Monetization Strategies for Digital Products (Design+Code workshop)

After the ideation and development of a startup, the real challenge is the launch and management phase. The prize that entrepreneurs seek at this stage is monetization, and disruption is the key to achieving it. For Juan Jose de la Torre, Vice President Digital at Intigral, disruption is the differentiating factor in a startup's monetization and he accurately broke it down to the basics for the crowd at the Design+Code Day of the ArabNet Beirut Conference 2015.

For digital startups, "monetization is not always about money, it is about making value," said de la Torre. This can mean acquiring assets, generating revenue, increasing users, etc. At the onset, digital disruption is anchored in 3 pillars: a compelling value proposition, enabling technologies and a supportive ecosystem. From there, entrepreneurs can adopt different strategies to ensure change and guarantee the growth of their ideas, but for de la Torre it has to start with understanding and implementing the right business model. How will they monetize their products? What channels will they use? Where in the long tail will they focus?

Monetizing According to the Network and Users Model

In this model, startups can upsell their product or service, differentiating it and adding value to it so that consumers consider themselves privileged to use it and are willing to pay for it. Going down this path of product enhancement (for-profit), however, does not focus on creating a network or community. Fremiums like Evernote are a good example of this, according to de la Torre: "This is a product that is right for me and I would upgrade it if I considered that its value would be higher." Startups can opt instead to create community value through user interdependence (not-for-profit). "In this model, Dropbox represents the sweet spot," he said: upgrading from the free version gives users more space, more control and security, while growing community support. Changing the priority from product to community or vice versa is possible but it should answer a need and also take into consideration user conversion rates, revenues and marginal cost, as well as other factors. Ultimately, it comes down to whether it makes sense economically for a startup to change its business model.

Marketing vs. Marketing and Product

A simple look at long tail economics can help a startup decide on what marketing approach to adopt. If the goal is product enhancement, then this requires focusing on a single product and achieving differentiation, often paired with a full product marketing campaign - and its costs. If sufficient funding is available and revenue projections point towards profit, this is the way to go. But startups also need to understand that less commonly sold products can also return a profit through reduced marketing and distribution costs. With this in mind, there are several models to choose from. Here are a few:

a. The two-sided model: This model seeks to build a strong base by offering an initial product at a reduced price, then selling additional components or subscription renewals for long-term revenues. Traditional products offer several examples of this, such as the "low-priced" Gilette handle that will always require replacement disposable blades.

b. The ad-funded model: Pop-ups or ad banners can interfere with digital content momentarily - such as ads in YouTube videos. Provided that users continue to show indulgence (or are willing to pay for an ad-free version), this model can be quite remunerative.

c. The ad-sponsored model: Here, advertising is an integral part of the content, and gamification plays an important role. For example, in 2011 Mini France and Google Maps created a Facebook game that allowed users to race custom Mini Coopers across virtual street maps of Europe.

d. The freemium model: A free "teaser" version leads to the next (paid) wave of users. Dropbox, for example, offers paid upgrades with additional storage space.

e. Tailored model: In this scenario, a client/sponsor is willing to drive the product. This involves a long-term partnership (as opposed to ad-funded or ad-sponsored models).

These models are some of the ways entrepreneurs can monetize their startup. There's always room for innovation and experimentation with digital media, whether startups are looking to enhance their product or grow their user base. By adding augmented reality to its 2014 catalog, Ikea made it easier for its customers to simulate how furniture will look in their house, but also grew the number of augmented reality users.

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