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Building a digital product can be an incredibly rewarding journey, but without the right strategy and planning, it’s easy to fall into traps that waste time and money. As CPO in Nareia Software, I’ve seen the same mistakes crop up again and again. In this guide, I want to share how to avoid those pitfalls and help you question your path to build a product.

Know your “Why” and define the problem

Many clients come in with a great idea, but they don’t always have a clear sense of why the product is necessary. Defining the problem you’re solving is fundamental. Ask yourself: what pain point does this product address? Who is it for? Without a strong foundation, it’s easy to lose your way during development. 

• Common mistake: jumping in with an idea because it sounds exciting, without validating it first.
• Tip: do some early market research, test the interest of potential users with small (and often cheap) experiments. Define a clear problem statement that will guide your journey from start to finish.

The importance of an MVP: Start small, stay focused

The idea of a Minimum Viable Product (MVP) isn’t just a hackneyed approach, it’s the foundation of smart product development. An MVP helps you validate your product idea in the quickest, simplest way possible, giving you insight into its value from a user’s perspective. The goal isn’t to launch with every feature, it’s to identify and deliver the core functionality that solves a real user problem and provides meaningful feedback.
The challenge of creating an effective MVP it’s about finding that sweet spot: offering just enough for users to grasp the value, without overcomplicating this or missing the opportunity for early learning. 

• Common mistake: trying to launch a “complete product” instead of focusing on the bare minimum, often out of fear that users won’t be impressed by a simpler version. 
• Tip: define the smallest version of your product that still delivers value. Be critical about every feature, if it doesn’t directly support the core value, or helps you validate the idea, save it for later.

Understand the real value of your product 

A successful product isn’t just about features, it’s about delivering benefits that improve user’s lives. You need to deeply understand what unique value your product delivers. Ask yourself: what do users actually gain from this? How does it solve a problem or make life easier?

• Common mistake: misjudging value by focusing on what you think is important rather than what the user finds valuable. 
• Tip: talk to potential users, build prototypes in simple tools, and iterate on your MVP based on their feedback. The best features are often discovered from users' insights rather than assumptions.

Technology dictating the product 

Technology should be the means to solve a problem, not the definition of the product itself. Too often I see clients who get caught up in a particular tech trend, and the entire focus shifts toward using that technology rather than solving the core problem.
For example, when AI becomes the central theme, instead of first defining the user’s problem and how the product should solve it, the technology itself starts dictating the direction. AI is a powerful tool, but it’s just that, a tool. It should enhance the solution, not overshadow the value you are trying to deliver. 

• Common mistake: letting technology drive product decisions, rather than focusing on the problem and the users. 
• Tip: Start by thoroughly understanding the problems and needs of your users. Then select or develop technology that effectively addresses those needs. Even if you have access to innovative tech, it should enhance your solution rather than dictate it. Always ensure that technology serves the solution, not the other way around.

Budget control: when bigger isn’t always better

Having a big budget might seem like an advantage, but it doesn’t guarantee success. In fact, it can lead to overconfidence, encouraging you to add unnecessary features or delay important decisions.
A smaller budget can actually work for your advantage, forcing you to stay focused, and make resourceful choices.

• Common mistake: thinking that you need a lot of money to validate a good idea. Believing that more money will automatically speed up development or lead to success.
• Tip: Set a budget that allows focused development but forces prioritization of the most critical features. Build an MVP cost-effectively, with an emphasis on learning and validation before making any big investments. 

Also, think carefully about when you spend money. Don’t allocate your entire budget upfront. Instead, use just enough to validate your MVP and confirm that your product is viable before committing to the next phases of development

Team composition: get the right talent involved

To build a successful product, you need the right team. Clients sometimes overlook the need for specific roles, like product manager or UX designers, assuming developers are the most essential roles you need to build a digital product. 

• Common mistake: overburdening developers with tasks and responsibilities outside their expertise, covering the role of product manager because you think you know your product best.
• Tip: build a diverse team from the start, designers, product managers, developers, QA testers. Product strategists are particularly crucial on the MVP stage, definition is everything while you try to validate your idea. To build that validated idea you can arm up with a great tech team, but on its own time

Conclusion

Creating a digital product isn’t just about the money, the tech or the team, it’s about having a clear strategy, managing risks intelligently, and being adaptable. By understanding the common pitfalls and focusing on building  an adjusted MVP that delivers real value, you can create a product that resonates with users and makes smart use of your resources. Start small, validate every step, and stay flexible, that’s the key to avoiding pitfalls when your are building digital products. 

The evolution of software monetization has been dramatic and transformative, beginning notably in the early 2000s as companies like Salesforce pioneered the subscription-based model, disrupting traditional one-time sales. A significant milestone was Adobe’s pivotal switch to the Creative Cloud in 2012, which shifted the entire software industry’s approach to value and service delivery. Today, mastering the monetization of digital products requires not only a keen understanding of your audience but also an in-depth strategic insight into your product and its trajectory.

This article will unpack how a thorough knowledge of your product’s capabilities, aligned with the foresight of upcoming trends, can help your monetization strategies, ensuring that your digital offerings not only meet market demands today but also adapt in the future.

Profound product understanding and visionary planning

Effective monetization is deeply anchored in understanding your product’s core functions and potential for evolution. Strategic planning is essential to address current consumer behaviors, foresee future technological shifts, and adapt to market needs. This dual focus on current functionality and future potential is crucial in the dynamic market landscape. We will explore the most prevalent monetization models and their strategic importance:

Subscription Models

‍Subscription models involve users paying a recurring fee for continuous access to a product or service. Exemplified by Adobe’s Creative Cloud, this approach provides ongoing software updates and cloud services, ideal for products that are integral to ongoing processes such as digital design tools or business software. Other major content platforms like Netflix and Spotify also successfully use this model, offering a steady stream of new content to keep their audiences engaged. The benefits include a predictable revenue stream and enhanced customer relationships, fostering regular product updates and customer support. However, challenges may include the need for continuous value delivery to justify costs, the potential for high customer churn, and difficulties in acquiring new subscribers due to commitment fears.

In-App Purchases

‍This model allows users to buy additional features, content, or services within an app. It’s highly effective for mobile games like Fortnite, where players can purchase skins, emotes, and season passes. The advantages of in-app purchases include flexible spending options for users and the ability to convert a fraction of a large volume of casual users into paying ones. However, disadvantages include potential user frustration from essential features being paywalled, the complexity of managing microtransactions, and the risk of alienating users who feel nickel-and-dimed.

Ad-Based Models

‍Ad-based models generate revenue by displaying advertisements, suitable for platforms with high user traffic like Google and Facebook, and applications like Spotify that complement a free tier with ads. The benefits include the ability to monetize non-paying users and provide a free or lower-cost service that attracts a broader audience. Drawbacks include potential degradation of user experience if ads are not well integrated, dependency on large traffic volumes, and “ad blindness”, where ads become less effective over time.

Freemium Models

‍Freemium models offer basic services for free while charging for advanced features. LinkedIn, for example, provides essential professional networking for free but charges for premium features. The advantages include a low barrier to entry which attracts a large user base and the potential for significant profits from a small percentage of users upgrading. However, challenges involve low conversion rates, the difficulty of balancing free and paid features to motivate upgrades, and persuading users of the value of premium services.

YouTube’s Mixed Monetization Models

‍YouTube combines ad-based and freemium models to cover a diverse user preferences and enhance overall user engagement. At its core, YouTube uses an ad-based revenue model, displaying ads before, during, and alongside videos, benefiting both the platform and its content creators through an ad revenue-sharing model. The advantages of this model include monetizing content at no direct cost to most users, thereby attracting a massive global audience. However, the drawbacks include potential viewer frustration with ads, which can interrupt the viewing experience and lead to ad-blocking behaviors. To address the drawbacks of the ad-based model and add an additional revenue stream, YouTube offers YouTube Premium, a subscription service that enhances the viewer experience. However, the challenges include convincing users to pay for a service they are used to receiving for free, especially in big markets where ad tolerance is high, like India.

Strategic Monetization Challenges, Trends, and Market Adaptation

‍Navigating the intricacies of monetization requires a balanced approach, particularly when managing the transition from free to paid features in freemium models. Setting clear user expectations from the outset and maintaining transparency about what each service tier offers are crucial for managing these expectations and ensuring a smooth transition to paid formats. As market conditions evolve, monetization strategies must also adapt to stay competitive and relevant. The rise of personalized pricing and usage-based models highlights a shift towards more customized user experiences, offering flexibility that can alleviate subscription fatigue. These models provide users with tailored options that closely match their usage patterns. Furthermore, anticipating market saturation and strategically adapting to these conditions is vital for sustained success. An example of such adaptation is Netflix’s introduction of mobile-only subscriptions in high-density, mobile-first regions like India, which cater specifically to local preferences and economic conditions, allowing users to enjoy streaming on mobile devices at a lower price point.

Even well-established companies can misjudge their monetization strategies. Here are some examples where monetization attempts either failed or faced significant backlash, highlighting the importance of understanding customer preferences and market conditions:

Electronic Arts (EA) — Star Wars: Battlefront II

‍In 2017, EA faced a massive backlash over its handling of in-app purchases and the loot box system in “Star Wars: Battlefront II.” The game initially required players to spend a large amount of time or real money to unlock major characters like Darth Vader and Luke Skywalker. The public reaction was overwhelmingly negative, with accusations that the game promoted a “pay-to-win” model. The backlash was so severe that EA temporarily removed all microtransactions from the game just before its official release.

Microsoft — Xbox One Initial Launch

‍When Microsoft first announced the Xbox One in 2013, it included plans for strict digital rights management (DRM) that would have required online check-ins every 24 hours and restricted the resale or sharing of used games. The gaming community responded negatively, feeling that the policies were anti-consumer. Microsoft eventually reversed these policies to align more closely with consumer expectations and the practices of its competitors, like Sony’s PlayStation

Snapchat — Redesigned Interface

‍In 2018, Snapchat rolled out a significant redesign that not only altered the user interface but also aimed to increase monetization opportunities by mixing ad-supported content with friends’ posts. The redesign was met with confusion and dissatisfaction from users, leading to a decline in user engagement and a significant backlash that included a petition with over 1.2 million signatures asking for the old design back. The negative response contributed to a substantial drop in Snap Inc.’s stock price at the time.

Netflix — Qwikster

‍In 2011, Netflix announced it would separate its DVD rental service and streaming service into two different websites, with the DVD rental service rebranded as Qwikster. This decision would have required users to manage two separate accounts and subscriptions if they wanted to continue using both services. After widespread customer dissatisfaction and a significant loss of subscribers, Netflix quickly scrapped the Qwikster concept and kept both services integrated under one platform.

Boomerang by Instagram

‍Instagram introduced Boomerang as a standalone app to create short, looping videos. Despite the popularity of the format within Instagram, the standalone app never gained significant traction. The failure was largely due to users not seeing enough value in downloading a separate app for a feature that was a simple extension of existing Instagram capabilities. Eventually, Instagram integrated Boomerang directly into its main app’s stories feature.

Actionable tips and best practices

Understand Your Audience Deeply: Before you implement any monetization
strategy, it’s crucial to have a deep understanding of your target audience. Conduct
market research and behavioral analysis to understand their needs, preferences, and pain points. Tailoring your product and its monetization model to fit these insights can dramatically increase your chances of success.

Create Value Before Monetizing: Ensure that your product offers substantial value before you ask users to pay. This builds trust and demonstrates the quality of your product. For freemium models, make sure the free version of your product is useful but leaves room for upgrading to more advanced features.

Transparent Communication: Be clear and transparent about what each pricing tier or model offers and how it benefits the user. Avoid hidden fees or overly complicated pricing structures that can alienate users.

Monitor and Adapt to Regulatory Changes: Compliance with local laws and regulations is crucial, particularly for businesses operating across multiple regions. This not only prevents legal complications but also helps in building and maintaining trust with users. A pertinent example involves Spotify in Uruguay. The company faced a significant regulatory challenge when a new bill was introduced, mandating fair compensation for artists. This legislative change prompted Spotify to seriously consider — and subsequently communicate to their users — the potential discontinuation of their services in Uruguay.

Diversify Revenue Streams: Don’t rely solely on one type of monetization strategy. Consider mixing several models, like YouTube and Spotify do, to maximize revenue potential across different user segments.

Focus on User Retention: Acquiring a new customer is often more expensive than retaining an existing one. Implement strategies to keep your existing users engaged and satisfied, such as loyalty programs, regular updates, and responsive customer support.

Educational Marketing: Especially for complex products, use educational content to help potential customers understand the value of your product. Tutorials and detailed guides can help demystify your product and encourage conversions.

Implement Localization Strategies: When your digital product reaches a global audience, it’s essential to localize not just the language but also the monetization strategies to fit cultural preferences, purchasing power, and payment methods.

Conclusion

The case studies demonstrate the pitfalls of poorly chosen monetization strategies. User frustration often stems from models that clash with their expectations. These missteps highlight the importance of aligning your monetization model with both your product’s value proposition and user needs.

At Nareia we’ve had to dive these waters in order to support clients with very different realities. In a nutshell, there’s no one-size-fits-all solution. Subscription models excel for products that provide ongoing value, while in-app purchases are well-suited for games with engaged user bases willing to pay for extra features. Freemium models can attract a large audience but require a delicate balance between free and paid offerings. Ad-based models benefit from broad reach but necessitate non-intrusive ad integration. Regardless of the model chosen, focus first on user value. Offer a compelling product with clear benefits before asking users to pay. Build trust by demonstrating your product’s worth, and remember that user experience should never be deliberately sacrificed for revenue generation.

By conducting thorough market research and understanding your target audience, you can craft a monetization strategy that complements your product’s value proposition. Stay agile, monitor user behavior, and adapt your approach as needed. Remember, sustainable success lies in creating a win-win scenario where your business achieves its revenue targets by delivering exceptional value to your users.

Este sencillo acto materializa un sueño añejo. Es que desde hace mucho tiempo deseo que podamos mostrar al mundo más de lo que hacemos, mostrar lo que somos.

Nareia es una empresa de origen oriental pero ya internacional que nació con el sueño de crear el mejor lugar para trabajar en ingeniería de software. Y con el tiempo, pero también casi que por definición, esa búsqueda se transformó en una utopía a seguir, creando y evolucionando una filosofía particular como organización, errando y aprendiendo como la vida misma; pero no hay palabras que puedan expresar de forma precisa todas sus peculiaridades y características, por lo cual mostrar momentos del día a día, diferentes vivencias de esta comunidad de trabajo, será una forma muy linda de acercar a su definición, permitiendo que cada lector la construya.

Cada autor pondrá su impronta, alejándonos así de las recomendaciones de la industria con el tone of voice como base esencial, pero no porque estemos en contra, de hecho promovemos la estrategia en diversas actividades de la construcción de productos, sino para que pueda haber diferentes perspectivas, sin sesgos, de quienes viven Nareia.

Queremos publicar contenidos que sean de interés para la sociedad en general, pero también para grupos de lectores particulares, como por ejemplo de temas técnicos. Así que aquí encontrarás diversidad, artículos largos, pero también cortos, super enfocados en aspectos cercanos a los bits, pero también más abiertos, donde se divergirá y convergerá.

Y sin más, pero con profunda emoción, inauguro este espacio dándote la bienvenida para que lo hagas propio y diciendo a los cuatro vientos: “hello, world!”