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A VPN, or Virtual Private Network, is an encrypted connection for the secure exchange of information on a public network that allows the user to access the Internet while remaining anonymous. By doing so, no third-party website can track the user’s internet activity. Another significant benefit of a VPN is that it allows users to access blocked websites or content.
According to SurfShark’s data, over 31% of internet users use VPN, to access sites, and contents as well as for connectivity and security purposes. Internet users around the world are becoming more aware of their privacy and security, which in turn is increasing the tendency of users to use VPNs. But how exactly does this VPN software, which is used to maintain privacy and security, earn?
VPN History – From 1996 to The Present
The journey of VPN started in 1996. Back then some Microsoft employees developed a Peer Peer Tunneling Protocol (PPTP) which helps to maintain a highly secured and private connection between a computer and the internet. Initially, VPN was only used by businesses, organizations, and governments, who had to secure data from any open-source network.
Over time the concept underlying this technology has evolved significantly and today’s VPN has been developed. Due to the increase in internet usage, VPNs have become popular with general people. According to GlobeNewswire, despite a global pandemic in the year 2020, the total estimated global market for VPNs is around $35.4 billion.
If we see the demographics, as per Statista’s data, among the total VPN users, 62% are male. Moreover, Global Web Index says, Nearly 39% of all VPN users are between the ages of 16 and 22.
To understand how VPN really works, firstly, we should know about two terms, VPN Location, and VPN Server Location. VPN directs a network’s traffic to another server which may be located a thousand miles away. The country or location where the server is placed is the VPN server location.
On the other hand, a VPN location is a place where the provider or company is located. After someone connects to a VPN, no one can get access to the traffic that is transmitted, not even the internet service provider.
Getting access to blocked content and data privacy are two of the main reasons why VPNs are so popular around the world.
Access to Blocked Contents: Countries like Russia, China, and some Middle East maintain strict internet usage policies. According to the Global Web Index, in 2020 Indonesia topped the highest VPN usage list with 61% of VPN users while India is second with 45 percent of users. Besides, the top 10 countries with the highest VPN usage involved 3 countries from the Middle East.
They are Saudi Arabia (44%) holds the 3rd position, along with the United Arab Emirates 42%, and Turkey 40%. As per, Surfshark, 31 percent of the world’s Internet users use one or the other VPN service. Moreover, according to the Global Web Index, 72 percent of desktop users and 64 percent of mobile users use VPN services every day.
Data Privacy: With the rising internet penetration rate, the need for strong protocols to maintain the privacy of data has also increased. As per Cybersecurity Insiders data, 93% of cybersecurity professionals are always worried about cloud security.
As per ThreatMetrix data, in 2020, there were more than 4.9 billion fraud attacks, which include direct human cyber attacks, bot, and mobile attacks. VPN is also used to stay secure from viruses, hackers, and the connection itself. Statista’s data says, over 50% of users use VPN to protect their privacy while using public Wi-Fi.
Moreover, companies and businesses use VPNs to enable employees to get connected to a central network, which is located in several branches, countries, and even home.
Top VPN Service Providers
Based on security.org’s analysis, some of the top-rated VPN services of 2023 are ExpressVPN, NordVPN, IPVanish, Ivacy VPN, and so on. VPN services like Surfshark, Hotspot Shield, and Private Internet Access are also very popular.
According to Forbes, in 2016 VPN service providers generated more than 15 billion in revenue. Based on another Statista source, the market size of the worldwide VPN in 2019 was more than 25 billion, which is expected to exceed 75 billion by 2027. Moreover, as stated in Atlas VPN analysis, in 2020, the top 10 well-known VPN services alone generated $23 million through in-app purchases.
How VPN Makes Money?
Generally, VPN service providers generate revenue by providing two types of services, premium, and freemium. Premium services, charge direct subscription fees from the users.
Meanwhile, on the Freemium model, VPN service providers offer limited services to users and charge a subscription fee for the full features. Some Freemium VPN service providers generate revenue by showing ads and selling user data for free features.
VPN services such as Express, Nord, or Private Internet Access provide services to users for a subscription fee. The providers generate revenue by charging the premium users subscription fees. Apart from unlimited private network access, these paid VPN services provide benefits like unlimited bandwidth, stronger data protection, malware protection ad-blocking, and quick connectivity.
Some VPN services provide users the opportunity to use premium services for a limited time and demand a subscription fee for further usage. After the end of their free trial, they can’t get access to anything at all. The subscription plans could be on a monthly, half-yearly, or yearly basis, as per the user’s requirement.
The providers also work as a third-party partners for several businesses by providing services like securing and handling payment details of online sales platforms, managing sensitive data from illegal access, etc.
Selling User Data
VPN also makes money by selling user data to several parties. There are some ways they follow to sell user data-
As they can’t demand subscription fees when it comes to free services, they have to seize benefits the other way around. Some providers offer totally different services to their free users.
Where users can use those for free for an unlimited period, at the same time the services could be restricted up to some boundaries as well. Though it may seem like the free users are not bound to pay any fee in exchange for the services they get, there is something else that is happening behind them. Firstly, here the providers use the free user’s connection as an exit node for paying users.
This indicates, whatever traffic is generated from a paid user, including illegal ones, goes through the free user’s connection. This definitely creates risks for the free user, and by doing so the providers are basically selling someone else’s bandwidth and connection to the paid users.
The providers use and sell free users’ basic information like name, contact no, and location to marketing and advertising partners. They also give users’ emails to their business partners and third parties.
They track users’ history by inserting cookies, web beacons, and pixels.
They can understand someone’s online habits by analyzing user history. These data are really powerful to place accurate product advertisements. That’s how VPN providers make good money selling those data to advertisers.
Another great way followed by VPN providers to make money is by showing ads to their free users. Placing ads benefits them doubly at the same time. Firstly, as they show ads for other companies and get money in return for the placements.
Secondly, they make the advertisements intrusive and unavoidable so that they can persuade users to upgrade to the paid version. These are the main sources of VPN earnings based on the services they provide.
At present, all kinds of personal and business activities have become internet-based concurrently information and data sharing have become more frequent than ever. It also brings the risk of privacy and security issues. Here VPN is fulfilling the need for the security of connection and network that people use.
In addition, it gives users access to services that they don’t usually expect to have. The VPN industry has gone through a remarkable growth phase in the last decade. From more than $15 billion in revenue in 2016 till now the industry is reaching new heights every year. The market size is expected to reach $107.6 billion by 2027.