A business is a repeatable process that makes money. Everything else is a hobby. — Paul Freet, Commercialisation Expert
In the product world, most people focus on developing the next big thing but pay scant attention to creating a sustainable revenue model. No matter how great a product is, it may eventually hit a dead end without a monetisation plan in place.
Day three of The Makers Summit 2021, hosted by Inc42 in March this year, started with a conversation around this particular problem that makes or mars a business in the long run. Taking a different path from the intense discussions around product building, designing and marketing, Inc42 hosted an intriguing fireside chat on one of the most crucial but fundamental business strategies: How to attract product users, captivate them and finally convert that engagement into revenue generation.
Airtel’s chief product and experience officer Adarsh Nair and Hansel.io’s founder and CEO Varun Ramamurthy had an intense, hour-long discussion on various product monetisation methods and why a multi-monetisation model would always be better than a single option, while Rajesh Jain, a product veteran and founder and managing director of Netcore Solutions, moderated the session.
Why Businesses Need Multi-Monetisation Models
On the face of it, monetising a product should be quite simple. A business provides value to a customer and derives fair compensation for the said value. But the product world is a little more complicated. Sometimes a direct method may fail to bring estimated returns if user expectation and the company’s perception of value do not match. Worse still, a product may not even be used the way the developers have intended it. When the popular image-sharing social app Instagram was launched, it was intended to be a check-in app. Users were supposed to check in to different places using the app and upload pictures if they wanted. But people started using it for taking pictures and sharing them, leading to the startup’s pivot to its current version.
Another issue with any monetisation model is that it negatively impacts the rate of customer acquisition. Big companies like Spotify started with a freemium model to grow its user base. Simply put, it offered its basic services for free while keeping some premium features behind a paywall. When the captivated user base grew large enough, the startups changed to a more prominent subscription-driven monetisation model to generate revenue. However, since a large user base was already used to the convenience of the platform, the addition of a subscription model didn’t result in any significant user reduction, and over time, it has been increasing the user base even further.
All these use cases show why and how single-mode monetisation turns complex. The other and more viable alternative is the multi-mode monetisation model. Diversifying how a company earns enables businesses to be more flexible and less dependent on a single channel for revenue generation. In essence, it creates a fail-safe mechanism for businesses and allows them to scale faster, while customers benefit from affordable products due to better revenue inflow via multiple streams.
“In the Indian context, the multi-monetisation model is important because the different verticals we see are not wide enough. Just imagine what would have happened if Amazon got stuck with selling books or Apple got stuck with making devices. They had a captivated user base, and they found a way to turn that engagement into revenue streams,” explains Jain of Netcore Solutions.
Nair cited Airtel digital services as an example of building multi-mode monetisation. Airtel started with cellular services, and that was its only source of revenue in the beginning. However, the company had a massive pool of captivated users. So, it soon began to launch music, video streaming, payments services and more by leveraging its internet services. Airtel essentially bled a single asset, its internet services, and it was able to create successful monetisation streams due to a large captivated user base.
According to Nair, the secret behind a successful multi-monetisation model is a wide funnel to captivate a large number of users.
Building Vertically Integrated Monetisation Channels
Although this model has many benefits, its application can be quite difficult. Horizontal monetisation is easy as every single service has its own monetisation model and adds to the overall revenue of the company. In contrast, the vertical integration of monetisation is more challenging. Under this module, every service that a business offers to a user is a choice that the user has to make at a given point in time. And every choice, whether big or small, is also a drop-off zone. For example, if someone wants to order food via the popular food delivery app Zomato, he/she must choose the app first as the go-to place for ordering food. Once inside, there is another choice to become a premium member for more benefits. It means there are two drop-off points (when a user may walk out without completing a transaction) before one buys the premium membership.
This leads to narrowing the user funnel as the number of users who want the premium membership will always be fewer than those who want to order food. If Zomato decides to add another layer to its premium membership with more benefits, the number of users opting for the top layer will be fewer than users with a first-level membership.
In spite of the increasing drop-offs as the transaction value and cost grow, vertical monetisation channels should not be avoided. In fact, it is especially useful for startups which can earn multiple times from the same product and scale faster.
Nair, however, elaborated another way of implementing the multi-monetisation model via vertical integration. He started by explaining the term ‘platformatisation’ that entails creating multiple platforms by sweating a single asset to create multiple monetisation modes. Citing the example of Airtel’s 320 Mn users, he said that the biggest power of a product manager would depend on going deep into the customer funnel and understanding the nuances, behaviours and triggers of these individual users. One should only rely on a strong customer feedback mechanism to build robust and efficient monetisation channels.
Product managers need to interpret data and understand end customers to know what will improve their product experience. According to Nair, most companies fail by not trusting their users or assets and prematurely coming to a conclusion on what works and what doesn’t. The only way to improve the funnel is to trust assets and then figure out how to make something work.
Finally, Ramamurthy discussed what products a company should build to enable a multi-monetisation model. He said that the right product must be identified at the very beginning, and the process should always start by asking the right questions about the relevance of the product, its current market size, the path to a high adoption rate and more. To create a multi-monetisation model, one must focus on the product’s core functionality and ensure that it works in sync with different services in the future.
YouTube, whose core functionality is video streaming, is a case in point here. Its core. The company captivated a large user base by offering its platform for free and allowing content creators to upload videos so that millions could watch those videos globally. Afterwards, the company started its first monetisation channel through ads. Next, it added a premium layer by showcasing the content developed by the most famous content creators on the platform. In addition, features like YouTube kids, YouTube music has followed the same model where the platform is repackaging its core service and providing it as a completely new service and platform. Recently, the platform has also integrated a short video format and that has become a third source of revenue.
Hence, by focussing on multiple use cases of core functionality and with the help of a large user base, the platform has been able to bleed the same asset through multiple monetisation channels to quadruple its revenue.
“The recipe for failure is putting just one product out there because there is a demand. Successful businesses have answers to all their questions before they write even a single line of code for the new product or feature. That is the only way to combat diminishing returns or the problem of choice paralysis,” concluded Ramamurthy.