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Digital monetization is becoming more confusing

Monetization

Monetization is a fairly important topic for a lot of companies because, well, their goal is to make money. In order to make money, you usually need to take some products and services and “monetize” them. Do that with a bunch of nuts, water, and WiFi and you just hit a monetization target for hotels. There are examples in every industry. People have been doing this for roughly 4,000 years, if not longer.

But digital is a sticky wicket here. It made monetization a lot more confusing. Obviously the traditional way to monetize a product online is through advertising. That model is drastically shifting, though. Part of all this is mobile. Part is ad blocks. And honestly, a large part is that people know how to ignore ads by now. We’ve got massive amounts of choice overload in numerous industries, and brands are trying to use ads to get out in front of new pockets of people. But let’s say 10 different cheeses are using Facebook Ads and PPC. That means you’re seeing all this stuff about cheeses and you’re like “Ugh, what the fuck? It’s just cheese.” So this digital monetization model isn’t really working for the cheese companies, and it sure as hell ain’t working for you. We need some type of shift. But what’s that going to be?

The first thing to know about digital monetization

Businesses love silos. It’s comforting to our feeble brains and we can know who “owns” stuff. Silos have pretty much no logical place in the modern, mobile-first, fast-moving business world — but change is hard for people.

When digital became “a thing,” most people kicked it to the marketing department. Here’s the problem: the ROI on marketing is suspect as it is, but marketing has always been able to rely on big numbers from print or TV ads. The numbers were smaller on digital. This ultimately worried CMOs. How were they going to impress their bosses with smaller numbers, even if it seemed like everyone was on these platforms? Hmmm. What happened in most cases was that people pooh-pooh’ed digital, creating horrible digital strategies and making no effort to learn anything new about digital or mobile. Into that void rushed about 10,000 “marketing thought leaders” who mostly upsell a bunch of bullshit products. Welcome to (almost) 2017.

Last place I worked was this to a tee. The CMO (“SVP, Marketing”) was a deer in headlights joke when it came to anything digital. She got a new direct report a few months before I got canned over there; the new direct report was supposedly the business director of the website. In their first meeting, she essentially tells him that she has no idea what he does. I’m sure that felt good. But this CMO was straight-up minted because the more legacy side of her silo — the printing and publishing — was making money. That was what she paid attention to and cared about. It’s that simple. You chase the shit that provides your bonus. Most people think that way, unfortunately. This is why a lot of digital monetization efforts flail about.

Monetization research from Wharton

Good long article here called “The End Of Digital Advertising As We Know It.” Makes a lot of salient points, although unfortunately ends in a place of “Well, someday Google and Facebook will rule us all.” (That day might already be here.) The important thing to know about Google and Facebook is that they have user data, and user data means a lot more in the new monetization landscape. (Although yes, Big Data still has a bunch of problems.)

Consider this, re: Facebook —

Facebook has said that “ad load,” or the relative volume of advertising versus content on its pages, isn’t going to be able to fuel revenue growth as much as it has to date. The disclosure indicates that the display-ad business model – which has largely been the industry standard for monetizing content on the internet — may be tapped out.

When Facebook reported its third quarter earnings, CFO Dave Wehner outlined how ad load is going to be less effective in the very near future. “We continue to expect that ad load will play a less significant factor driving revenue growth after mid-2017. Over the past two years we have averaged about 50% revenue growth in advertising. Ad load has been one of the three primary factors fueling that growth,” explained Wehner on a November 2 conference call. “With a much smaller contribution from this important factor going forward, we expect to see ad revenue growth rates come down meaningfully.”

Facebook is basically the second-biggest site on the Internet, give or take. And their monetization from ad revenue is dropping after mid-2017. Makes sense, of course — if your News Feed is all ads, people will stop visiting. And when they stop visiting, who wants to advertise there anymore?

But what now?

The obvious digital monetization move is subscriptions, right?

That’s what happened with TV and the cable model ultimately. That’s likely what will happen with the Internet. But there’s an elephant in the room here.

Consider The New York Times. Per this Wharton research, their digital subscription revenue was up 15% in the third quarter of this year. That’s good. But that accounted for $58.5 million — and remember, this is during a Presidential election when everyone was looking for info — and total Q3 revenue was $363.5 million. That’s only 16 percent of total quarterly revenue from digital subscription monetization.

That’s a problem because of how people approach work at for-profits. People mostly want to be seen as (a) relevant and (b) not incompetent, and they want to make some nice change while doing that. Most higher-ups at places make more from bonus than base (crucial to understand), and your bonus is contingent on revenue plays. If your digital monetization model is only 16 percent of that, well, you can bet it’s going to get around 15 percent or less of your attention. You gotta chase the big fish, right? Because that benefits you in the end.




 

This is why so many digital monetization ideas are so awful and half-assed. Someone somewhere in a marketing chain probably has a good idea, but the true “decision-maker” of the group could give three shits — his/her money is 84 percent from “legacy” or “traditional” sources, so those are the meetings he/she wants to take. By the time anyone gets to thinking about digital monetization plays, it’s a giant slop fest of misery and banner ads. We’ve all seen this in real time.

So what’s the future of digital monetization?

Short answer: nothing. People will focus their time and energy where the biggest pop is, and that’s still TV and print to many.

Intermediate answer: probably subscriptions.

Long-term answer: maybe companies get better at explaining (a) their value and (b) why you should pay for that value, or maybe Facebook and Google are the only places we ever see or hear about new things.

As the Wharton article notes:

According to Hsu, a business model similar to that of software company Zenefits may also make sense. Zenefits gives its human resources software away, but makes money by being a health care insurer of record and generating commissions. “We are living in an era where there are more touch points and there are more revenue models,” says Hsu. “If we’re compiling all of this data, what are we going to use it for?”

That last sentence is close to the crux of the problem. Many companies — mostly in marketing departments — compile tons of data, and then essentially do nothing with it. “Oh, we know our customers,” says a CEO, “and by that I mean, I think maybe Jeff owns that, but I don’t talk to Jeff. I’m making sure our ad on The Voice looks good, you know?” 

Monetization is going to be increasingly tied to data in coming years, so ideally companies are getting themselves ready for that — and no, I don’t mean “hey, let’s hire some more Asian guys.”

What else would you say re: digital monetization?

Ted Bauer

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