A sus­tain­able model

The Smart Manager - - Contents - DR SHEKHAR TRIVEDI IS PRO­FES­SOR AT DR GAUR HARI SING­HA­NIA IN­STI­TUTE OF MAN­AGE­MENT, KAN­PUR.

Dr Shekhar Trivedi, Dr Gaur Hari Sing­ha­nia In­sti­tute of Man­age­ment, high­lights ef­fec­tive ways of mon­e­tiz­ing plat­form busi­nesses.

With a to­tal mar­ket value of $4.3 tril­lion and an em­ploy­ment base of at least 1.3 mil­lion di­rect em­ploy­ees and mil­lions of oth­ers in­di­rectly em­ployed, plat­forms have be­come an im­por­tant eco­nomic force.* Com­pa­nies to­day are con­stantly look­ing for ways to build plat­forms—In­fosys Ltd an­nounced its plans of mon­e­tiz­ing its plat­forms to make them a $2 bil­lion busi­ness by March 2021. But are all plat­form busi­nesses suc­cess­ful?

Peo­ple have be­come used to get­ting things free on the in­ter­net. The com­mon think­ing is that ‘if it’s on the in­ter­net, it ought to be free’. So, while they pay for ev­ery­thing from soaps to san­i­tary ware, and from de­ter­gent to dish TV in the real world, they ex­pect non-tan­gi­ble prod­ucts for free in the vir­tual world.

Since its be­gin­ning, peo­ple have con­sid­ered the in­ter­net as a plat­form for in­for­ma­tion dis­sem­i­na­tion, in­for­ma­tion ex­change, and ag­gre­ga­tion. Think of the 1.86 bil­lion monthly ac­tive Face­book users (as of Fe­bru­ary 2017)— what would this num­ber shrink to if they were shift to be a paid plat­form? Sim­i­lar would be the case with What­sapp.

But neo plat­form en­trepreneurs were in­ge­nious enough to make pro­vi­sions for ways to mon­e­tize to make them prof­itable busi­nesses.

how to mon­e­tize?

Pric­ing in the last 100 years has not wit­nessed as much change as it is go­ing through to­day. The last fif­teen years of busi­nesses in the in­ter­net en­vi­ron­ment have faced im­mense chal­lenges to find ways to make the busi­ness propo­si­tion vi­able. Cre­ative seek­ers have found out plethora of ways to mon­e­tize in­ter­net-based busi­nesses thus giv­ing rise to dif­fer­ent types of mon­e­ti­za­tion strate­gies.

This is the era of star­tups—many have been suc­cess­ful, but some had to shut shop soon. All these busi­nesses are creat­ing value by bridg­ing the gaps or have been suc­cess­ful in creat­ing an in­for­ma­tion high­way be­tween the seller and the buyer through an in­ter­net por­tal. A few in the busi­ness fum­bled be­cause of the lack of a right mon­e­ti­za­tion strat­egy, but many are now mak­ing waves, with their hands on the right mon­e­ti­za­tion model. Case in point: Zo­mato, Uber, Face­book, Foursquare, OLX, Drop­box, and Red­bus. The list is end­less and lessons to learn are lot.

From hope­less­ness to wis­dom, they, over the pe­riod tin­kered and tested with dif­fer­ent mon­e­ti­za­tion meth­ods. Now their feet are wet and they have a clearly laid out pric­ing strate­gies for the world’s plat­form busi­nesses to fol­low. So what they did now should be known and lever­aged by other startup plat­form en­trepreneurs. The whole jig­saw puz­zle is find­ing its groove—fit­ting in the grooves, in­ter­net busi­nesses slowly, but surely have found the path.

ad sense, the life­line

Google can be ac­cepted as the father of all plat­form busi­nesses. Be­fore strate­giz­ing for the suc­cess of any other plat­form busi­ness, it was nec­es­sary for Google to have a rev­enue model for its free search queries busi­ness—a mon­e­ti­za­tion model on which their busi­ness can sur­vive and thrive. Their au­to­mated Ad­words model quickly re­placed the method of man­u­ally plac­ing dis­play ads on web­sites in 2000. It fur­ther im­pro­vised to cost per click genre in early 2002.

An­other ef­fec­tive en­abler has been Google Ad Sense— this tool has the po­ten­tial to help small e-en­trepreneurs be­come Go­liath. Ad Sense—like Chi­tika and Viglink— helps blog­gers, con­tent creators, and site own­ers mon­e­tize their in­ter­net pages. Once reg­is­tered with Google Ad Sense, the blog and sites would show the na­tive or re­mar­ket­ing ads on one’s page and thus gen­er­ate money for the owner of the page. Google Ad Sense in 2015 paid $10bn to its Ad Sense users. That is the power Ad Sense com­mands. Thus, the Ad Sense mon­e­ti­za­tion model paved way for bud­ding en­trepreneurs to get money trick­ling in.

Dis­play ads, of late, have ac­quired a big­ger can­vas com­pris­ing in-feed ads, in-mail ads by Google and oth­ers, spon­sored and branded con­tent, and many more. It was the natty Ad Sense through which mil­lions of sites were able to gen­er­ate rev­enue. It cre­ated ad ef­fi­cien­cies for both ad­ver­tis­ers and web­site own­ers. With Ad Sense in place, plat­form busi­nesses now have a rev­enue stream to rely on.

fea­tured list­ing

When I give search for ‘turntable’ in Google, it gives 5,26,000 re­sults with 15 searches on the first page. Only a few peo­ple go to the sec­ond page but the prob­a­bil­ity of ex­pect­ing some­body to go to the third page is neg­li­gi­ble. But the fact is that ev­ery­body does not have the pa­tience and ca­pa­bil­ity to ap­pear on the first page by fol­low­ing good SEO prac­tices. So Google or any plat­form, which works on pro­vid­ing list­ings on cus­tomer re­quest, makes pro­vi­sion for some paid ad­ver­tis­ers’ names to ap­pear on the first page or on top of the first-page list­ings. Zo­mato, OLX, Taobao (Alibaba), and Quikr use fea­tured list­ings as one of the op­tions to gen­er­ate rev­enue.

A few in the busi­ness fum­bled be­cause of the lack of a right mon­e­ti­za­tion strat­egy, but many are now mak­ing waves, with the right mon­e­ti­za­tion model.

One of the fea­tured list­ing vari­a­tions used by so­cial sites like Face­book and Twit­ter is pro­moted post or pro­moted tweets. Here, the pro­moted posts can ap­pear in the news­feed of the users. Spe­cific tar­get­ing of such users, where one wishes to have more ex­po­sure of the post or tweets, can be done. This lends users great scope to make their point, which in turn is a rev­enue gen­er­a­tor for Face­book and Twit­ter.

lo­ca­tion-based ad­ver­tis­ing

‘Wher­ever we go it is with us’, is not your pet, but your mo­bile. It is now an ex­ten­sion of our body, and a mark of our pres­ence. Most of us are more than happy to share our lo­ca­tion. With this has come a big op­por­tu­nity in the form of lo­ca­tion-based ad­ver­tis­ing, lo­ca­tion-based ser­vices/ of­fers, yel­low pages, lo­cal­ized ads, weather, dating, etc. Lo­ca­tion-based ad­ver­tis­ing com­bines mo­bile ad­ver­tis­ing with lo­ca­tion-based ser­vices. Many of the apps like Foursquare use this as one of the mon­e­ti­za­tion meth­ods, by sell­ing their lo­ca­tion data to com­pa­nies for their real-time us­age. Foursquare has ac­cu­mu­lated 65 mil­lion lo­ca­tions around the world, de­rived from its seven bil­lion con­sumer check-ins, re­views of stores, and ratings. Com­pa­nies look for lo­ca­tion-based in­for­ma­tion and ex­tend their of­fer to those who share their lo­ca­tion in­for­ma­tion with the mo­bile app plat­form. Peo­ple get per­son­al­ized of­fers, based on the lo­ca­tion they are in. Time­li­ness is what makes lo­ca­tion­based tar­get­ing an ef­fec­tive propo­si­tion.

sub­scrip­tion model

The age-old model of sub­scrip­tion has been ac­cen­tu­at­ing the ben­e­fits for reg­u­lar users, for decades. The best use ever of this model has been ex­hib­ited by Reader’s Di­gest, wherein readers could save cost by sub­scrib­ing to the mag­a­zine. This model has a ben­e­fit which en­sures cer­tain sales for the com­pany and also saves money for its loyal readers. It had merit and it smoothly made its way into the in­ter­net sphere too. The ba­sic modus operandi they adopt is a free trial pe­riod fol­lowed by sub­scrip­tion on monthly or yearly ba­sis. The trick they adopt is to ask you pay R0 through your credit card and then wait for the con­ver­sions to hap­pen. It is same as sam­pling in the FMCG domain, pay chan­nels in satel­lite tele­vi­sion, and in­vi­ta­tion pric­ing in news­pa­per and print in­dus­try.

Net­flix fol­lows the same model for their movie ren­tals. The same is be­ing fol­lowed by Hoot­suite, so­cial-post man­age­ment sys­tem com­pany. As it is a se­ri­ous busi­ness for dig­i­tal mar­ket­ing pros, many sub­scribe to Hoot­suite’s var­i­ous monthly plans for man­ag­ing their dif­fer­ent so­cial sites through a sin­gle plat­form.

freemium model

An­other vari­a­tion of the sub­scrip­tion model is freemium. There is a lot of brouhaha over it among the ecom­merce fra­ter­nity. The ba­sic premise of this model is to give the ba­sic prod­uct free, and charge for the advance fea­tures. This strat­egy pro­vides the par­tic­u­lar in­ter­net ser­vice word-of-mouth pub­lic­ity. As the prod­uct/plat­form ser­vice be­comes a habit and worth­while for a few, they

Lo­ca­tion- based ad­ver­tis­ing com­bines mo­bile ad­ver­tis­ing with lo­ca­tion-based ser­vices.

would then up­grade to paid ver­sions of the ser­vices for ad­vanced fea­tures.

This helps the com­pany serve am­a­teur users free— like stu­dents may start us­ing a plat­form free dur­ing their col­lege days, and later on sub­scribe to it through cor­po­rate ac­counts dur­ing their work life. This works out as a ‘catch them young’ strat­egy. Zapier, MailChimp, Drop­box, and Linkedin are lever­ag­ing this model.

The freemium model has all the rich­ness, through the va­ri­ety it pro­vides. Free of­fer­ings may be limited by fea­tures, cus­tomer ac­cess, band­width, stor­age ca­pac­ity, cus­tomer class, etc.

in-app pur­chases

Now, one can ob­tain free lives or buy ‘gems’ to use it as a vir­tual cur­rency in Candy Crush. A game player does this be­cause of ad­dic­tion—some­thing he craves for—and then he goes for such in-app pur­chases. An­gry Birds, Sub­way Surfer, Far­mville, and Di­ablo have made mil­lions of dol­lars from these cravers. It is like the freemium model but in­ter­est­ingly, here, the player makes in-app pur­chases much fre­quently.

Mil­lions of apps are down­loaded free on the in­ter­net; it is through in-app pur­chases that they make money. This in-app pur­chase may vary from $1 to $10. This may seem to be a small num­ber but if we see the amount of down­loads of Candy Crush and An­gry Birds, it makes quite a sense.

There were five crore down­loads of An­gry Birds in a span of 35 days. Right now, it boasts of ten crore down­loads. An­gry Birds makes more money from the free An­droid ver­sion than from the paid ones—as much as 5-8% of the free down­load go for in-app pur­chases. Thus, for in-app pur­chases to work, the game app or any other app should fare well on free down­loads. An­gry Birds’ rev­enue in 2014 was 110 mil­lion eu­ros. In early 2014, in­app pur­chases rep­re­sented 79% of all mo­bile app rev­enue. Of the free down­loads, only 35% of users re­turn eleven times or more. Meet Me, an app where one can chat and browse pro­file, is also freely down­load­able; here, one can pur­chase cred­its to en­hance one’s vis­i­bil­ity and gain new ways to in­ter­act with peo­ple. In-app pur­chases in­volve a lot of think­ing—if not ex­e­cuted in the right man­ner, it may re­sult in bad re­views and frus­trated users.

com­mis­sions in ecom­merce

These are wide­spread, widely ac­cepted, deep-rooted ecom­merce plat­forms who act as e-mar­ket­places be­tween sup­plier and the cus­tomer. Plat­forms like Flip­kart, Ama­zon, and Uber charge com­mis­sions in lieu of their ser­vices; they bridge the dis­tance be­tween the two and ex­tend value, by way of pro­vid­ing va­ri­ety to the cus­tomers. Plat­forms which act as an agent for the pur­chase of goods or tan­gi­ble ser­vices opt for this mon­eti­sa­tion strat­egy. Uber and Ola take com­mis­sions from driv­ers who have been ag­gre­gated un­der their ban­ner. They pro­vide value to cus­tomers by be­ing avail­able at a click, and en­sur­ing real-time avail­abil­ity of driv­ers and real-time track­ing by fam­ily mem­bers. Driv­ers will­ingly pay ag­gre­ga­tors the com­mis­sion amount, as they earn more by get­ting a reg­u­lar stream of cus­tomers.

Alibaba, on the other hand, re­lies on fea­tured list­ing when a buyer searches for any prod­uct on their web­site. Busi­nesses who pay would ap­pear on top of the search. They also fol­low the in­ter­net ver­sion of the phys­i­cal shop-in-shop con­cept wherein brands pay an­nual user fees for their ded­i­cated pages on Alibaba’s por­tal. T Mall and Taobao, Alibaba’s ecom­merce por­tal, use a va­ri­ety of the afore­men­tioned mon­eti­sa­tion meth­ods.

mon­eti­sa­tion mix

In­sta­gram, which was once es­tab­lished purely for fun, never thought about how they would make profit.

Plat­forms like Flip­kart, Ama­zon, and Uber charge com­mis­sions in lieu of their ser­vices; they bridge the dis­tance be­tween the two and ex­tend value, by way of pro­vid­ing va­ri­ety to the cus­tomers.

How­ever, now un­der Face­book, through dis­play and spon­sored post ads, they have made around $700 mil­lion in 2015. Cours­era, by virtue of stu­dents en­rolling for their on­line pro­grams, lever­age their rich data­base.

They also fol­low the freemium model, ren­der­ing ver­i­fied cer­tifi­cates to only paid par­tic­i­pants. Airbnb, a homes­tay net­work, charges 6-12% of room charges from trav­el­ers and 3% from the host. Higher the book­ing amount, lower are the charges from the trav­eler. The com­pany must be hav­ing a rev­enue above $1 bil­lion. Dating sites, too do the same, they charge lesser from the women and more from the men. Myn­tra, an ecom­merce com­pany to­tally de­pends upon com­mis­sion from the sale on their plat­form. Com­mis­sion varies from 5% to 2% depend­ing on the prod­uct.

Clas­si­fied ad sites, Quickr and OLX, make their rev­enue through dis­play ads which are of con­tex­tual and re­mar­ket­ing genre. Fea­tured list­ing and data­base form two other rev­enue sources for both. Wikipedia, on the other hand, to­tally de­pends on do­na­tions. Wiki­me­dia Foun­da­tion, the par­ent com­pany, gets about $75 mil­lion to sup­port its dif­fer­ent prod­ucts. Es­ti­mate sug­gests that if Wiki­me­dia uses dis­play ad­ver­tis­ing, af­fil­i­ate mar­ket­ing, and other meth­ods, it would be mak­ing $2.3 bil­lion a year, but its ba­sic phi­los­o­phy, and crowd­sourc­ing knowl­edge ren­der it to re­main do­na­tion-based busi­ness model.

Go­ing through the whole can­vas of the rev­enue model it is com­mis­sion on prod­uct or ser­vices sold that make most of the plat­forms vi­able. Sec­ond could be dis­play ads, only if the plat­form gen­er­ates hits in mil­lions. Rest, wait for the value of busi­ness to in­crease and then get­ting sold to big busi­ness. For the plat­form busi­ness model to sur­vive and live up to decades, they still have to search for more cred­i­ble mon­e­ti­za­tion op­tions, which may not only make them vi­able, but also fat­tens their bot­tom lines. ■

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