Monetization on the Internet

Companies that are active on the internet do so because they hope that this medium will allow them to have a positive impact on their revenue stream. A large majority of companies use the internet as a point of presence like a virtual showcase or trade directory to highlight their goods and services. They setup a static or semi static website with an “About Us”, “Our Products/Services” and “Contact us” pages. Their internet presence is an economical (half-hearted?) way to justify a WWW address on the business card and it looks nice with the matching email address.

Then there are companies that are out to actively monetise. They are using the internet as a major revenue stream. Some organisation’s revenue source is uniquely through internet activities. This article focuses on these organisations.

Internet monetization can be categorised as follows:

1. Direct sales of goods and services. This model mimics the model in which the client “picks” a product or service off a shelf and places it in a shopping cart. When finished, he pays for the goods (and postage). Auction sites are a variations on this theme. Amazon, AliExpress, eBay, WordPress, PayPal, Uber and FedEx are all examples of organisations that monetise primarily on this model.

Some companies focus on certain sections of the supply chain. For example PayPal focuses primarily on the payment part of the transaction; WordPress provides the shopping cart and FedEx delivers the goods the client. Certain companies are expanding horizontally and are now directly involved across the entire chain. For example Amazon sells own-brand goods and services such as Audible, FireTV, Ring and Whole Foods on its platform. On the distribution side it operates logistics and distribution centres. It runs its own fleet of plains and trucks and is even experimenting with drone delivery. It owns its own data centres. The Feb 9th 2018 edition of The Wall Street Journal announced that, Amazon would formally launch a delivery service for businesses, positioning it to compete directly with United Parcel Service Inc. and FedEx Corp. Amazon is also investing heavily in drone technology.

Source: https://www.cnbc.com/2017/07/11/amazon-prime-day-is-the-first-big-test-of-the-prime-air-fleet.html

2. Sales based upon a subscription model.  While the concept of a subscription is not new, it is becoming a very popular way for companies that traditionally operated the “Direct sales” model. Rather than charge a onetime fixed fee, clients pay a monthly fee. This model is possible because the majority of their clients are now consistently online and the internet provides for a robust framework to support this model.

Software vendors such as Microsoft and Adobe have moved their product portfolio to this model. Companies who operate this model claim that it:

• Allows them to streamline cash flow;
• Avoids having customers pay out a lump sum;
• Ensures that customers are automatically on the latest version with all the bells and whistles (functionality and security). 

Unofficial benefits to these companies are:

• Is more profitable to the company. The CLV (customer lifetime value) is far higher with the monthly fee that it is with periodic (12 – 18 month) lump sum purchases;
• It is more profitable to the company because tech support becomes considerably simplified as they no longer need to support the same version spread of a product.  The moment a client calls, tech people will push the caller to get the latest updates;
• Forces customers to pay for upgrades irrespective of whether they want or need them. Upgrades are an integral part of this model; 
• Eliminates a situation during which a customer can reflect if the product is worth upgrading or if there is something better from a competitor. With the outright buy model, whenever a new version of a product comes out, a customer has an opportunity to evaluate if the new version is worth the cost. The consumer can ask whether the additional bells, whistles and refinements justify the cost. Before parting with the money he can take a good look at the competition. Also if times are tough a consumer can delay purchasing the upgrade; 
• Hides the true cost of the software. With the subscription based model the small repetitive recurring charge appearing on the credit card statement is sufficiently small to go undetected;
• It forces customers into payment lock-in. The moment the fee is not paid, the product or service stops working. With the outright buy model, the product would work (even though it may no longer be actively supported);
• It improves on all components of the RFM (Recency – Frequency – Monetary) model.

The subscription model is not limited to software vendors. Many hardware vendors are now incorporating subscription-based cloud-based functionality with their product. Ring (acquired by Amazon) sells video security hardware solutions bundled with a subscription-based cloud storage.

3. Free content and services shown alongside advertising. Facebook and Google are the current champions of this model. According to Statista, Google's revenue in Q4 of 2017 amounted to $32 billion U.S. dollars, while Facebook’s revenue stood at $40 billion. Advertising is strategically positioned with the content. As is the case with traditional forms of advertising, visiting clients will look at the ads while they consume (or browse) content. The ROAI (Return on Advertising Investment) is higher than traditional advertising because these companies do not apply a one-ad-fits-all approach. These companies have developed advertising algorithms that:

• Cater for vendors with different budgetary capabilities;
• Are highly automated thereby reducing the overhead costs to the companies that offer them;
• Are simple to use and provide feedback on campaigns and how to be more effective;
• Profile their user base extensively and are able to make this data available to vendors for efficient targeted campaigns. 

4. The donation (or buy me a beer) model. This model monetises by encouraging donations. Some organisations operate exclusively on this model while others may combine donations with some other form of monetisation. Wikipedia, Khan Academy and the Guardian are organisations who make active use of this model.  Crowdfunding has been used by content and service creators to generate funding in order to be able to commercialise an idea they’ve come up with.

5. CPU cycle donation/payment. Everyone who uses the internet must use a device such as a computer, laptop, tablet or mobile phone. These devices all have a CPU that can be used to crunch data. Organisations have developed distributed software that taps into the unused CPU power of their user’s devices to perform number crunching computations.  The combined power of millions of people’s devices allows these organisation to scale up their computing power massively. Organisations operating in the fields of climate, medicine, AI, space exploration are beneficiaries of this type of technology. While no money is exchanged, end users are paying for the addition electricity their devices will consume to perform the distributed tasks.

This astronomical rise in the price of cryptocurrencies has made it attractive for certain companies to develop distributed processing solutions that run within a user’s web browser. The term mining is used to describe this activity.

While web browsers (in their current incarnation) are extremely inefficient this approach is attractive because:

• It does not require the user to install anything. Some shady company have even gone so far as to perform mining activities on their user’s computers without seeking consent;
• Web Browsers tend to be multiplatform and a single solution can work on a variety of devices and platforms.
• The moment the user surfs away from the site the mining activity stops. 

Organisations that are finding it hard to monetise using other models are looking at consensual mining activities as a revenue stream. Some proponents are suggesting that browser manufacturers add specific mining APIs that increase the efficiency of mining while making it transparent to users what is happening under the hood.

This article has classified the main monetisation pillars of the internet. What is interesting and unique is how companies around today have turned our behaviours and personal data into the gold. What is so impressive is that our clicks, daily movements and interactions with others generates sufficient revenue to make them amongst the most profitable entities today. It also reinforces the saying that “Nothing is free on the internet”.