Discuss the meaning and characteristics of different monetization strategies in the digital economy. How can content and user-generated content be monetized? Critically evaluate these strategies by referring to specific examples
Introduction
The traditional balance between entrepreneurs and customers has changed due to the development of the global economy accelerated by new communication and computing technologies that have created an open global trading regime. Organizations, especially the macro enterprises have to deal with the growing demand for digital marketing and distribution strategies irrespective of the amount of revenue they generate. According to Capgemini Consulting (2014), extracting value from the connectivity opportunity has become a big challenge for many companies, especially those operating in the media and entertainment (M&E) industry. Consumers have a wide range of sources where they can access content in the digital media creating major problems for the digital media regarding how to monetize their content to earn revenues from consumers. However, companies have established strategies aimed at monetizing user-generated content in the modern digital economy. The discussion below provides the meaning and characteristics of different monetization strategies adopted by businesses today.
Discussion
The "internet of things" is accelerating the pace at which entrepreneurs run the business today because it has overtaken the traditional mode of business operation. People are becoming more dependent on software than hardware because hardware manufacturers must add value to their products through developing software-driven technologies to fit the present demand. Moreover, winning the present digital economy requires much consideration on different processes and efficiencies capable of transforming hardware into software-driven technology. Examples of software-driven technologies that help media and entertainment forms take up digital transformation and practice advanced business processes include Cloud Computing, Mobile Web Apps, and BigData (Vermesan and Friess 2014).
On the other hand, entrepreneurs must be very careful not to defragment the consumer relationship because they may end up losing all customers to competitors. The digital economy creates more opportunities for M&E companies including increased number of viewers but at the same time, it creates a major challenge on how to gain more profits from increasing number of consumers. Moreover, rebuilding relationships with consumers becomes another challenge in the digital economy because new technologies offer consumers with a wide variety of choices where they can access content they need to listen to or view (Ernst & Young 2010). M&E firms must maintain the good relationship with consumers and at the same time earn profits from their content by monetizing their user-generated content. Teece (2010) argued that the new technological environment requires organizations not only to think about how to address customer needs by creating more user-friendly products and services but also gain value from such products and services.
Meaning and characteristics of monetization strategies
Monetization refers to the process of generating money value from something whether visible or invisible. Monetization strategies in the digital economy represent tactics used by entrepreneurs to create value in term of money for their digital content. Creating an effective monetization strategy requires the understanding of various characteristics of the digital economy. First, the digital economy is tracked. Any digital content can be tracked from its point of origin to the remote user. Second, the digital economy is connected through a linkage between the manufacturer, supplier, consumer, and stakeholders. Wireless communications made possible through the internet allow easier connectivity between different parties in the digital economy. Thirdly, the digital economy allows sharing of content. A content produced by one company may be used by another company through sharing. Finally, the digital economy allows personalization. Personalization allows consumers to select the best platform that suits their needs (Potts 2016). The advancement in technology and the presence of numerous marketing innovations have led to the development of a number of monetization strategies.
Advertising through digital platforms
One widely used monetization strategies are advertising through digital media platforms. A number of media firms engage in online advertising where they post ads in line with their digital content and get depending on the number of views. Large companies generate much revenue from digital advertising strategies because they record a high number of daily visitors browsing through their products and services. According to De Rosa and Burgess (2014), companies operating online games services have better opportunities of earning through the freemium monetizing strategy. The strategy allows players to watch a video instead of paying to gain access to the game that transforms into cash paid to the company (De Rosa and Burgess 2014).
Use of hardware premiums
Earning through hardware premiums acts as the second monetization strategy used by organizations in the digital economy. As discussed before, hardware organizations should develop software-driven technologies capable of meeting demands of the digital economy. However, organizations have established a monetization model referred to as the Hardware Premium where the hardware comes with a connection option in the form of a mobile app offering remote connectivity to the consumer. The organization charges the consumer under daily, monthly, or annual premiums to use the app to connect to the software, hence; generating value for the product (Capgemini Consulting 2014). Organizations widely integrate hardware systems into different physical locations using mobile devices to offer remote connectivity. For instance, the application of the mobile app to control activities in the house such as lighting, opening, and closing curtains and managing audio and visual systems.
Harvesting data and user’s intelligence
Organizations create value for their digital content through harvesting data and user’s intelligence. Business people highly consult information and technology experts to gain skills and knowledge on how to gain from users visiting their websites and viewing their content. Harvesting data and intelligence monetizing strategy allow organizations capture, store, and sell information retrieved from users. The strategy allows organizations to capture data on health, fitness, behaviors, and other relevant information from users and sell it to different stakeholders like health care providers (Information and Communication Council 2015). Media and entertainment firms can obtain such information by taking their customers through a series of surveys and questionnaires aimed at improving their services and content value.
Charging subscriptions
Businesses earn through subscription fees charged to viewers of the digital content. The subscription strategy allows users to pay to access online content from a specific organization. Companies in the print media like those generating e-newspapers gain a lot of revenues from the strategy because the user must pay a subscription fee to access the full content. However, the strategy faces a big challenge, especially where users share content because the company ends up receiving a subscription for one user but the content is shared by millions of users online.
Monetization of user-generated content, a critical analysis
The number of technology users, especially those accessing the internet, keeps growing each year. Approximately 30 percent of the entire world population had access to the internet by the year 2011(McKenzie, et al., 2012). Moreover, the increase in the volume of user-generated content on the internet because of the connectivity nature of the digital economy leads to more open source web browsers where viewers access content freely. The direct user involvement in creating content had become more significant in the past few decades, as technological experts come up with new designs, production, marketing, and distribution strategies aimed at increasing the capacity of viewers. The application of monetization strategies such as the “hardware premiums” targets millions of people using user-generated content, but at the same time introduces a major challenge to companies selling such premiums. Samsung Electronics experienced troubles offering hardware premiums to users.
According to Bajarin (2014), Samsung only produces hardware, therefore, must depend on another company for software generation. Samsung had to benefit from shipping software from another firm and charge premiums to customers through mobile apps. Later, the company realized the strategy could not sustain their economy after realizing a 60 percent fall in profits in the year 2014 (Bajarin 2014). Eventually, the company started slowly shifting away from premiums to other valuable strategies. If Samsung can experience these monetization challenges and it is the biggest electronics company in the world, what of a small enterprise in the digital economy?
The process of monetizing content and user-generated content by media and entertainment companies earns the organization extra revenues, but the presence of technological challenges makes such strategies worthless. One of the major issues affecting the monetization of user-generated content is the ability of the organization to meet consumer demands. Companies that charge subscriptions to their clients have to deal with demand trends because different consumers use content differently. Organizations have to maintain a good relationship with customers by ensuring availability of information and making connections available at all times. Therefore; media companies have to deal with the challenge of maintaining customers while at the same time earn value for their content. The organization should adopt an effective customer retention plan that promotes customer loyalty to the database while gaining value (Pattinson and Low 2011). Organizations are adapting the business model of charging subscription since it helps in creating value from customers but in the long-run, it ends up chasing customers away from the organization.
Charging subscriptions to customers acts as a way of defragmenting the relationship making customers search for other options that offer free content viewing. For example, companies operating in the newsprint media request users to pay subscriptions to view their content. Users will always look for alternative sources of information irrespective of the amount of subscription charged because of consumers believe that online content appear freely and nobody should pay a single coin to access any information. The presences of such controversies force organizations to withdraw subscriptions.
On the other hand, many organizations have embarked on harvesting data and intelligence and selling it to interested parties. The strategy seems to take control of the digital economy because many users leave their personal information on organizations’ databases making it easier for business owners to retrieve and sell the data. The lack of knowledge of primary characteristics of the digital economy among many entrepreneurs causes significant failure in the process of monetization of digital content through data harvesting. The process limits the economic potential of the data collected from users when there is the lack of future focus. One of the organizations that have successfully adopted the strategy is Carolina's department chain store, Belk. Belk develops user-generated content and makes it available to consumers through their website. The company manages to monetize information collected from customers and sell it to marketers, merchandisers, and real estate investors. The main tactic adopted by Belk involves collecting, blending, and analyzing data from customers in her databases and integrating it along ethnic, gender, age, and social class groups using a self-service data integration mobile app (Laney 2016). However, Belt does not benefit fully in monetary terms because some activities allow indirect monetization where the company generates valuable economic benefits aimed at improving its brand name.
Finally, organizations in the media and entertainment industry have embarked on intelligent advertising as a way of earning revenue from digital content. Marketers and producers relied heavily on advertising as a method of selling products and services before the introduction of media technology (EMC Corporation 2008). Companies gained revenues directly through selling their content on newspapers but the present digital world has created major changes where analog advertising is no longer applicable. The inclusion of adverts on user-generated content helps organizations gain some revenues when users click on these ads. For example, watching content on YouTube requires the user to watch a small clip bearing some advertisements. The big challenge facing media companies today is the ability to build the strong partnership with consumers because of the availability of wide range of choices to access content. The lack of a careful analysis of technological options and business requirements necessary to run a successful advertising model in the digital platform leads to many organization earning very little to even cater for the cost of generating a single content online.
Conclusion
The internet has made it possible for consumers to access content from anywhere in the world and at any time without having to pay any penny to the source of the content. The presence of new and emerging technologies allows consumers to share media information through digital platforms. Surviving in the present digital economy where customer accesses content freely from the internet requires a good understanding of characteristics of different monetization strategies and their application in different concepts. The discussion reveals that businesses use monetization strategies such as hardware premiums, advertising strategies, charging subscription fees, and harvesting data from users to generate cash from digital content. However, each of the discussed strategies reveals some challenges because of the connectivity nature of the digital economy and the ability of users to personalize content making it difficult to reach every user. Therefore, businesses end up earning less than they expect.
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