Monetization strategies and models are now a hot topic in almost every industry. Companies talk about data monetization. IT is all about software monetization models and 5G monetization in telecommunications. Media and entertainment want to monetize on subscriptions to their content. And on the web, everyone searches for Facebook, Instagram, Youtube, and Tik Tok Monetization.
But what exactly is Monetization, and what software solution or platform do you need for it?
Table of contents
- What is Monetization?
- How does monetization work?
- Software and SaaS monetization
- App monetization
- Data monetization
- Debt monetization
- Content monetization
- Social media monetization
- Telecommunications and 5G monetization
- Electric vehicles (EV) charging monetization
- Monetization with a billing platform
What is Monetization?
Monetization (also spelled monetisation) is the process of generating income from an asset or object. To say it even simpler, it’s taking something that doesn’t create revenue and turning it into a profitable, revenue-generating item or service.
A non-revenue-generating object is “monetized” when it is converted into cash. The monetization-related economic processes mark an essential turning point in the history of capitalism. In many instances, monetization looks to cutting-edge strategies for generating money from new sources.
Depending on the context, the word “monetize” signifies many things. In its basic form, monetization represents converting an aspect of any asset into cash. When it comes to business, companies monetize products to make money. It is a significant aspect of a business strategy for generating a profit and ensuring sustainability.
In technology, “monetizing data” refers to turning information assets into money. On the web, “content monetization” means getting paid for sharing your content with users in articles, videos, or online courses, for example.
A different example of a monetization model is when a previously free or public asset is turned into a profit center. For example, a free parking lot is converted into a paid one.
Monetization converts otherwise non-revenue-generating items or activities into cash flows and often arises through identifying new or novel income sources. In the case above, the owner is creating revenue, aka monetizing, on a previously free parking lot.
How does monetization work?
Monetization converts otherwise non-revenue-generating items or activities into cash flows and often arises through identifying new or novel income sources.
A company can monetize its assets and products in a variety of ways. Because monetization is essential to strategic planning, it significantly impacts how businesses develop.
The monetization process is quite simple in theory. Every business collects data about its audience preferences and behaviors to determine which monetization strategies best fit its users. Based on these data, they develop a strategy or monetization model that will ensure them the most revenue.
If a business is an online business, for example, it can include ads to generate revenue. They can take a product or a service and offer them a subscription. Or they can convert a free service into a paid one.
This all and much more is monetization.
Software and SaaS monetization
The ongoing process software businesses use to maximize the value of their goods and services while safeguarding their applications is called Software or Software as a Service (SaaS) monetization. It includes software licensing, protection, and management solutions.
To better understand software monetization, let’s look at two of the most successful ones, Adobe and Microsoft.
Since Adobe offers more than 20 apps, it is no wonder that most of its income comes from subscriptions. More than 87% of revenue is from subscribers who can choose from individual, business, students & teachers, and schools & universities plans.
Adobe offers customers to subscribe to a single app or to purchase a subscription to bundles of apps. So if a user, for example, would only need Adobe Photoshop, he has two options. He can subscribe for $31,39 per month and cancel anytime, or he can pay $20,99 per month if he chooses a yearly subscription.
If he also needs any other app like Illustrator, his total comes to $41,98 per month with an annual subscription.
Adobe created a bundle of apps that anyone who works with graphics needs. They strategically placed the price at $54,99 per month for a yearly subscription. Therefore it’s no wonder that most users decide to subscribe to the Creative Cloud bundle and get access to 20+ apps for photography, design, video, web, UX, and social media.
Like Adobe, Microsoft monetizes money mostly with subscription business plans. The company’s largest revenue source is its cloud computing business or Software as a Service (SaaS), and it’s the fastest-growing segment.
Microsoft 365 (formally known as MS Office) is Microsoft’s most profitable product. However, Microsoft also offers cloud computing and storage services such as Windows Server, SQL Server, Enterprise Services, GitHub, and others. Microsoft 365 makes more than 37% of Microsoft’s revenue.
The software and SaaS monetizations models
There are four basic software monetization models for end users and businesses (B2B). As the models progress, the main obstacle can be the complexity of usage tracking and billing if the monetization platform has limited capabilities.
Transactional model – Pay to Own
The traditional perpetual monetization model. A user or a company buys a license for unlimited product use. Simple for billing but can lead to potential revenue loss in unused opportunities.
Subscription model – Pay to Use
The subscription business model is currently the most popular model because of its pricing and product bundling flexibility. They provide a steady monthly (MRR) or annual recurring revenue (ARR) and close customer relations. It requires good subscription management software with intelligent analytics to follow important KPIs like churn rate or customer retention rate.
Consumption model – Pay for what you use
The consumption model is popular because the users, mainly B2B, start with a low cost and increase the monthly amount if needed. This model demands that the customer monitor his usage, or the costs can quickly exceed the budget. While it’s a good model, it requires a good billing system that supports billing on metered usage.
Outcome model – Pay on the result
A model for B2B software where the provider gets an agreed-upon percentage of revenue based on improvement. It can be hard to track all the metrics that validate success.
What is the best software monetization model?
Is it a one-time purchase, monthly or yearly subscription, or pay-per-use?
To monetize software, businesses need to understand market trends, pay attention to customer feedback and adjust pricing according to the market. Companies must concentrate on attracting the right customers, providing the correct features, and, most importantly, taking the time to create and implement the ideal price strategy.
It’s easier said than done! The pricing model depends on the software, user behavior, and the Customer Lifetime Value (CLV).
Currently, it looks like the best monetization model for most businesses is shifting from one-time purchases to subscriptions. Microsoft, for example, offers OS Windows for a one-time purchase. However, other apps like former Office (now Microsoft 365) are only available for a subscription.
This change happened when Office stopped being a downloadable one-time paid software and became a SaaS cloud app.
At first glance, monthly subscriptions seem a better idea than yearly. However, yearly subscriptions have a much higher Customer retention rate (CRR) and make more revenue in the long run.
How to protect the software from unlicensed use?
It is estimated that around 37% of software worldwide is unlicensed, and during the pandemic, this number rose, primarily because of remote work.
It’s not a surprise that the two most illegally downloaded software are Windows OS and Microsoft Office package.
Piracy also presents a great threat to the gaming and mobile app industry, with losses going into billions, especially if pirated software is available immediately after the game release.
According to the latest BSA Global Software Survey, software suppliers have an estimated $19.8 billion revenue opportunity if they manage to convert illegal users to paying customers.
The industry’s main answers for fighting this problem are better digital rights management (DRM) solutions and a move to the cloud.
App monetization is the process of earning money with mobile apps. However, it is not easy to earn with them since the market is full of apps. Because most apps are offered for free, users are reluctant to pay for them and always search for similar free options.
According to Statista, in December 2021, 97% of apps on the Google Play store and 94% on the Apple App Store were free.
Nevertheless, there are still many ways businesses can profit from their apps. Even if they don’t want to charge for them, they can always monetize in other ways.
For example, some free games have loads of ads, which brings revenue. Another example is Instagram which is free of charge but earns from partnerships, advertising, and sponsorships.
Regarding app monetizing strategies, one of the most popular approaches is subscriptions. It is anticipated that one-time purchased downloads will lose popularity in favor of subscriptions.
For now, the two most promising app monetization strategies are in-app purchases (IAP) and in-app advertising.
Here are some of the most useful strategies for app growth and engagement, thus monetization:
The free and paid app versions model
The business model is freemium and widely used in software and app monetization. It is based on a free and paid app version.
The provider can limit certain features in the free app to persuade the users to upgrade to the paid app. For instance, the YouTube app is free to download. Users must then upgrade to the paid premium version to enjoy the videos without the ads. In this way, YouTube earns both from subscribed users and in-app advertising.
The payment for upgrading can be one-time, like weather app Accuweather or in the form of a subscription, like YouTube Premium or Spotify.
Free apps with a freemium model include newspapers, magazines, video streaming, dating, fitness, news, and productivity apps. These apps earn revenue through paid premium versions and with ads on free versions.
In-app advertising model
In-app advertising is a monetization strategy that generates revenue by selling advertising space. Let’s say a business wants to advertise its products. Depending on their target audience, they select different apps where they want to advertise. A business can reach millions of app users in seconds with these ads.
This revenue from ads is how most apps today stay free of charge.
The in-app purchases (IAP) model
The in-app purchases model allows the app to earn from users directly. It works by offering basic features of the app for free, but users need to fulfill some conditions to unlock additional features.
For example, many popular games use this strategy. Players need to get to a certain level in a game before they can unlock new features, more lives, or character skins.
Those that are impatient or don’t want to put so much effort into playing can take a shortcut and purchase these upgrades directly.
The in-app purchases strategy is most popular in gaming, but other industries also use it increasingly.
The Pay Per Download (PPD) app model
With the PPD strategy, users can download the app only after making a one-time purchase since only the paid version of the app is available. This strategy is one of the oldest but is not so functional nowadays.
Paid downloads can increase revenue and allow apps to monetize money quickly, but can lead to considerable lost revenue later. With so many free apps on the market, persuading users to buy the app without trying it is hard. That is why some opt to offer free trials.
PPD strategy is used mainly by bloggers or online instructors. Paid apps rely significantly on name recognition, original content, and reliable reviews, especially if no free trial is available.
Hybrid app monetization strategy
A hybrid app monetization strategy combines more strategies to help a business increase its revenue. The two most complementing strategies are in-app ads and in-app purchases since they bring the most income. App subscriptions are a more passive earning than advertisements and purchases.
The gaming industry is known for implementing more strategies at once. This tactic is easy to understand since in-app purchases with in-app advertising are something they can quickly implement in the app. The best example is the famous game Subway surfers, which has exceeded more than $80 million worldwide since its launch by implementing in-app ads and in-app purchases.
On the other hand, with combining one-time purchases for download and in-app purchases, PUBG Mobile was the top-grossing game of 2021. It generated $2 billion in revenue.
Leveraging data to generate quantifiable economic advantage is known as “data monetization.” Data can be used in business processes, shared, sold, or used in any other way. If it makes revenue in any way, it’s a data monetization model.
If data is used internally in a company to, let’s say, improve sales, it’s an indirect way of data monetization.
For instance, a direct way of data monetization would be if an analytics company sells its market research and analysis to other companies.
There is also a big market for different customer data companies collect from their users, which can be completely legit or in a “gray zone.”
We will not go too deep into this topic. Still, it’s an excellent example of an asset that was once in the background but is now being increasingly monetized, especially on social media.
Debt monetization refers to a government borrowing money from the central bank to pay for public spending instead of selling bonds to individual investors or increasing taxes. When central banks purchase government debt, they are essentially creating fresh money. Debt monetization is also known as monetary financing.
Printing money or creating money are two colloquial and derogatory names for this process. Many countries forbid it because they view it as hazardous. After all, it could lead to inflation and spiral out of control. To avoid excessive printing amounts of a new currency, central banks frequently monitor the Consumer Price Index to prevent inflation from getting out of control.
The simplest definition of content monetization is the ability to make money off a website, blog, or other content platforms.
Content monetization strategies
A content monetization strategy is a way or a plan for any business to generate revenue from a specific platform, audience, or type of content. For online businesses, there are several popular choices when it comes to monetization strategies.
Some of the monetization strategies include:
- Selling services or products
- Bundling of products
- Offering paid membership subscriptions (monthly or yearly fee)
- Commercializing existing products or technology
- Selling advertising (display, native, affiliate, text ad)
- Publishing sponsored content
Selling content directly
For instance, a business sells content (a product) behind a paywall or structured into an online course. When it does that, they earn money directly from users. Online courses and subscriber-only access are the most popular and efficient methods of receiving payments directly from customers.
When directly selling content, a platform can implement different pricing models like subscriptions or pay-per-use, where users can purchase only one article or specific online course. This is a pretty straightforward way to monetize content.
Monetizing through free content
The real question is how to profit with online content that does not offer concrete products.
For example, a blog or an online newspaper can be interesting to read but not enough for people to subscribe to the content. Such businesses can’t exist if they don’t find innovative ways to generate revenue.
Such websites can earn revenue in a “passive” way. The most important thing is to bring traffic to their platform and keep them there. In other words, they need to have exciting and quality content.
It may seem counterintuitive, but publishing content for free is the first step to monetizing the platform. Free content brings people to a platform and encourages them to stick around for a while. If they can reach noticeable traffic, they will become interesting for advertisers.
They can earn revenue through pay-per-click (PPC) ads, affiliate marketing, product placement, or donations.
The Pay-per-click (PPC), sometimes referred also as the cost-per-click (CPC) model, is the oldest online advertising model. The advertiser pays the publisher every time a user clicks on the ad that redirects him to the advertiser’s page.
Depending on the agreements with advertisers, website owners may receive payment for the number of times users view their advertising, even without clicking on them.
Pay per Action ads and affiliate marketing
The PPA (Pay per Action) advertising is similar to PPC advertising, but the publisher gets paid only when the user completes a transaction. This can mean purchasing a product, creating an account, filling out a form, or signing up for a newsletter.
Affiliate marketing is the most used form of PPA advertising. An e-commerce site will provide the ads (links) to their store or specific products. If the platform user clicks on the link and makes a purchase, the platform owner will get a commission from that sale.
Product placement is a great way to earn with affiliate marketing. The webpage makes content around a particular product and then strategically places partners’ links where the readers can purchase these products.
Donations are also very popular with freelance or other content-creating platforms. These platforms often operate on a non-profit basis and sometimes use free content to solicit donations from online users. In other words, people can choose to donate money to support the creators.
Social media monetization
Nowadays, there are many social media platforms, and all want to rise to the top. Every couple of years, a platform that offers new features gets a huge following and threatens the traditional big players.
While Facebook is still the biggest, Tik Tok and other platforms have outperformed him in certain demographic groups.
According to the Datareportal January 2022 global overview, half of the world (58.4%) now uses social media. This means 4,62 billion people worldwide use social media, with the average daily time spent using social media being almost 2,5 hours.
With numbers like this, it’s no wonder, everyone, from platform creators to content creators, wants to monetize on it.
When discussing social media monetization models, we look at three groups. The first one is the social network owners.
The second one is the content creators. Regular people who contribute the content and, if they are popular, earn the title of influencers.
In the third group, we find all the companies looking to use social media for marketing their products and services.
All these three groups create a “social media ecosystem” where all are needed for it to survive.
Network owners run the platforms, users create content, and companies pay for everything with advertising.
Social media is an interesting phenomenon. Networks need content and users to be successful. While most networks don’t pay users for their content or pay only for the most trending content, users still contribute vast amounts of free content daily. Most do it for fun, while others hope to monetize it eventually.
How to monetize from social media?
The short answer is through advertising in the basically same way as described in the chapter on content monetization. The networks enable running ads, support brand partnerships, affiliate marketing, product placement, sponsored content, creator funds, and more.
The only difference is that on social media, the companies can advertise on social networks and do marketing with influencers directly. In the end, they are the ones that keep everything running by paying for it.
One interesting aspect of social media is how networks use data monetization to increase their ad revenue or, in compliance with privacy laws, offer that data to others.
Collecting all this data has one primary goal: better target the audience according to their behavior. The goal is to advertise exactly what the user needs and achieve better advertising results. The better the advertising works, the more advertisers it will have.
Telecommunications and 5G monetization
Telecommunication operators invest a lot in the infrastructure needed for the 5G global installment. According to all predictions, 5G will significantly impact our society, but the big question remains who will monetize it the most?
Every telecommunication operator’s transformation strategy revolves around 5G, and to succeed, the operators must be able to deploy this potent new network and monetize on their investment across various markets and sectors.
5G technology creates many new opportunities for monetization, too many to describe in this article. For more information, please read our blog on 5G monetization.
Electric vehicles (EV) charging monetization
How to monetize from electric vehicle (EV) charging?
This is the big question on everybody’s mind these days. As we described in our blog on EV charging infrastructure, we still need a vast amount of new charging stations to support the transition to electric vehicles. With that in mind, many are thinking about investing in EV Charging and how to monetize from it.
Tridens is a proven provider of EV Charging software that enables EV billing and monetization. In our blog on EV Charging business models, we have in detail explained the different possibilities on how to monetize with EV Charging.
Therefore here is just a short abstract.
The first way is to become an Electro mobility service provider (EMSP) and charge EV drivers for charging.
The second option is to build a charging station network and become a Charge Point operator (EV CPO). An EV CPO charges the EMSPs for using and maintaining the network.
For more differences between the roles and how they earn revenue, please read our blog EV CPO and EMSP.
The third option is to use EV Charging to attract more customers to your primary business. Think about supermarkets, restaurants, or hotels offering EV Charging to get more customers.
You can venture into EV Charging as a Service business, take on EV fleet management or simply build the charging stations in the best locations and then sell them to other charging networks.
With more and more electric vehicles on the road, charging will become every driver’s priority. We still need to build about six to eight million public charging points in USA and Europe alone by 2030, so the possibilities to monetize on EV Charging are endless.
Monetization with a billing platform
Selecting the right monetization platform is crucial for any monetization strategy to succeed. Without the support of Billing and Revenue Management (BRM) and special monetization solution, no business can successfully implement its monetization model in praxis.
Tridens Monetization is well-proven cloud billing software that enables monetization across many industries. It is used everywhere, from telecommunications to energy & utility or entertainment, because it can handle complex business and pricing models.
It can handle all, whether one-time or recurring charges and subscriptions, fixed or usage-based pricing, or complex combinations.
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