Apps and Services want to make money, and rightly so. After all if there is a product that customers are using, someone needs to pay for all the efforts to build, maintain, enhance and support that product. Typically these products use one of the following monetization models as shown in the picture –
While the ‘Paid’ and ‘Freemium’ ones are generally sustainable because the user is eventually paying for those, it’s the ‘Ads supported model‘ which is a bit more interesting. Who is paying for it? And how much?
Let’s take an overly simplistic view of how Facebook makes money as an example –
- Facebook starts as a free app and provides value (finding and connecting with friends, sharing photos and other updates etc.)
- Users join for the value (and also for its free), VCs pour money
- Facebook continues to grow users and engagement
- VCs need return on their money so Facebook goes IPO
- Millions of small (and many big) investors put their money in Facebook
- Facebook needs to make profit for its investors, so gets on to the Ads supported model
- Users see these ads and other promotional content, click through it and make purchases
- Companies which benefit from the ads marketing, pay money to Facebook and that keeps Facebook free for the users
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So then, how the Advertisers are really making a profit on their spend and who is paying for that?
In a typical eCommerce scenario 1-2 % of ‘Click Through Rate’ (CTR) and 3% or more of Conversion Rate are considered good. It means if a content (an Ad) is presented to 100 users (100 Impressions) and 1 of them clicks through it; and for a hundred who click if 3 end up buying the product (Conversion), that’s pretty good. Scale these hundreds to ‘hundreds of millions’ and you can see lots of money flowing around by virtue of purchases (Conversions).
So essentially Advertisers are paying for impressions and click-throughs, which simply speaking is our Attention, our Time spent on these websites and our Engagement.
As more and more apps and services continue to be created in the future, they all need users and they all need to be discovered. But eventually there is a finite set of people and they have a finite set of time available. So this could essentially end up being a Demand-Supply problem – an ever growing demand for user engagement but a finite supply.
Shouldn’t in that case the resources become more valuable – resources in this case being our Attention and Time and Engagement? Shouldn’t be there a price for it?
How about the Apps not only being ‘Free’ but in fact paying us for our time? 🙂
[In fact there are many apps that are already doing it. Google for “apps that pay you to use them” and you will get plenty of results, but probably none of them are mainstream yet.]
Do you think a sustainable monetization model can be developed by paying users for their engagement?
Sharing Ad revenue could be one way. In other words, till the point the app is free it is free both ways, but when the Ads start showing up, users need to be compensated for their time as well, may be only when they click, or only when they convert, or maybe even when they just ‘see’.
Apart from sustainable financial modeling, many new problems have to be tackled here such as identifying and filtering users who can trick the system by generating fake engagement, bots, payment transactions, multi-currency etc.
I think, in the future the apps that will sustain will obviously be the ones that give a real (or even perceived) value to the user. But until that value is realized (or perceived), the Apps may have to pay its users for their time and attention. And this will be more true for the newer apps.
Monetization coupled with Product Discovery will continue to be an interesting area to solve complex problems.
Your thoughts?
[Image Source: http://globalwifihotspots.com/monetize-your-free-wifi-with-social-hotspot-marketing-platform ;listed for non-commercial reuse]
