Monetizing an Ecosystem: What’s the Right Way?

This is part 9 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

A business ecosystem can survive in the long term only if it delivers value to all its stakeholders. For the customers, it is the sum of tangible and intangible benefits they receive over the price they pay. But for the other partners in an ecosystem, the value can be equated to the profit they generate from the ecosystem, and in very few cases, the profit they are able to generate from other businesses because of their participation in the said ecosystem.

For businesses to grow profitably, they must tap into various monetization opportunities and develop newer propositions to increasingly drive value to its stakeholders. Here are the different revenue opportunities that businesses can leverage:

  1. Charge the User for Each Transaction

This is the simplest form of monetizing an ecosystem. Most of the ecosystems, both B2B and B2C follow this model. Uber charges its customers for each transaction. Klockner XOM charges its customers for each deal. YouTube Movies follows this model too.
However, this depends on two kinds of ecosystems that BCG had pointed out – a solution ecosystem and a transaction ecosystem. For transaction ecosystems which focus on matchmaking, something as simple as ‘charging the user’ will work well. Think Uber and Amazon.

But for a solution ecosystems, where the central orchestrator is at the receiving end of the value exchange, the key will be to divide this acquired value across the complementors and suppliers in a way that justifies their contribution yet recognizes performance. There are no easy ways to bridge the gaps in value distribution and organizations which are ecosystem orchestrators will have to leverage the power of the intelligence layer to consistently improve on the accuracy of value distribution.

  1. Charge the User an Entry Fee or a Perpetual Fee

With the rise of the subscription economy supported by the tremendous growth of SaaS software, ecosystems now have a business model in which they can charge the user or the end customer an entry fee allowing further free transactions or continue charging the end customer on a recurring basis. For instance, Netflix gives its users the option to sign up to a variety of monthly subscription plans to have access to the services. This enables the ecosystem orchestrator to have a steady stream of revenue but on the flip side, it is not suitable for a transaction platform unless matchmaking is of the highest quality.

In the real world, it may not just be an entry fee or a perpetual fee that will act as the toll gate to this mode of monetizing ecosystems. Ecosystems follow this business model when they want to either test the waters or are confident of the value their products and services offer to offset the price the customers pay to overcome the toll gate.

  1. Charging a Select Tier of Users

YouTube Music, one of the many products in the entertainment streaming market, follows a different pricing model. It lets its users listen to music for free, but if the users want the ability to listen to music even when the phone screens are off, they need to pay a subscription fee. It is an ecosystem where both the ‘commoners’ and the ‘aristocrats’ have a say. This fee or monetization model can be in lieu of other benefits. For example, YouTube offers its subscribers a premium model in which the subscribers can watch YouTube videos ad-free. Even banks follow this model through their products which more often than not, follow a tiered pricing model – customers paying a fixed or recurring fee in lieu of other products or services, whereas the bank can also leverage the market of customers who are not willing to pay. This also is akin to a business model where a certain set of ‘base’ features are free for every user in an ecosystem, but to leverage the wider potential of the ecosystem, the customers will have to pay a fee.

  1. Charge the Ecosystem Contributors Other Than the Customers

Imagine a market, or a shopping mall. It is a smaller version of an ecosystem, and certainly a successful model because it has been with us in many forms over the last several decades. In a shopping mall ecosystem, the ecosystem orchestrator is the organization which owns the shopping mall or runs the shopping mall on behalf of its owners. Customers do not pay a fee to enter the market or the shopping mall, nor do the shops in the mall pay a percentage of fee for the transaction that the customer makes.

The orchestrator obtains value (and in this case the money) from the rent the shopkeepers pay (on a monthly basis or annual basis) to set up their shops. The role of the orchestrator is to bring together a wide variety of shops which offer a wider variety of products and services to customers. In this way of monetizing an ecosystem, the orchestrator charges the producer and not the customer. For instance, Amazon marketplace, and several other marketplaces and e-commerce websites follow this model in which they charge the merchant for selling on their platform.

  1. Charge a Third Party Who Is Neither a Producer nor a Consumer

Most of the content producers on platforms such as YouTube do not spend money on the content they create. These ecosystems earn money from a third party – the companies which put ads on these platforms. These ecosystems are in fact the world’s largest ecosystems today where the producer and the consumer merge to become the prosumer, a term coined in 1980 by the futurist Alvin Toffler in his book The Third Wave. These ecosystems have the power to scale up exponentially and create value in multiples for its stakeholders, if managed correctly. Facebook, YouTube, WeChat – all are exponents of this ecosystem who have been able to create value in billions of dollars.

  1. Charge Everyone (Or Anyone Based on The Need)

This is an amalgamation of the previous monetization models. In this ecosystem, the orchestrator creates and implements different monetization strategies for different stakeholders. The LinkedIn ecosystem is a good example for this. The end customers, or the LinkedIn users have the option of creating a free profile or a premium profile. Companies have the option to engage with LinkedIn and leverage its plethora of services through different modes, many of which are paid. LinkedIn, after its acquisition by Microsoft, also has the power to connect to the Microsoft Office Product Suite1. The LinkedIn ecosystem is in fact a whole lot wider with LinkedIn bringing in products like SlideShare and data analytics services to their ecosystem.

This ecosystem and the other types offer a multitude of possibilities and opens a whole world of monetization opportunities not just for the ecosystem orchestrator, but also for the different stakeholders in the ecosystem, and hence can be considered as the ecosystem model with the highest monetization potential.

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1LinkedIn and Microsoft: It’s All About the Ecosystem; Boundless Markets;; Retrieved on 22 Jul 2020