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Running a profitable business is hard work. It’s even harder when your business is built around digital content. 3.2 billion images and 720,000 hours of video are shared online every day. You’re competing with billions of content creators, big and small. The trick is to deliver value for your users and your company. But creating this win-win scenario is easier said than done.
In this guide, we look at different monetization strategies for content-heavy platforms and apps. We unpack the most common revenue drivers, with their pros and cons, and provide best practices to implement them. The guide draws on industry research and interviews with entrepreneurs who have built startups and scaleups around content.
This guide is especially useful for founders and app builders who have an existing audience or user base that they want to monetize.
Brought to you by Peecho, the premium print-on-demand service. More info at https://www.peecho.com/
To make any business sustainable, you need to generate income. Most founders will monetize to generate cash runway for their startup, or build a valid revenue model that will enable them to attract external investment. In some cases, they are willing to take a riskier approach and grow a large user pool before they start monetizing. The monetization strategy you choose will vary depending on your product’s development stage, your starting cash balance and burn rate, the number of customers you have, whether you are trying to secure funding from investors, and other factors.
Generally speaking, the best monetization strategies start with putting customer value at the core. Sometimes, your users themselves will suggest features that you can turn into viable monetization channels. This was the case at Polarsteps, a travel planning and tracking app that offers printed travel books using Peecho’s print on demand service.
Niek Bokkers, Creative Director and Co-founder of Polarsteps exlains: “One of the reasons to start with monetization as a founder is runway extension. Another is attracting investors. The idea to offer printed travel books as part of our monetization strategy didn’t come from ourselves. It was a feature requested by a lot of users at the same time. We chose this monetization strategy because there was demand. It allowed us to generate value for the user, while supporting our business growth. Venture Capital (VCs) investors only want to go into business with companies that have a certain revenue stream. So making ourselves more attractive to VCs also played a role in the consideration to start with monetization.”
Whether you have decided to monetize your product from the start or wait until you get traction, you will most likely consider the different strategies in this guide. The pages that follow provide valuable best practices that will help you in your journey.
If you started an online business, you’ve undoubtedly come across the freemium model. This business model has been around since the 1980s but it became mainstream in the early 2000s. The term freemium (yes, a combination of free and premium) is often attributed to the venture capitalist Fred Wilson. In his own words this is what Freemium is about:
“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”
We couldn’t have summarized it better. Dropbox, LinkedIn, WeTransfer, Zoom, Spotify, Skype…all of these apps have a freemium offering. Freemium is the predominant pricing model for online startups and mobile apps today. Industry reports show that over 90% of mobile apps begin as free, and over 90% of the profits derived from mobile apps come from apps that use the freemium model.
Why is freemium so popular? Well, anything that’s marketed as free will have its appeal. With freemium models, the product essentially drives marketing. You don’t need to invest in a large sales team. Instead, you leverage word-of-mouth and referrals to grow your user base. To monetize this user base, most freemium businesses supplement the model with value-added subscription plans or advertising - both of which we will cover later in this guide.
The freemium model has some compelling benefits:
However, as with any business model, you need to take some best practices into account.
Many freemium services find that they have to pivot and make changes to their free offering depending on the adoption lifecycle. For instance, The New York Times implemented a paywall and pivoted towards a subscription model in 2011, after years of offering unrestricted access online. Initially, they offered 20 articles per month for free. After a year of testing, they found that 20 was too much - they were not getting enough subscribers. So, they cut this down to 10 in 2012. Today, if you go directly to the New York Times website (instead of through a Google search, for instance), you will immediately hit the paywall.
This type of constant tweaking is common when you have a freemium service. You’ll need to test different things to find out what works best.
“You have to believe in adding value for the user. When you have nailed and validated that, you can start thinking about monetization.” - Niek Bokkers (Polarsteps)
If you supplement your free plan with added-value subscriptions for revenue generation, you also need to be prepared to innovate. Releasing new features will incentivize freemium customers to upgrade and drive retention for paid ones. As Kumar explains in his seminal piece Making Freemium Work, “smart companies view freemium not only as a revenue model but also as a commitment to innovation.”
Philippe Hadey, the creator of multiple art curation sites, advises: Always try to think audience-first and test things before you go all in. I would start A/B testing and talk to users. This is very important.”
Another important aspect of freemium models is word of mouth. As we discussed earlier, part of the reason freemium’s attractive is that you don’t need to build a heavy commercial operation. However, you do need to learn to leverage your user base as a marketing channel. As Kumar adds, successful freemium businesses think carefully about their referral incentives and communications. The numbers also speak for themselves. According to an Ogilvy study, about 74% of consumers identify word of mouth as a key influencer in their purchasing decisions.
Dropbox is a great example of a company that learned to leverage this. They offer 500 MB of free bonus space to every customer who refers a new signup, and the benefit gets paid to the new customer too.
Last but certainly not least, supporting a freemium strategy with advertising is a common practice. If you’re considering ads as a revenue model, there are 2 things you should take note of:
Key takeaway: it’s very important that you carefully consider how you will implement advertising to support your free offering. In the next chapter, we will look at best practices in more detail to help you overcome these common traps in advertising.
Advertising is one of the most popular monetization strategies for content-heavy apps and platforms. And it’s easy to see why: digital ad spend is booming. According to a forecast compiled by Zenith, “digital advertising will account for over 60% of global ad spend in 2022.” Mobile advertising, in particular, is on the rise. In the US alone, mobile ad spending reached a record $223 billion - a 17% rise compared to the previous year. This figure is expected to surpass 339 billion by 2023.
Two benefits stand out:
Still, there are some practical considerations you need to bear in mind.
To use advertising as your main revenue channel, you need thousands and thousands of visitors. So, a considerable amount of your time should be devoted to building a large user base or community.
It’s no secret that people are skeptical about ads. Research shows that 96% of consumers don’t trust advertising. As we mentioned earlier, you will have limited control over the ads that get served in your app when you use an ad exchange. So, displaying ads that are not exactly relevant to your audience may be almost inevitable. Skepticism and irrelevance don’t make a good pair. To mitigate this, consider tweaking the categories of content that will appear in the ads. Most ad networks will allow you to block or allow categories based on the IAB’s listing.
Besides this, take note of some important UX implications and choose your ad frequency, ad types and placements with care.
As Jakob Nielsen writes, ads carry a user experience cost. Because most users find ads annoying in one way or another, many have developed so-called “banner blindness.” Others will use applications less frequently or flat out stop using the service.
A study from Pandora music proves this point. Researchers Jason Huang (Stanford University and Uber), David H. Reiley (Pandora Media Inc. and University of California at Berkeley), and Nickolai M. Riabov (Brown University and Netflix) conducted research among 35 million users of Pandora streaming music between 2014 and 2016. They divided this user base into 3 groups:
The results were pretty clear:
So, in short, mind the frequency at which ads get displayed on your service.
It’s also important to select ad types with care. Research shows that the most disliked ad types on desktop are modal ads (modal windows that display on top of all other content and don’t allow you to interact until you close), autoplaying video ads, and “intra-content” ads that shuffle content as they load. Deceptive links that pose as content but are actually ads are also among the most hated. Experts advise that you steer clear from these types of ads.
When it comes to placement, the best practice is to avoid obstructing content as much as possible. On mobile, for instance, this means avoiding ad placements at the top. Phone screens are relatively small, so if you place a large banner at the top, it’s consuming valuable real estate. A sticky container at the bottom might be more effective. Check out this article for more insights on mobile ad placement.
If you think regular banner ads will be too disruptive for your audience, consider offering a different form of advertising: paid promotions.
Paid promotions or forms of “native advertising,” like advertorials, might be a less disruptive and equally valuable alternative. In this case, you seek out a brand (or brands) to partner with and you create and distribute native content in your app to promote them. If you have a big enough audience, brands will also come knocking at your door more often than not.
But note that paid promotions can be a bit-hit or miss. Philippe Hadey, who is behind art projects like Fubiz Prints, explains:
“We tried several types of paid promotions. Sometimes, we would feature a whiskey brand with an artist, for instance. But we noticed our engagement dropped. We also tried asking artists to pay to get featured, but this compromised our ability to curate the artwork. We found that this was a bit tricky as a monetization strategy.”
This form of advertising doesn’t have to impact your user experience to the same degree as regular ads. However, it’s important to make it highly targeted and relevant for your audience. If you prefer to keep your content or platform completely free of ads, subscriptions are another common monetization model.
How many subscriptions do you have? According to Deloitte, the average consumer in the US has up to 9, spread across video, gaming and music. In Britain, 89% of people subscribe to at least one service. Research by Zuora shows that 78% of international adults currently have subscription services. The subscription economy has grown by 435% over the past decade. It’s the most prevalent monetization model for software companies, and it’s widespread in publishing too. Although publishers have struggled to monetize with subscriptions, the number of people who are willing to pay to access relevant news and information is rising, especially with increasing distrust in the media. Many consumers prefer to subscribe to a news source they know and trust.
From a customer point of view, subscriptions distribute spending. People don’t pay for everything at once so it makes the commitment easier. As Zuora’s research points out, many publishers have successfully experimented with smaller, monthly payments (rather than annual). Monthly billing from subscriptions in publishing went up by 6% between 2019 and 2020. Often, you’ll see platforms experimenting with both approaches: monthly billing and annual billing with a discount.
The beauty of subscriptions is that they are a recurring revenue stream. If you deliver value, your customers stick around.
With a subscription-based service, you can also get to know your customers’ behavior over time. This allows you to think about other offerings and services you could provide to improve their experience.
Undeniably, many consumers will prefer an ad-free product. Subscriptions allow you to monetize your content without interrupting the user experience.
One of the first things you need to realize if you’re monetizing with subscriptions is that you constantly need to deliver value. Imagine subscribing to a newspaper, but going a month without the news, or paying for Netflix without seeing new movies or series on your feed. Subscriptions are all about the continued value you’re able to provide.
According to Zuora, one of the most crucial aspects for the success of subscription-based businesses is their relentless focus on the customer. With subscriptions, your focus should be understanding their needs to truly nurture your customer relationships. Why? Because it pays off. In a survey conducted by Zuora 70% of the revenue that comes from successful subscription-based companies comes from upsells, cross-sells and renewals. And you know what they say, “acquiring a new customer can cost five times more than retaining an existing customer.” A large part of your work in a subscription-based business will be driving up customer lifetime value.
Be prepared to face stiff competition as well. Research by Deloitte shows that people are finding it more difficult to manage their different subscriptions. That’s why it’s very important to understand your customer’s needs. Having good analytics and making data-driven decisions to improve your customer’s experience has never been more important. As Profitwell states, you need to be prepared to personalize their experience, optimize your pricing and make onboarding as easy as possible.
Besides advertising and subscriptions, many content-heavy apps leverage referral selling or affiliate marketing as a revenue model.
Referral selling, or affiliate marketing as some would call it, is a monetization model that is similar to advertising and paid promotions. It typically works by placing links to relevant products or services in your app or content, and earning a commission per sale, per click or per lead. According to a Rakuten Marketing study, over 80% of advertisers and 84% of publishers use affiliate marketing. Most apps or platforms that use this model promote brands that have a good amount of synergy with their own product.
Polarsteps is a travel planning and tracking app that uses referral selling as a monetization model, along with other revenue-generating channels, like print on demand.
“Polarsteps offers an all-in-one proposition to customers: everything you need to plan your trip, track your trip and reminisce after it happens.” - Niek Bokkers, Creative Director and Co-founder of Polarsteps
Polarsteps has 3 million users. Through the app, they can book an Airbnb, buy a museum ticket, book a campsite, and more. This ecosystem of relevant travel businesses and services allows Polarsteps to make use of referral selling as a revenue model.
Monetizing your app with referral selling requires relatively little investment. You do need to build up an ecosystem of brands to partner with. But you don’t need costly technical integrations or a large team to put it together. All you need is some time to build and nurture your affiliate relationships, and tracking software to make sure you can cash in.
Another benefit is that you don’t need to worry about customer service or fulfillment once the sale is made.
Much like with other forms of advertising, to make referral selling a sustainable revenue model, you need to have a large audience. If you plan to use this as a primary revenue source, it’s best to wait until you have critical mass to start building up your advertiser network.
This might seem like a no-brainer, but it’s important that you choose brands or advertisers that are relatable to your own business. For instance, if you run a blog for freelancers, consider partnering with services they typically need, like time-tracking, expense-tracking or invoicing apps.
Businesses that leverage referral selling as
