It happens to the best of us. Your company’s growth has stagnated, and your CFO is asking for new ideas on growing revenue — to increase monetization. You start out with a small experiment of ads — how bad could the impact be? It’s just a small trial. So, the product team starts looking into adding ads to your product, and spiral begins.
Day 0 (Experimentation)
Look, we’ll start small. If we get feedback & DSAT (dissatisfaction) increases, we’ll pull back on them. They’re just to help offset the cost of maintaining the services that make our product so compelling. We’ll keep ads off bundle subscribers.
Day 30 (Rationalization)
Oh, they didn’t make much money — but that’s because they’re still learning & iterating on the targeting & right partners. That’s also why feedback says they’re annoying because they don’t feel targeted. It’ll get better.
Day 180 (Dependence)
Yeah, we are getting a lot of DSAT, but the ad revenue is really going well. It’s helping fund the next big feature, and the CFO loves us and is giving us more headcount to improve the core product.
Day 365 (Tolerance)
We know that these have tarnished some customer opinion of the product and has marginally impacted sales in the EU. But that’s been offset by the exponential growth in revenue — which is almost entirely profit, given our 85% margin!
Day 1095 (Escalation)
OK, so, we need to target these ads better to try to save the core business — so we can invest in it. For some reason, our sales have started to drop. We also want to focus on increasing the brand quality of the advertisers so we maintain a premium feel. But we also accept that we can’t grow on our core product, so we’re also investing in a cross-platform app, a better web app, and are working with car manufacturers to integrate our apps directly into the vehicles. They’re going to get a cut of the ad revenue. Plus, we’ll get more data access to improve our ad targeting — which we’ll also use to use time & traffic dependent ads.
Day 1825 (Identity Loss)
Oh, we make apps & technology products? I thought we were an ads business.
Seeing the Signs
There was a rumour in Mark Gurman’s Power On Apple newsletter recently:
Apple considers monetizing maps in another move to boost services revenue
… Now, Apple is giving this notion more thought. In a recent all-hands meeting for the Maps group, Apple said monetizing the app is a lever it is exploring. While there is no timeline or active engineering work being done, the company has again floated the idea of charging for prioritization in search results. It also could make certain locations appear more prominently on the map …
Under a week later, Apple announced ‘News+ Food’ to bolster its News+ subscription service. Their most recent quarterly results showed record subscription revenue driven by 14% YoY growth with 76% margins. Like so many in tech, Apple is becoming addicted to Revenue-as-a-service.
There’s no way back
RaaS feels so good — the validation from the market with a pat on the head every time the numbers go up. But there’s no way off this merry go round. Reduce your ads, or lower your subscriptions? The validation stops, and chaos begins. Focus on your core product? Branch out into a new non-RaaS area? You’ll never match the margins or scale of your RaaS products. You are trapped in your addiction.