Platform
Monetization
Presented By -Group 2
AD WORLD’S SITUATION ANALYSIS
•Platform business that provides listing service
for firms to find ad agencies
•Value to companies- Making easier to post
request for bids
•Value to ad agencies- Easier to post proposals
and offer that companies can look and respond
GRAPPLING WITH DILEMMA
•How to generate revenues?
•Whom to charge? Ad agencies? Companies?
SUGGESTION
•Shouldn’t charge either side to be listed on their
platform
•Charge only at the time of deal completion
•Charge ad agencies for a service that helps them
to understand why they lost a deal
VALUE CREATION AND CHALLENGES OF MONETIZING NETWORK EFFECTS
•Inherent value of platform business lies in the Network Effects
•Monetizing network effects can pose a challenge
How to monetize then?
•Partial free pricing
model adopted by
Gillette
•Freemium Model like
Dropbox
•Offer subsidized pricing
to one user base and
charging full price to
other user base
Categories of Value Creation
Network Effects Network size and monetization potential
Interactions must generate significant excess value Negative network effects
● Zvents - an online guide to local events When decline in users increases monetization potential
● Over 14 million visitor every month
● Market leader at one point, later sold to eBay MeetUp
Failed Monetization Strategies
Users expected to find comprehensive list of Lead Generation Model - fees to venues ( restaurants etc.)
events, but only found selected few for number of users who came. But numbers who signed up
and actually came were different
Advertising
Zvents didn’t have leverage over event organizers Meetup Plus
they hoped to charge
-> Low barriers to planning a meetup led to lot of noise on
Value of Zvents was in completeness of listings the platform and meetups without clear purpose
● Started charging organizers
● Number of meetups declined
No. of visitors Doesn’t necessarily reflect
● Quality of interactions improved
monetary value of platform
Ways to Monetize
1) Charging a transaction fee
● All the four forms of Excess Value created by platforms – Access to (i) Value
creation (ii) The Marker (iii) Tools (iv) Curation – culminate in some kind of
interaction.
● In most cases, this interaction involves exchange of money. Eg.: (a)Uber
customer pays driver for a ride, (b) eBay buyer pays seller for a product
(c)Upwork pays a freelancer for a completed project.
● Platforms facilitating such monetary transactions can monetize value created
by charging a transaction fee in two ways.
i. As a percentage of the transaction price
ii. A fixed fee per transaction
• Effective and powerful way of monetizing the value created by
platform without hampering the growth of network effects.
• Buyers and sellers are charged only when transaction occurs
and hence they are not discouraged from joining the platform.
• However, the challenge is to capture all the interactions
facilitated by the platform on the platform itself.
• Buyers and sellers find each other on the platform may try to
take the interaction off the platform to avoid transaction fee.
• This problem is especially rampant with platforms that connect
service providers with service consumers.
• Airbnb, Uber and Upwork are some examples of platforms who
facilitate service interactions.
• In most cases, interaction can’t occur until the service provider
and the buyer of the service agree on the terms of service.
• The actual exchange of money follows the delivery of service.
• Both the above cases require the participants to interact
directly, creating an opportunity to make a deal off-platform.
• This weakens the platform’s ability to capture value
• Some platforms solve this problem by temporarily preventing
participants from connecting.
• They provide all info a consumer needs to make an interaction
decision, without directly connecting consumer and
producer(service provider).
• Examples:
i. Groupon provides services which are largely standardized
ii. Airbnb and Fiverr – platform for freelance services, provide
rating mechanisms and other social metrics that indicate
reliability of the service provider.
• For platforms that create a market for professional services, the
above mentioned strategies would be insufficient
• Professional services require discussions, exchanges and
workflow management before and during provision of services.
• Hence the platform cannot control all communications between
producer and consumer.
• Charging the consumer ahead of the interaction also may not
be an option.
• In such cases platforms should extend its role to include more
value creating-activities.
• Upwork provides tools for monitoring remotely.
• Clarity, A platform which connects advice seekers with experts
provides call management and invoice capabilities that capture
the interaction on the platform.
• Producers(advice givers) benefit from integrated payments and
invoicing which make it simple to generate income through
small, one-off engagements.
• Consumers benefit from the call management software which
provides per-minute billing.
• Platforms must create tools and services that benefit both
parties by removing friction and mitigating risk.
2) Charging for Access
• Charging producers for access to a community of users.
• Dribbble , a platform for designers – artists, illustrators , logo
creators, graphic designers and others – to show off their work.
• Gained prominence as a high quality platform as designers get
exposure, credibility and valuable feedback from peers.
• Uses Basketball jargon like calling images “shots’, and reposts
of images as “rebounds”, creating a unique lingo to foster a
highly engaged community.
• To protect long term value, Dribbble does not charge users for
access, which could weaken network effects.
• Does not permit sponsored images that provide enhanced
access to the community, since these could reduce prestige of
the site.
• To monetize the site, Dribbble charges, third parties, i.e.,
companies looking for designers to post employment listings on
the site’s jobs board.
• Designers are motivated to put up best work and companies
get access to top designers – benefitting both parties.
• LinkedIn – allows companies to target professinals based on
their resumes.
• Monetization model is sustainable only when it adds network
effects.
3.Charging For Enhanced Access
❖ Platforms that charge producers for:
➢ Better targeted messages
➢ More attractive presentations
➢ Interaction with valuable users
❖ Pro: No harm to the network effect
❖ Example : Google, Tumblr, etc.
❖ Charge for lowering barriers
between users
❖ Example: Dating platforms
Risk : If not done properly, it could increase noise
4.Charging For Enhanced Curation
Increased Finding
Diminished
options result Relevant &
Quality content
User
in choice
overload gets difficult Experience
❖ Thus, charging users for curated high quality
content and better experience
❖ Benefits for the user:
■ Time saving
■ Better quality resource access
■ Personalised guidance and
recommendation
❖ Example : Sittercity, Skillshare
Whom to Charge
&
Whom to Discount
Whom to Charge?
● May damage network Effect in some cases
01 Charge All Users ●
●
Eg. membership plans in offline retail stores
Jio Savn prime model
● While company A is willing to conect while
Charge One Subsidize
02 Other ●
vice versa is not true
Eg. Women entry strategy in clubs and bars
● Subsidizing stars whose presence
Charge most users ,
03 subsidize stars ●
boosts users.
Presence of apple stores at malls
● As price sensitive people are more
Charge Some Users full
04
prone to leave the platform which can
price while subsidize
damage network effect.
other ● Very rare
3 Key Principles of Network
Design
Principle 1 Principle 2 Principle 3
Do not reduce the value, that When transitioning from Free to
Never Charge for value that
users have become accustomed fee , strive to create new value,
users previously received for
free to that justifies the change
Eg. Google Maps
Summary
4 ways to create Access to value, Access to market, Acess to tools, Access to
excess value Quality
● Charge Transaction Fee
Techniques used in ● Charges for enhanced Access
Monetization ● Charging Subscription Fee
● Charging access to community
One of the most crucial monetization strategy is
Tip deciding whom to charge since the difference in roles
played by platform users which can impact network
effects
