What Does Monetize Mean?

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Definition:

To monetize simply means to convert something into money — which could refer to creating a currency, buying debts, or selling a product.

🤔 Understanding what monetize means

Monetize means turning something into money. That could be literal, as in minting coins out of precious metal. It could be economic, as in charging money for something of value. Or it could be financial, as in converting a debt or asset into cash. In some cases, to monetize refers to expressing something’s value in terms of money — like describing environmental damages or defining the price of a trade that didn’t involve money. What people mean when they talk about monetizing something depends on the context. Recently, the term monetize has become increasingly used when talking about earning an income from online content.

Example

Felix Kjellberg, better known as PewDiePie on social media, has an enormous audience of over 100 million people. That’s a lot of people watching his videos and reading his messages. Capturing people’s attention is vital to marketing, which provides a way for PewDiePie to monetize his influence. By allowing companies to advertise their products on his web traffic, he is converting his ability to draw attention into money.

Takeaway

Monetizing is like getting elected…

Some people have a lot of fans. Those fans listen to what these people are saying, show tremendous support, and are willing to go out of their way just to see these people in person. Similar to how a famous social media influencer can monetize their viewers into a revenue stream, a person with a large fan base could convert their support into votes on election day.

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What does monetization mean?

Monetization can mean a few different things, depending on the situation. In 2020, people often talk about monetizing their online content, which means selling ads on your personal website or getting paid to endorse a product on social media. In finance, people might talk about monetizing an asset, which means assigning it a dollar value or selling it for cash. In public finance, people might talk about monetizing the nation’s deficit, which just means selling debt instruments. And, in macroeconomics, people might talk about monetizing, or creating, a new currency.

How does monetization work in web publishing and e-commerce?

In the world of online content, commercial monetization refers to generating a revenue stream from your virtual presence. One popular approach is to sell advertisements on your blog or website with programs like Google Ads or AdSense. Another method is to place content behind a paywall — requiring a subscription or one-time payment for access to the material. Many online newspapers, magazines, reporting agencies, and other services use a combination of both of these systems. Selling eBooks, white papers, or other virtual products through a virtual shopping cart is a variation of the paywall approach.

E-commerce typically refers to selling physical products direct-to-consumers through a website, which is another way to monetize an online platform. You could also offer other people’s products for sale through your website, called affiliate marketing, to monetize your traffic. Doing so typically generates a commission for the advertiser. Another approach is to allow someone to publish a blog post about their product on your website for a fee.

People with a lot of social media and YouTube followers can monetize their influence as well. YouTube creators might run pre-roll ads on their video content, requiring people to watch a commercial before seeing the video, and collecting a few pennies for each view. With millions of views, those pennies can add up to significant advertising revenue. Influencers (people with hundreds of thousands or millions of followers on social media) sometimes get paid to review a product, say something good about a brand, or to post a picture of them using particular merchandise.

In the case of mobile applications, or apps, designers monetize their efforts by charging a download fee or by offering in-app purchases. Many apps might offer a free version, which is monetized through advertisements. Some offer the user the option of getting rid of the ads for a fee.

What is asset monetization?

Asset monetization might refer to assigning a dollar value to an asset that isn’t easily valued, which allows it to act as collateral in financing. For instance, an oil and gas company might hold exclusive rights to an oil reservoir. Those petroleum assets are worth money in the market, but only if they can get them out of the ground.

When the company is trying to raise the necessary capital to develop the resources, a bank might monetize the petroleum asset by assigning a dollar value to the assets in the ground and accepting them as collateral. The same is true for other subsurface assets, like diamonds, gold, and other minerals.

A similar strategy can apply to financial assets. For example, an investor might have a lot of money in the stock market, but little cash. Rather than selling stocks to raise some money, the investor could monetize those assets through a loan. The lender would accept the equity position as collateral but might require the borrower to place a hedge in the futures market to protect the asset’s value. This way, the investor can continue to ride the stock market position, while accessing some of that money for immediate use.

In some cases, asset monetization refers to converting an asset on the balance sheet to cash. For example, say a company owns a large office building worth $1M. This company could monetize that asset by selling it and leasing the office space back from the new owner. While the total assets on the balance sheet might not change, doing so moves the asset from property, plant, and equipment (PP&E) to cash. Consequently, the company’s liquidity ratios (the ability to cover its short-term debt with liquid assets) significantly improve.

What is the monetization of currency?

Governments establish what they allow as legal tender (what is acceptable as payment) in their country. A store probably won’t accept a three-dollar bill printed from your home computer as payment. However, the government could declare that a three-dollar bill that it prints is now legal tender.

Establishing fiat currency (money that has value because the government says it does) means that the government has monetized that currency. Likewise, a government declaring that some form of money is no longer accepted as legal tender is called demonetization.

Historically, the government monetized precious metals by stamping them into coins of exact specifications. Those coins became money, which was traded for goods and services. Later, less valuable metals and paper notes were monetized.

What is government debt monetization?

When the government doesn’t raise enough tax revenue to cover all of its expenses, it has a budget deficit. That government can close the deficit by increasing taxes, decreasing spending, or borrowing money to fill in the gap. In the United States, the Treasury borrows money by issuing three forms of debt instruments — collectively known as Treasuries.

Treasury bills are short-term instruments that mature in less than a year. Treasury notes are longer-term, maturing between one and 10 years from issuance. Treasury bonds are long-term debts, with terms longer than 10 years. Treasury bonds commonly have 20-year or 30-year maturity dates.

The Treasury creates these debt instruments, with a promise to repay people who buy them, plus interest. Until someone buys them, these debt instruments aren’t worth anything. But as soon as they are bought, that debt becomes monetized. The money raised from issuing debt instruments can pay for the budget, thus closing the deficit without raising new taxes.

Large banks, pension funds, and foreign governments also monetize the nation’s debt by buying these debt instruments. The Federal Reserve doesn’t purchase treasuries directly from the U.S. Treasury so that the borrowing decisions of the government are separate from decisions the Federal Reserve makes regarding the money supply.

What is the difference between debt monetization and quantitative easing?

Government debt monetization refers to fiscal policy (the ability for Congress to influence the economy by changing the amount of money it spends and taxes). Quantitative easing refers to the Federal Reserve (the central bank for the United States) implementing monetary policy (changing the money supply to alter interest rates and control inflation). In effect, debt monetization involves the public buying assets from the Treasury, while quantitative easing centers on the Federal Reserve buying assets from financial institutions.

The Federal Reserve manages the nation’s money supply by purchasing and selling assets on the open market. The Federal Reserve sometimes deems it necessary to expand the money supply, usually during a recession (economic downturn), to stimulate the economy and fight deflation (falling prices). To do so, it buys financial assets from banks, thus replacing them with cash.For example, if the Federal Reserve buys a 30-year bond from a bank, the bank’s balance sheet becomes more liquid and frees up money for more loans.

That process is called quantitative easing. Quantitative easing became especially prominent during the global financial crisis of 2008. Central banks around the world expanded their nations’ money supplies to thaw out frozen credit markets. In the United States, the Treasury directly participated in purchasing troubled assets to encourage more lending.

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New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC.

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This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC (member SIPC), is a registered broker dealer. Robinhood Securities, LLC (member SIPC), provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. All are subsidiaries of Robinhood Markets, Inc. (‘Robinhood’).

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© 2022 Robinhood. All rights reserved.