A sustainable model
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.
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.
‘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.
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.
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.
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.
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. ■