How can digital drive revenue in a consistent, sustainable way? Digital technologies offer new opportunities for growth, but effective monetization of digital requires thinking about new ways to turn resources into revenue.
Why? Because digital changes the nature of products and services, customers’ perceptions of value, and value delivery. Although the temptation is strong to use digital just to strengthen an existing business model—for example, to improve retention or increase wallet share via an enhanced experience—that won’t achieve breakthrough performance. Sustainable or accretive revenue growth in the digital era requires new ways of thinking about monetization.
Thinking through a monetization strategy
Monetization refers to how (1) resources are converted into (2) value through particular (3) mechanisms. Let’s look at how those three elements figure into an effective digital monetization strategy.
Resources: Digital monetization strategies start with identifying what the organization owns or controls and seeks to monetize. Resources used to be limited to products and services. With digital, the spectrum of resources expands to include information or data, market access, experiences, and outcomes. Indeed, a particular proposition might include a bundle of resources. For example, the resource “automobile” could consist not only of the physical car but also additional services such as financing, entertainment and roadside assistance, as well as an outcome (going from point A to point B).
Different configurations of resources will determine different possibilities and approaches. If you see that automobile primarily as the physical car, then you would see monetization as the way in which you turn a product into revenue via dealer networks, different financing options, and so forth. If you see the resource as the outcome of going from point A to B, then you would think in terms of rentals or a car sharing service. In the digital era, leaders must consider new bundles of resources required and their monetization possibilities.
Value: Monetization affixes a value to the resources being exchanged, but that value means more than “price.” If it didn’t, everything would be a commodity. With digital, value refers to the ability of a resource to (1) solve a problem, (2) enable an opportunity or (3) support customers in looking good or feeling good about themselves or in the eyes of another.
So although automobiles—to continue with our example—do deliver value in getting you from point A to B, they would all cost about the same if that’s all they did. Instead, they differentiate themselves through such values as size, cargo capacity and function. Perhaps most important in terms of our consideration of digital monetization, automobiles create value through the customers’ experience, how they look and feel about themselves, or how they perceive themselves relative to others.
Mechanisms: A mechanism describes the means used to capture the value of resources to drive revenue. Digital increases the variety of mechanisms available by creating new ways of selling something, leasing something or giving something away for free (in order to sell or lease something else). Digital technology changes transaction economics and processes. New mechanisms such as micropayments become possible, while others such as pay-per-use become economically feasible.
How the three elements work together in an effective monetization strategy
A monetization strategy brings resources, value and mechanisms together into revenue opportunities for companies. Big mistakes can be made by presuming that monetization models do not change: that insurance will be sold through brokers, automobiles through dealers, and so forth.
But change the technology and you can change the resource, value or mechanism and disrupt a previously stable business. Digital does exactly this to incumbent companies. Wrapping up our automobile example, digital creates new resources like visibility to demand for short-term, point-to-point car rentals. Digital also unlocks new values such as solving the problem of not having the right vehicle for a short-term job. Finally, digital creates new mechanisms, in this case micro-rentals available via mobile phones that challenge traditional rental models.
Re-building your business for a digital future
Growing revenue profitably in a digital world involves thinking through new monetization approaches and strategies. Digital is disruptive because it changes views on what is sold, how it is valued and the mechanisms to make product plus value equal revenue. It is not that existing monetization models are wrong; it is more that new models are garnering increasing customer and market attention. Knowing what to do in the face of these changes starts with re-examining and re-imagining your monetization strategy—the basics of revenue, value and mechanism.