah. And so we are still going to sell ramps. But it actually - we - six months ago, we really started to pivot to dog food.

MALONE: The pivot to dog food - classic pivot, of course - video, crypto, dog food.

GOLDSTEIN: And then dog food - distant third.

MALONE: Then dog food - yup.

GOLDSTEIN: You know, it's like, top three pivots. And - but this pivot does get at this useful idea at the core of the way Ramon and lots of other businesses think about their businesses and about their customers - right? - about us.

MALONE: Yeah. So we talked about customer acquisition cost earlier - how much it costs a business to find a new customer. And the key question for Ramon and, really, for any business is, is the average customer acquisition cost higher or lower than the amount of money you make off of the average customer?

GOLDSTEIN: Right. If it costs you 20 bucks to find the average customer and you make 30 bucks in profit over the life of that customer, you're golden, right? That's good business. But if it costs you 20 bucks to find the customer and you only make ten bucks over the life of the customer, you are going to go out of business.

MALONE: Yeah. And so what Ramon realized is that his customer acquisition cost - it didn't change that much when he went from selling dog ramps to dog food. However, the lifetime value is way higher for dog food because you keep buying dog food forever - as long as you have dogs. And if he ever starts another company, Ramon says he will probably take that lesson from his adventures in wiener dog ramps.

VAN MEER: Like, if I would start a new e-commerce business, I really would think through what type of product, meaning I would pick a product that - it's recurring, that a person or a dog or a pet needs every day or every week or every month.

GOLDSTEIN: Right. It's like, what is the thing? Well, as long as people are alive, they got to keep buying food, right? So let's sell them food every day forever.

VAN MEER: Exactly.

(SOUNDBITE OF CHRISTOPHER LEWIS And DANIEL MARANTZ'S "THE FUNK YARD")

MALONE: Jacob Goldstein's new podcast, which I highly recommend, is called "What's Your Problem?" Am I saying it right, Jacob - the right intonation?

GOLDSTEIN: What's your problem? Yeah, it is that.

MALONE: What's your problem?

GOLDSTEIN: Longer interview with Ramon - there's another one about a guy who started a drone delivery company in Rwanda and is now trying to expand to the U.S. It's talking to lots of really interesting people - "What's Your Problem?"

MALONE: Today's episode of PLANET MONEY was produced by Willa Rubin, edited by Jess Jiang and mastered by Isaac Rodrigues. Alex Goldmark is our executive producer. I'm Kenny Malone.

GOLDSTEIN: I'm Jacob Goldstein. This is NPR. Thanks for listening.

(SOUNDBITE OF CHRISTOPHER LEWIS AND DANIEL MARANTZ'S "THE FUNK YARD")

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