The term “monetising” is an ugly but useful term that helps businesses consider the short and medium term cash flows that they can generate from digital products and services.  They need to do this while ensuring that their strategies for generating these cash flows support and enhance  their brands and reputations.

The smartphone App stores, markets and business models and services provided by Google, Apple and Paypal are making it easier for content producers to sell their digital products and services through market places and micro payments, though the margin that these companies require are not inconsiderable.

Before worrying about the division of revenues, content owners need to develop truly customer-centric rather than product-centric offers and start with a cold hard appraisal of their existing products and strengths to see how these can be leveraged into a commercially viable offer.  And be prepared to give away valuable free content in the process.

One of the most productive 30 minutes I have spent in researching this issue has been watching this video of Richard Titus, then working for AND, and his analysis seems just as relevant now, as when he gave the presentation one year ago.  I would also recommend Chris Anderson’s Free. The Future of a Radical Price,   and Kevin Kelly’s Better than free.

Richard Titus

Titus argues that since Gutenberg the principal ways of gaining revenue remain the same, even in digital: transactions, subscriptions, and sponsorship combined with “frictionless mechanisms for getting consumers and customers to give you their money.”

1. Transactions.

Ecommerce sites have become successful in selling tangible goods and services, but purely digital products are a difficult sell unless they are particularly rare and valuable or very cheap.  There is resistance in many countries to ecommerce, particularly in cash economies, and many governments are wary of cross border ecommerce and can make it near impossible.  Apple’s iTunes has provided a very exciting new business model, particularly with the App Store.

Micro payments offer a way of helping customers pay per view/read, in a way that is easy to use, and can avoid the emotional resistance customers have to higher value transactions.  They may also reduce the risk of piracy if it is easier for customer to pay a small amount for the legal version, rather than hunt the Internet for an illegal one.

The success of the Angry Birds Apps, shows how well this can work, Rovio have sold tens of millions of downloads at a $.99 price point that match the quality of games available on gaming  consoles costing  £20-£30. The top selling iPhone Apps in language learning are the 24/7 and Dummies Guides to French, German, Spanish etc, which despite their mediocrity sell thousands of downloads per month.  The fastest growing revenues are from in-App purchases, which include downloads of other Apps, functionality,  and trivia such as ringtones or weapons for gaming Apps.

In business to business (B2B) it is possible to sell high priced reports and knowledge, though often companies use high notional price tags on popular reports to entice companies into signing up for subscriptions that appear to offer better value.

2. Subscriptions.

These are attractive to content owners, as although it can be hard work getting customers to sign up, once signed up, the cost of keeping their business is relatively cheap and profitable thanks to the inertia factor.    A successful example is the ft.com website, which offers up to ten free articles per month to registered users, once over the limit, they are prompted to sign up for a subscription of around £15 a month. Unlike other newspapers, Ft.com subscriptions are typically viewed as a business expense.

In ELT the main B2B subscriptions include Global English, Macmillan English Campus and OnestopEnglish, and the new English360.  Rosetta Stone’s customer base is also primarily B2B though it is also growing its consumer market.  B2B subscriptions require serious investment in sales and  marketing, as companies and course providers need to be persuaded that buying a subscription of anything between £20 and £100 per user per year, plus investment in technical integration with their own IT systems and user training, offers good value for money. Teacher subscription websites need to be demonstrably better or offer resources not available for free on the British Council/BBC’s Teaching English website, or bundled with existing courseware.

Even harder is business to consumer (B2C) where EF’s Englishtown has been the longest established and most successful provider, though many of its subscribers are also studying with EF schools.  Languagelab.com delivers classes through its English City in Second Life. This is an emerging sector, with recent newcomers Live Mocha! (in which Pearson has a stake), Busuu.com and Lingq.com  These all offer plenty of “try before you buy” opportunities and e-newsletters that keep the relationship going with regular calls to action.  The typical cost per user month is getting less at around £10 (classes require a subscription of typically $40), and these companies could provide serious competition to Rosetta Stone, which requires an up-front investment of £150 to £300 for a set of CDROMs.  All these providers have to persuade subscribers that they will learn more than if they used a free learner site such as the British Council’s LearnEnglish or BBC’s Learning English.

3. Sponsorship

This can include simply promoting tangible goods and services offered by the website’s owner or partners, but the most important form of sponsorship in digital is advertising.   Facebook is worth far more billions of dollars than Wikipedia and Twitter because of its established advertising business model and revenues.

Digital advertising is becoming more tailored and targeted, but Titus argues content providers and advertisers need to work together to exploit the data trails and cookies that we leave as we flit between websites, and could provide some much value to both businesses and individuals. He also warns about the privacy issues.

Advertising is an important feature of most B2C websites discussed above, and a growing area in Apps, particularly Android ones, and  in-App advertising in the Android Angry Birds seems to be more profitable than the iPhone App store download revenues.  In ELT, advertising is most visible on dictionary websites, which attract millions of unique users and are therefore attractive to advertisers, but these could do better with better-tailored advertising.    Of the “big four” UK ELT online dictionaries, only Macmillan and Pearson Longman offer ads related to the words submitted by users through Google Adwords.

To be successful on advertising alone, a website either needs to be niche with high value visitors and advertisers,  or have low running costs, or have millions of unique visitors per year spending an average of 10+ minutes to generate the necessary  revenue per page view, typically $.50 per thousand page views. By advertising for third parties, publishers may be giving up valuable “real estate” that could be better used for advertising their own products and services.

So what next?

In an article entitled “The Publisher’s Dilemma” Frédéric Filloux http://bit.ly/fnpcoa explains how much print media giants such as the Washington Post rely on online revenues, 43% in Q4 of 2010.  He warns each dollar gained from online is matched by losses of five dollars from print revenues. To date newspapers have offset these huge losses by efficiency cuts, but “there is no hope current online revenue stream will someday offset the past decade’s tremendous losses.”   An over supply of content is pushing down advertising revenues.

To survive content owners need to create “scarcity value” to their output and make it attractive to large audiences.  They will need to combine the three revenue-generating  models discussed above,  making deliberate decisions about what to give away to attract transactions and subscriptions.  Advertising will be increasingly personalised, but however well it’s delivered, it will continue to be a useful income stream, but not the only one.