The term “monetization” is frequently used in business settings, but some might find its meaning and usage ambiguous. There are a variety of monetization methods, such as advertising, billing for in-app purchases or subscriptions, and ecommerce. Even so, many likely wonder, “What exactly does ‘monetization’ refer to?” or “How does it differ from a business model?”

In this article, we clarify the fundamental concepts and terminology associated with monetization. Then, we explain types of monetization models, provide examples, and outline key points and considerations for businesses in Japan.

What’s in this article?

• What is monetization?
  
• Proper use of the term “monetization”
  
• Types and examples of monetization models
  
• Key points for successful monetization in Japan
  
• Important points about monetization efforts
  
• How Stripe Payments can help
  

What is monetization?

“Monetize” is a word derived from English that has been broadly adopted as a business term in Japan. The English term “monetization” means “generating revenue” and “converting value into monetary form.”

In the Japanese business world, the verb “monetize” primarily refers to generating revenue from services and content. Therefore, in practical settings, it is generally understood to mean “generating revenue.” This is the definition we focus on in this article.

On the other hand, the noun “monetization” carries a more specialized meaning in the financial sector, referring to the act of central banks printing additional currency to cover government fiscal deficits and directly underwriting government bonds.

Differences between monetization and business models

The terms “monetization” and “business model” are often used interchangeably, but the two differ in their roles and scope.

A business model is a broad framework that illustrates the overall structure of a business and the architecture of its value delivery. This refers to the overall picture of the business and identifies to whom it delivers value, what kind of value it delivers, and how it generates continuous profit.

On the other hand, monetization is a concept that focuses on how revenue is generated within that business model. In other words, monetization is one component of a business model, and it focuses specifically on how to generate revenue.

Differences between monetization and cash points

“Cash point” refers to the specific moment within a business when actual money is generated. This can include when a customer clicks an ad or pays a monthly or service fee. Cash points are one element of monetization, and combining multiple cash points makes it easier to build a more stable revenue model.

Proper use of the term “monetization”

In a business context, “monetization” refers to “generating revenue” or “creating a system that generates profit as a business.”

Below are examples of how monetization is commonly used in actual business situations:

• Although the number of app users has increased, there has been no monetization. Therefore, the business needs a new strategy.
  
• A business considers collaborating with another company as a way to monetize social media followers.
  
• A business employs a strategy to acquire customers through a free trial and monetize via subscriptions.
  

In these examples, the term “monetization” is used when considering and discussing how to generate revenue in the business world.

The Japanese expression “monetization generation” can be considered redundant because monetization already signifies revenue generation. However, this expression is still used in Japanese business contexts.

Types and examples of monetization models

There are various ways to pursue monetization. In this section, we introduce some representative examples. It’s important to consider the company’s services and customer behavior when determining which method is the most suitable.

Advertising model

The advertising model is a method where a business displays ads on their website or app and earns revenue based on ad impressions or customer actions. Advertisements come in various formats, such as banner, video, and native ads. However, in terms of revenue models, they can primarily be categorized in the following ways.

Cost per mille (CPM)

With CPM, a business generates revenue based on the number of times it displays an ad. Customers don’t necessarily have to click on the ad to generate revenue. Media with high traffic and usage rates tend to generate more stable revenue with this method, making CPM a common choice for news sites and video platforms.

Cost per click (CPC)

Click-based ads generate revenue when a customer actually clicks on the ad. Unlike CPM, simply displaying an ad doesn’t generate revenue; instead, a click action is required. This is a good fit for content where customers gather information, such as comparison and review articles.

Cost per action (CPA)

With CPA, a business generates revenue only when a particular action occurs because of an ad, such as a purchase, sign-up, or membership registration. Even if a customer clicks the ad, there is no payment until an action or result from the click occurs.

Ecommerce model

Ecommerce models include mall-type ecommerce platforms, such as Rakuten and Amazon, as well as self-operated ecommerce sites using platforms, such as Shopify and BASE. Each differs in terms of when, from whom, and how revenue is generated.

The main revenue points for ecommerce malls—such as Rakuten and Amazon—include the following:

• Store fees and monthly use fees
  
• Sales commissions
  
• Payment handling fees
  
• Advertising expenses
  

On the other hand, the revenue points for software-as-a-service (SaaS)-based platforms—such as Shopify and BASE—are as follows:

• Monthly use fees
  
• Payment handling fees
  
• Usage fees for additional or expanded functionalities in the app
  

For ecommerce mall platforms, revenue comes from sales commissions, advertising fees charged to businesses, usage fees for important operational functions, and various other fees. On the other hand, SaaS models provide the systems and features needed to operate ecommerce platforms, generating revenue primarily through usage fees and payment processing fees.

Billing model

The billing model generates revenue by charging customers a fee to access services or apps. Some services are paid from the start, while others offer a portion for free and charge for additional value.

Examples of this model are subscription services (e.g., Netflix and Apple Music), SaaS offerings (e.g., BASE), in-app purchases for games, and membership fees for online communities.

Key points for successful monetization in Japan

When considering monetization, many tend to focus on how to build a revenue model. However, a revenue model alone doesn’t guarantee success. In practice, it’s important to observe customer behavior and understand how they use the service. This can help a business identify points of natural revenue generation.

Connect monetization with customer behavior

When considering monetization, it’s important to evaluate the value the service provides. For example, websites or apps that provide information can use page views as a mechanism for generating advertising revenue.

Diversify model use

Monetization doesn’t need to be limited to one method. Combining advertising, ecommerce, and in-app purchases—depending on how the service is used—can help prevent revenue from becoming overly reliant on any single element. For example, when providing free content on an information site, a business could monetize through advertising and also charge for access to tools.

Research the market

When considering monetization, start by researching how competing services generate revenue. Reviewing pricing plans and paid features can provide practical insights into monetization.

Important points about monetization efforts

Monetization is an important element for generating revenue. However, depending on how it’s implemented, it could actually diminish the value of the service. Below, we provide some key points to keep in mind when considering and implementing monetization.

Avoid excessively prioritizing profits

Overemphasizing monetization by displaying too many ads or imposing excessive fees can lead to customer churn. It is important to confirm that the service is delivering its value properly in the first place and consider monetization as an extension of that.

Clarify pricing structures

With subscription models or paid features, make it clear where the paid portion begins and what costs money. Otherwise, customers are likely to feel uneasy. It’s important to keep fees and conditions as simple as possible and communicate them in a reasonable way.

Ensure consistency of purpose

If the monetization methods don’t align with the business’s purpose or value, customers might find the service difficult to use or lose trust.

For example, on a site designed to deliver information, displaying several ads that take up most of the screen can undermine the experience of reading the information. Furthermore, for apps that emphasize simplicity and ease of use, frequent prompts to make in-app purchases could create an impression that doesn’t match the service’s core direction.

The key to monetization design lies in being mindful of whether or not the approach to generating revenue reinforces the value of the service or hinders it.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.