There are several amazing technology platforms being launched on the web every year. Most entrepreneurs and investors love these new, innovative ideas and how quickly they scale to the market. Investors can pump millions of dollars into these ideas, but if there is no solid monetisation model, the technology will be doomed to fail.
Usually, advertising is the first sought after model. Although it’s a great way to boost revenue initially, it is also one of the lowest revenue-generating models. Many tech companies are opting for a subscription-based model, such as a SAAS.
YouTube has been the biggest video social network for over a decade and since Google purchased the platform. They have been experimenting in several different ways to monetise the platform. The rollout of advertising on the platform has generated revenue. However, it is also offset by the revenue that needs to be paid out to content creators on the platform through their Adsense program. Even though the platform is thought to earn billions of dollars in revenue, financial publications such as Fortune believe that the social media platform is still unprofitable.
In 2017, YouTube’s users are starting to see a push to subscribe to the YouTube Red service, which is an advertising free service that YouTube is providing. Google Alphabet CEO Sundar Pichai has said that in the past, switching to a subscription-based service has been a good way to diversify the platform’s revenue. It’s seemingly a positive move, since the platform boasts over a billion users and could potentially rake in billions of dollars every month in recurring revenue.
This platform has already been launched in the United States and is rolling out to other markets throughout 2017.
Netflix has been one of the world’s major success stories. Originally starting as a DVD by mail service in 1997, the company has evolved into the world’s leading movie streaming service. Originally, the business focused on DVD sales and rentals, but a shift to movie streaming in 2007 saw the company lay the foundation for a subscription service that would allow its users to get access to a library catalogue of movies and television shows. In a 2017 shareholder report, Netflix reported having 93 million subscribers on the platform and revenue grew to $2.4 billion. Netflix has been one of the prime examples of a lucrative subscription-based model. According to the report, the operational profit was $154million, and they were able to keep their content and operational costs low.
Spotify has enjoyed incredible success since its launch in 2008. The music and video streaming service has 50 million paying subscribers, in which most users pay around $10USD a month to use the service (amounting to approximately $500million in revenue every month).
The service also provides users with a free subscription, where they listen to ads between song plays. This compensates the company and provides another revenue stream.
As of 2017, Spotify still isn’t a profitable company, but it generates millions of dollars in revenue and offers the most ethical solution for the music industry.
The Australian and Hong Kong based company is seeking to accomplish a similar feat in the Printing industry. Traditionally, the sales model has relied specifically on sales from the end user and customer loyalty. The company is seeking to be among the first to initiate a subscription-based service with clients by implementing a ‘managed printing solution’, where software tracks the performance level of the printer and automatically sends out a new printer cartridge when the ink levels hit 20%.
This will see purchase latency times drop and repeat purchases increase. Ideally, it will work in a fashion that is similar to a ‘monthly subscription’.
Subscription models offer a promising opportunity for the tech industry and it is likely that it will be the revenue model of choice for most companies. Unlike relying on market demand for new sales, subscriptions rely on loyalty and can be an easier system to implement.