Value Creation VS Monetization; Why Tinder Is Better Than Facebook.
My goal is always to create value, not to make money. If you succeed in creating value for your customers they will happily pay you for it. I strongly believe that focusing on creating value will also lead to a better product and more loyal customers.
This post is about the relationship between value creation and monetization, and about how this relationship also shapes your product and influences the overall experience.
Let’s say you are an amazing baker. Your focus should be on making the most tasty pies ever. In this case there is a direct correlation between value creation and monetization. The bigger and more tasty your pies get, the more money you make. Your customers will love them and they will keep coming back.
If this is done right, you should only focus on creating more value for your customers and the money will follow.
Inverse and one on one relationships.
It sounds very logical that there is a natural correlation between value creation and monetization but this isn’t always the case but, if you take a closer look at the first generation of billion dollar start ups you will see some discrepancy.
Let’s take Facebook as an easy example. They figured out a simple way for you to share content and stay in touch with your friends and family, which is a valuable tool for billions of people across the world.
There is some friction, however, with the way they are monetizing this. When they improve their service, it doesn’t mean they will make more money, and might mean quite the contrary actually. If they include more ads they will decrease the overall experience and thus their value proposition, but they will make more money. It’s almost an inverse relationship.
Second generation start ups, like Airbnb and Uber, don’t suffer from this friction. There is a direct correlation between value creation and monetization. The value proposition of Uber is getting you from point A to B, and this is also where they monetize. Compare a two-hour Uber XL ride to taking a regular Uber for 3 blocks. The former will create more value for you and means more money Uber’s pocket.
Once established this direct correlation you need only focus on creating value and you will make more money in the long run. Because you keep creating value for your customers, your product will only be getting better.
If you want this one on one relationship, it should be ingrained in the foundation of your business. Working with advertising as a way to monetize will almost certainly get you a mismatch. You could argue that Google Search is an exception and still maintains this direct correlation.
How this relationship defines and shapes your product.
It is very interesting to see how the way you monetize shapes your product.
Youtube is a great example: it’s also ad based, the content creators get paid for every view. Irrespective of whether you have fancy Hollywood level production value or just shoot in your bedroom with your iPhone, you will make the same amount.
When you try to maximize your income as a Youtuber it is all about quantity not quality. Make as many videos as possible while keeping production costs low. It’s no coincidence that the most successful Youtube stars are doing game reviews or having a (beauty/product) vlog, where the production cost of their videos is minimal.
This business model favors fastfood content, in the same way it does with online ‘journalism.’ Adding a system of micro payments might be a way to favor high quality content.
You also see the effect in the evolution of TV shows over the last couple of years. In the past, TV depended mostly on advertising. You want your viewers to come back and watch every single day. Using a cliffhanger at the end of episode makes it more likely they will be drawn to watch the next episode. Another way is episodic television, such as CSI, where the promise is that the crime of the day will be solved by the end of the episode. This ensures that even if you miss a couple of episodes you can still enjoy the rest of the season.
This way of monetizing influences and limits your storylines and your end product in a big way. Those limitations are getting lifted with the rise of on-demand services like Netflix. This is one of the reasons we see an explosion high quality and very different TV shows over the last couple of years.
In the mobile app space, you also find examples of how monetization can improve the product. Tinder is my favorite example. For everybody who has been in a relationship for the past couple of years, let’s give me an update on what you’ve been missing. Tinder is a mobile dating app build on the hot or not principle. Swipe right for “hot’ and left for “not”. If you and your “hot” target both swipe right, confirming your attraction for each other (or at least for a picture of each other), Tinder considers it match and you will be able to start a conversation.
At first, Tinder was totally free and you had a lot of people always swiping right. (This is actually the most efficient way to go about it.*) However, this method generates a lot of ‘unwanted’ matches. Those ‘dead’ matches don’t lead to conversations and create a ‘noisy’ experience.
With the introduction of monetization, the number of swipes is limited unless you start paying for it. Now, “overswiping” right isn’t an option anymore. This is a great example of how the way you monetize can improve the overal experience.
Also, notice how there is a great balance between the free and paid model. You get the full experience for free, but if you want more value you can pay for it.
Another great example is Blendle, a Dutch journalism start up. With Blendle you no longer have to buy magazines or newspapers anymore. You just pay a few cents for the articles you want to read from your favorite publications. If for any reason you don’t like what you read, you are entitled to a refund, no questions asked.
They wrote a very interesting Medium post on how their way of monetizing (with refunds as an important mechanism) favors high quality content.
At Blendle we see this every day. Gossip magazines, for example, get much higher refund percentages than average (some up to 50% of purchases), as some of them are basically clickbait in print. People will only pay for content they find worth their money. So in Blendle, only quality journalism starts trending.
One year of journalism without subscriptions, without ads and without clickbaitmedium.com
- Realize your product gets shaped by the way you monetize it. Once you are aware, use it to create a better product and experience.
- While most of today’s products either charge for their products, or make you view ads, it doesn’t have to be a binary choice. A lot of Facebook users would pay to have an ad-free experience, which can co-exist with the users who don’t want to pay and watch ads instead. You need only treat users like adults and have them decide for themselves.
- A big part of the responsibility rests with the consumers. If they start paying for value, it will encourage companies to focus on creating value instead of focusing solely on monetizing. There is no such thing as a free meal. You are always the one paying even if it is through a method as inefficient as advertising.
Thanks so much for reading! If you enjoyed it, would mean the world to me if you shared it with someone. :)