What Does Monetize Mean?
To monetize is to establish an asset or object as legal tender. Basically, it's the process of turning a non-revenue-generating item into cash. The term "monetize" has different meanings depending on the context. Governments monetize debt to keep interest rates on borrowed money low and to avoid a financial crisis, while businesses monetize products and services to generate profit.
Monetization goes hand-in-hand with capitalism — and is just about as old. The process of monetizing is very important to a business or other entity's growth as it is key to its strategic planning.
Types of Monetization
The U.S. Federal Reserve monetizes the nation's debt by buying notes, bills, and bonds – collectively known as Treasuries – issued by the U.S. Treasury. The Fed issues the government credit, which the government uses like money for its operations without actually having to print any excess money. This type of monetization puts the government's debt on the Fed's books and puts money back into the system. Although considered a less desirable option, governments can also buy their own debt by printing money out of thin air, which increases the money supply but causes inflation.
Web publishing and e-commerce activities have made monetization a well-known concept among average Americans. Website owners monetize their websites by making spaces available to advertisers, thereby earning income from various types of content published on their sites. More sophisticated forms of web monetization involve creating sales funnels from subscriber lists and producing e-books from previously published content.
Government Debt Monetization Example
For simplicity, say the government needs $50,000 for a social program. It raises $45,000 through taxation but still needs $5,000. The government can either borrow the money, print the money, increase taxes or reduce spending. The government decides to borrow the money from the public by issuing $5,000 in bonds and offering bond buyers favorable interest rates. The government now has the money it needs – $45,000 raised from taxes and $5,000 raised from the bond issuance – for its social program.
Monetization in Commerce
When people browse websites and click on advertiser links, website owners — which may be individuals or large media companies — earn a small amount of money. Website owners may be paid for the number of times site visitors see advertisements without engaging with them, depending on the arrangements with advertisers. If a website attracts enough visitors, the money paid by advertisers can add up to substantial earnings. If a particular website has proven traffic stats, companies may pay more to place advertisements on the site's home page or certain pages that attract large numbers of visitors. Selling apps and subscriptions, and producing multimedia content such as videos and podcasts, are additional ways businesses monetize content.