What Is It to Monetize?

"Monetize" refers to the process of turning a non-revenue-generating item into cash. In many cases, monetization looks to novel methods of creating income from new sources; for instance, by embedding ad revenues inside of social media video clips to pay content creators. Sometimes, monetization is due to privatization (sometimes called commodification), whereby a previously free or public asset is turned into a profit center—such as a public road being converted into a private tollway.

The term "monetize" may also refer to liquidating an asset or object for cash.

Key Takeaways

  • Monetize converts otherwise non-revenue-generating items or activities into cash flows.
  • Monetization often arises through identifying new or novel income sources.
  • Website owners monetize their websites by making spaces available to advertisers, thereby earning income from various types of content published on their sites.
  • Social media platforms have extended monetization by selling individual user data to the highest bidder.
  • 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, which keeps interest rates low.


Understanding Monetization

The term "monetize" can take on different meanings depending on the context. Governments monetize debt to keep interest rates on borrowed money low. Though, if the need should arise, they may also do so to avoid a financial crisis, while businesses monetize products and services to generate profit.

Monetization seems to go hand-in-hand with contemporary capitalism. The process of monetizing is very important to a business or other entity's growth as it is key to its strategic planning. Indeed, finding novel ways to turn otherwise neutral or costly business operations into profit centers is a goal of today's entrepreneurs, and is sought after by investors.

Monetization is not new. Free TV and radio broadcasts have been funded by advertising for decades. And for decades before that, newspapers have relied on print advertising in addition to paid subscriptions.

Commercial Monetization Online

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.

When people browse websites and click on advertiser links, website owners—either individuals or large media companies—earn 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.

Example of Commercial Monetization Online

The online music streaming service Spotify, for example, was able to monetize its streaming service by embedding both visual and audio advertising into its platform for "free" users. Those users who wished to do away with these ads can pay a regular subscription fee instead. Either way, the company has monetized its service among its customer base.

Social Media Monetization

An extension of web-based strategies to turn page views and clicks into revenues, social media has taken the idea of monetization a step further. In addition to embedding ads, social media platforms like Facebook or Instagram collect user information and data in an effort to create targeted advertising and marketing campaigns. Here, user data itself becomes monetized and sold to the highest bidder.

Facebook

For social media giant Facebook, the importance of monetizing user data is paramount. Facebook collects all sorts of data from its users, from demographic information to click behavior and social network connections. There’s a reason why Facebook’s 10-K filing with the SEC uses the acronym ARPU, as in average revenue per user. According to Facebook's fourth-quarter 2019 results, its worldwide ARPU was $8.52, while the combined ARPU for the U.S. and Canada was $41.41. Multiply those numbers by the aforementioned estimated user base, and now you can understand why Facebook has a market capitalization of over $600 billion.

Since Facebook also owns Instagram and WhatsApp, it is able to aggregate even more data on its users and provide more screen space for advertisers.

YouTube

Similar to Facebook, YouTube—and all other Google-owned properties, collect user data along with a variety of dimensions. The company pulls in more user data the longer users stay in the Googleverse, which includes YouTube but also sites like G-Mail, Google Search, Google Maps, and Android OS. All that data helps it market more efficiently across all its platforms. When watching YouTube videos, Google is able to target advertising and sell your data via its Adsense and Adwords platforms where companies bid for the opportunity to display their ad to you.

TikTok

In addition to placing ads like YouTube, TikTok videos are monetized through strategic brand takeovers and branded hashtag challenges. More than overt product placement, these ads appear immediately and are targeted to specific users, and engage users to participate through challenges—which incentivizes the creation of even more monetized content.

Twitter

Twitter divides its revenue into two categories: the sale of advertising services, which constitutes the vast majority of the company's revenue, as well as data licensing and other services. Aside from targeted ads that appear as tweets, Twitter also sells subscriptions for access to their data via an API to companies and developers looking to "access, search and analyze historical and real-time data" on the platform. The "other sources" include service fees Twitter collects from users of its mobile ad exchange, MoPub.

Government Debt Monetization

The U.S. Federal Reserve (Fed) monetizes the nation's debt by buying government-issued notes, bills, and bonds—collectively known as Treasuries, which as the name implies are issued by the U.S. Treasury. The Fed purchases these debt instruments using newly-created credit money, which the government uses for its operations without actually having to print any excess physical currency. This type of monetization effectively puts the government's debt onto the Fed's balance sheet and puts liquidity into the financial system.

Example of Government Debt Monetization

As a simple example, say that the government needs $5 million for a social program. It raises $4 million through taxation but still needs an additional million. The government can either borrow the money, print the money, increase taxes, or reduce spending and budget that towards the program.

Here, the government decides to borrow the money from the public by issuing $1 million in low-risk Treasury bonds. That $1 million in Treasuries can then be purchased by the central bank (i.e., the Fed), which creates $1 million in new bank reserves that banks can use to lend to borrowers.

Frequently Asked Questions

What Does Monetization Mean?

Monetization literally means to convert something into money. In practice, this means turning things into revenue-generating activities, services, or assets.

How Do You Monetize Something?

Monetization strategies are not always easy to figure out. It took social media sites almost a decade to figure out how to turn user data into dollar signs. Online advertising revenues make up a large chunk of monetization efforts today, but the commodification of user data may take on new and different purposes that have value to somebody willing to pay for it.

How Do I Monetize My YouTube Videos?

To start earning money on YouTube, you need to reach a large enough audience to make the ads shown on your videos add up. YouTube also tends to have criteria for including ads, such as a minimum length (e.g. 8+ minutes). According to YouTube, you'll also need a minimum of 4,000 watch hours in the last 12 months and 1,000+ subscribers to access the YouTube Partner Program (YPP). Some popular YouTubers may be able to earn extra money through product placement or other forms of corporate sponsorship in their videos.

What Is Instagram Monetization?

You can leverage your engaged fan-following to promote brands in return for a payment from product placement on Instagram posts. It's also possible to generate sales for your own products and services with your posts.

Why Does the Fed Monetize Government Debt?

A central bank monetizes its government debt when it converts Treasuries into credit or cash. This is done to manage the money supply, and in some cases to create extra liquidity in order to stimulate a sagging economy.