Module II·Article III·~2 min read
Monetization Strategies: How Business Earns
Business Models and Value Proposition
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Diversity of Monetization Models
The method of monetization is a strategic decision that affects the entire business model. The same value can be monetized in different ways.
Main Models
Product Sale — a one-time transaction. Simplicity and predictability for the customer, but the business cannot forecast its revenue.
Subscription (SaaS) — periodic payments for access. Predictable revenue (ARR/MRR), high LTV, high acquisition costs. Key metrics: churn rate, NRR (net revenue retention). Example: Salesforce, Netflix, Microsoft 365.
Freemium — the basic product is free, advanced features are paid. Lowers the barrier to entry but requires work on conversion. Dropbox: free 2 GB, paid — more space and functions.
Transactional Commission — a percentage from each transaction. Scales with volume growth. Stripe (2.9%+30¢ per transaction), Airbnb (17% total).
Licensing — the right to use intellectual property. Qualcomm: chips are “free,” royalties for 5G patents — billions.
Advertising — free product in exchange for users' attention. Google, Facebook, YouTube. Requires a huge audience and data.
Razor & Blade — you sell the “razor” cheaply, earn on the “blades.” Printer is cheap — cartridges are expensive. Nespresso: coffee machine is inexpensive — capsules have high margin.
Result-Oriented Models — payment for the achieved result, not the process. McKinsey started offering fee-at-risk; Rolls-Royce — “power by the hour” (not engines, but flight hours).
Determining the Optimal Model
Key questions: How does the client perceive value — continuously or one-time? How does the client make the purchase decision (CAPEX vs OPEX budget)? What is the price elasticity? What is the client LTV?
Practical Assignment
A consulting firm currently operates on an “hourly pay” model. Consider alternatives: (1) fixed payment per project, (2) subscription — monthly availability of experts, (3) success fee — a percentage of the achieved result. For each model, determine: who benefits, how predictable it is, what the risks are.
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