Lately I have been stuck on the idea of monetization and how and why companies make decisions about monetizing their products. My fascination with monetization is driven by a few things:
1. I have seen or talked to a lot of start-ups who seem to be devoting all of their energy to developing features and getting users and explicitly not thinking about how to monetize their base.
2. I have met very few companies who appear to be rolling out novel or semi-novel derivatives to existing models. One clear exception to this is the folks at Indeed.com who recently rolled out a CPC job model similar to what I described in a previous post.
I don’t know how many interesting conversations I have ruined by bringing up this topic in the midst of a conversation about a new feature, UI, or product. After several such conversations, I have come to the opinion that that is just not a good question to ask in many web 2.0 contexts.
After many such failed conversations, I am slowly beginning to believe the following statement:
Monetization should be treated (and managed) like any other product feature.
I’ll get to why I think this is true in most cases. Before I launch into this argument, I want to make a clear distinction between monetization comments that make sense and those that don’t hold water for me.
Arguments that I Believe
“Our model requires scale in order to be interesting”
I don’t believe this one on its face, but it can in fact be true. For example, if you feel that your business or service needs some critical number of users to be interesting to advertisers, that’s a legitimate argument to make. In that case, it’s probably right to focus on building up the user base instead of chasing down advertising partners. That being said, it’s important to have some idea of the scale you would need to reach in order to begin testing the water with your proposed model.
And, for the record, scale in and of itself is not a business model. Scale certainly gives you opportunities to do some interesting things but does not obviate the need to actually put a business model in place.
Arguments I Find Problematic
“We don’t really know how we are going to monetize this”
I often find this hard to believe. I do believe that companies are not sure that the monetization strategies they are considering will be effective. However, I find it much harder to believe that companies do not have any inklings as to how they will make money. When I hear statements like this, it leads me to believe that companies have not yet decided which of several possible strategies are actually worth rolling out.
“We don’t want to introduce monetization because it might negatively impact the user experience”
The problem I have with this is not that that it isn’t true; introducing monetization strategies often impact user interface. But so can changing page layout, changing fonts, changing navigation, etc. There is no reason that introducing a monetization strategy will per se have a negative impact on user experience — I would argue that we have examples (paid sponsored links in search results, Facebook flyers, etc) where introducing monetization has not destroyed the user experience.
Monetization does not have to mean branded advertising plastered all over your site or service. There ought to be a way to introduce some monetization experiments without ruining the customer experience of devoting too many engineering resources.
Treating Monetization as a Product Feature
I would like to see more companies treat monetization as a product feature and manage it in much the same way they manage any other product feature. In many cases, people use something akin to the following process when trying to decide if a new UI tweak or feature is a net positive or benefit for users:
-Run a small experiment
-Observe the result
-Reach some conclusion about what to do next
Why can’t the same be done for monetization? Why not experiment and see whether users are willing to pay for your service, whether users will tolerate the introduction of ads in some unobtrusive way, or some other clever way to generate revenue from the goods or service you are offering. If you run a small experiment and it is a failure, you can always take it down. Learning what will not work is as important as learning what will work.
With all of the thought put into changes to UI, color schemes, page flow, etc, I find it really hard to understand why the same basic principles can’t be applied to the problem of monetization. Some of the most interesting business models out there have been “ah ha” moments and you only get those moments by experimenting.
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