Product Monetization Strategies: Balancing the Trade-Offs of Value Exchange
An interview with Megan Hughes, experienced in subscriptions, ads, freemium models, and more
Few elements wield as much influence over a company's fate as the art and science of monetization. And I know from personal experience that this is a hard-to-master topic for product people.
Consider the multiple complex questions that may arise: do we go for a subscription or pay-as-you-go model? How many tiers of subscriptions? What’s the right price? Do we include ads? How frequent? How intrusive?
At the core of all these questions is the value exchange: how much are users willing to pay (in money or attention) in exchange for the value we provide? Solving it correctly can be the difference between success and stagnation.
Megan is a seasoned product leader with vast experience solving these questions in multiple industries and multiple monetization models. We explored real-life challenges, frameworks, and tips you can apply to your own strategies.
Listen now on Apple, Spotify, Google, and YouTube, and read on for my takeaways and highlights of the episode.
My takeaways from this episode
With the example of Chegg, we have already uncovered one of the significant challenges for thinking about monetization strategy: Companies have multiple monetization streams (in their case, subscriptions, ads, and one-time products).
As we think beyond direct “buyer” monetization (the customer directly buying our product), we immediately start seeing other players whose needs we need to consider and fulfill: can be the advertiser in ads models or the university trying to offer something in the platform in the case of Chegg.
Early in the conversation, we found a way to stop demonizing ads: The core product offers value to the user. Ads are a way to deliver that value without cost (or with low cost) to the user.
Megan framed this as the value exchange that the company AND the user must understand. She used the ads in video platforms as a great example of how users “get” they must see the ad before getting to the content (and are willing to do it).
Monetization is about optimizing the revenues generated by the product. So, generating insights can be done by taking inventory of the current unit economics of the product. Megan shared how she did it at Chegg by creating a huge spreadsheet.
At the heart of monetization strategies is the balance of the value exchange. Megan shared how “easy” it is to pull levers that can have a high and quick impact (i.e., introduce a new ad before the video plays), but they can have longer-term consequences. The product leader's role is to show the trade-offs and testing to show this type of user impact (bounce rate, subscription rate, etc).
In monetization, there is a grey line between strategy and tactics. The strategy stands at the larger higher level bet (for example, creating an ad-subsidize subscription tier), but then it’s everything about tactics and tests.
Teams working on monetization are more cross-functional than other product teams and/or have closer interfaces with teams like finance, business development, etc.
Likewise, monetization product teams usually have multiple dependencies. They may touch every part of the user experience and need to coordinate or ask other teams to align with them. Having this conversation based on the strategy and backed with data is a good way to avoid opinionated conflicts with other teams.
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